The Third Court of Appeals’ opinion in Cirrus Exploration Company v. Combs expands the number of businesses who may purchase aircraft without paying Texas sales and use tax. In doing so, the Third Court of Appeals once again rejected a long-standing Texas Comptroller policy that imposed additional requirements not found in the Texas Tax Code or the Comptroller’s rules on taxpayers claiming a Texas aircraft sales tax exemption. I discuss the opinion and its implications in further detail below.
Background
The case involved a taxpayer, Cirrus Exploration Company, who purchased helicopters under the Texas sales and use tax exemption for aircraft used by a licensed and certified carrier in the regular course of business of transporting persons or property for hire. The taxpayer used the helicopters to provide aerial sightseeing tours and photography and surveying flights to customers. The taxpayer held a letter of authorization under part 91 of the FAA regulations that authorized it to conduct passenger-carrying flights for compensation. However, it did not hold a commercial operating certificate issued under Part 121, 125, or 135 of the FAA regulations and was not required to do so by FAA regulations.
The Comptroller argued that the taxpayer did not qualify for the Texas sales and use tax exemption because the exemption only applied to those carriers who held certificates issued under Part 121, 125, or 135 of the FAA regulations. The Comptroller previously stated in hearings that the exemption only applied to taxpayers who held these particular certificates, not to taxpayers only authorized to transport passengers under part 91 of the FAA regulations. However, neither the Texas Tax Code nor the Comptroller’s rules imposed this particular requirement – the relevant rule defined a “licensed and certified carrier” as a “person authorized by the appropriate United States agency to operate an aircraft . . . as a common or contract carrier transporting persons or property for hire in the regular course of business.”
The Opinion
The Third Court of Appeals found in favor of the taxpayer. It found that the taxpayer was a “licensed and certified carrier” under the plain meaning of the definition found in the Comptroller’s rules. The Third Court of Appeals said that because the definition in the Comptroller’s rules was unambiguous, it could not follow the Comptroller’s contradictory policy. As a result, the Third Court of Appeals held that the Texas law exempted the helicopters the taxpayer purchased from Texas sales and use tax.
Conclusion
This opinion most directly benefits carriers authorized to carry passengers under part 91 of the FAA regulations who do not hold certificates issued under Part 121, 125, or 135 of the FAA regulations, as this opinion expressly expands the Texas sales and use tax exemption for licensed and certified carriers to include these carriers. These carriers may consider consulting a Texas tax professional, such as a Texas tax attorney, to see if they may have potential Texas sales and use tax refund claims. This opinion could affect those who purchased aircraft within the last four years.
The opinion also benefits taxpayers in general by further reinforcing the limits on the Texas Comptroller’s ability to create policy that imposes limitations on taxpayers in excess of those found in the Texas Tax Code and the Comptroller’s rules. This is an important reminder to taxpayers that even though the Comptroller may impose such restrictions in hearings, the courts will not necessarily defer to these overly-restrictive views of the law.
