200111739H



STAR SUPERSEDED INFORMATION
Accession No.(s) - 200111739H
Supersede type - Partial
Document superseded on - 05-20-2011
Issue(s) that caused the document to be superseded -aircraft exemption under
Section 151.328(a)(4) (Contention #3)
Reason(s) - Administrative Hearing Decision No. 48,059 expressly overruled
the Statutory interpretation articulated in Comptroller's Decision No. 39,806
and found that it was not consistent with the statute, as the statute existed
in 1997.  Additionally, Section 151.328(a)(4) was amended by HB 3319, 80th
Legislature (regular session) to specify that the exemption related to sales
of aircraft sold in Texas. Effective date 9/1/07.




HEARING NO.  39,806

RE:  *************
TAXPAYER NO.: *************
AUDIT OFFICE:  N/A
AUDIT PERIOD: 07/01/97 THROUGH 09/30/97

LIMITED SALES, EXCISE AND USE TAX/RDT

BEFORE THE COMPTROLLER 
OF PUBLIC ACCOUNTS 
OF THE STATE OF TEXAS

JOE GRECO
Administrative Law Judge

KYLE R. ZUMBERGE
Representing Administrative 
Hearings Section

*************
Representing Petitioner


COMPTROLLER'S DECISION 

PRELIMINARY DISCUSSION:

Notice has been taken of all records of the Comptroller's office pertaining to 
the Petitioner or to the issues involved in the case.  All Section references 
herein are to Title 2, Texas Tax Code Annotated, and all Rule references are to 
Title 34, Texas Administrative Code.

PETITIONER'S CONTENTIONS:

1.  Petitioner's September 30, 1997 purchase of Aircraft 31A, Serial No. 139, 
Tail Number 131AR (the Aircraft) from COMPANY is exempt from tax pursuant to 
Section 151.328(a)(1).

2.  Alternatively, the Aircraft is exempt from tax under Rule 3.297(c)(3).

3.  Alternatively, the Aircraft is exempt from tax under Section 151.328(a)(4).

FINDINGS OF FACT:

Note:  Fact Nos. 2-5, 9-11, and 13 are agreed facts filed by the parties.

1.  On April 18, 2000, the Comptroller issued a Texas Notification of Exam 
Results to Petitioner assessing an amount of tax, penalty, and interest.  The 
assessment was attributable to Petitioner's tax-free purchase of the Aircraft 
from COMPANY, at its offices in KANSAS, on September 30, 1997.  The assessment 
was based on an estimated purchase price of $*************.  The Administrative 
Hearings Section (AHS) now agrees that the actual purchase price of the 
Aircraft was $*************.  Petitioner's timely request for a redetermination 
of the assessment resulted in the docketing of this hearing.

2.  Petitioner is not and has not been certified by the Federal Aviation 
Administration ("FAA") to operate an aircraft as a carrier for hire.

3.  Petitioner has been and is currently a certified motor carrier by the U. S. 
Department of Transportation ("USDoT"), the Interstate Commerce Commission (the 
"ICC"), and the State of Oklahoma.

4.  Petitioner is licensed by the United States Postal Service ("USPS") to 
carry and or handle the United States Mail for the following areas:  
Springfield, MA; Philadelphia, PA; Long Island, NY; Seattle, WA; Minneapolis, 
MN; and San Francisco, CA (collectively the "Facilities").

5.  89.2% of Petitioner's use of the Aircraft has been in furtherance of the 
business described in Fact Nos. 3 and 4 above.

6.  The type of Aircraft usage referred to in Fact Nos. 3-5 is as follows:  the 
transportation of employees to and from Petitioner's six "Mail Transport 
Equipment Service Centers" located in the United States; (2) the transportation 
of Petitioner's employees to USPS highway contractor meetings in various parts 
of the United States; [FOOTNOTE: Petitioner has "highway contracts" with the 
USPS under which it transports mail throughout the United States, and not just 
to the Facilities.] (3) the transportation of additional drivers to destination 
where needed due to heavy mail volume (e.g., during Christmas season); and (4) 
the transportation of Petitioner's executives to various locations to negotiate 
certain types of contracts (e.g., mail sorting, storage, and building leases).

7.  As indicated in Fact No. 1, the Aircraft was purchased in Kansas on 
September 30, 1997.  After completing the "Learjet Certification Process," via 
flights in Arizona during October 1, 1997 through October 9, 1997, the Aircraft 
was flown to the Municipal Airport in the City of Denton, Texas (DTO) on 
October 9, 1997.

8.  During the period October 9, 1997 through December 31, 1997, the Aircraft 
remained in Denton, Texas, overnight 81% of the time (68 nights in Texas/84 
nights).

9.  During calendar year 1998, the Aircraft remained in Denton, Texas, 
overnight seventy-one percent of the time (261 nights in Texas/365 nights).

10.  Pursuant to a written Aircraft Storage Agreement, dated October 1, 1997 
(the "Hangar Lease"), Petitioner leased a hangar located at AMR COMBS, Bradley 
International Airport, Windsor Locks, Connecticut (hereinafter "BDL").  The 
Aircraft was flown to BDL for the first time on October 23, 1997 and returned 
that same day to DTO.

11.  From October 9, 1997 through April 13, 1999, the Aircraft landed and 
departed from BDL only four times and remained there overnight only one time, 
which is less than one percent of the time (1 day/551 days).  The Aircraft 
landed and departed from BDL on October 23, 1997, June 14, 1998, and June 21, 
1998.  The Aircraft remained overnight after landing at BDL on July 14, 1998, 
before departing on July 15, 1998.

12.  On May 15, 1998, Petitioner, as lessee, and the City of Denton, Texas, as 
lessor, executed an "Airport Lease Agreement" to lease certain realty at DTO to 
"construct and maintain an aircraft hanger and related aviation facilities 
thereon."  On or about October 6, 1998, the City of Denton passed a resolution 
approving of Petitioner's assignment of the aforementioned lease at DTO to RR.

13.  From the date of purchase until November 3, 1999, 11.5% (151.50 hours of 
1,317.80 total hours) of the total flight time of the Aircraft was within the 
State of Texas, and 88.5% of the total flight time was outside of Texas.

14.  The records of the office of Tax Collector for the Town of Windsor Locks, 
Connecticut, show that the Aircraft was first registered in said town, 
effective October 1, 1997, and has continually been registered in Windsor Locks 
on an annual basis thereafter. [FOOTNOTE: Petitioner paid the initial 
registration fee to the Town of Windsor Locks on October 23, 1997, the date the 
Aircraft was first flown to BDL, in Connecticut.  (See Fact No. 10)] 

15.  On October 7, 1997, Petitioner registered the Aircraft with the FAA, and 
in doing so showed the owner's (Petitioner's) address as a certain P. O. Box in 
CITY, Texas.  Later, on February 1, 2001, Petitioner amended its FAA 
registration to show its address as being in CITY, Connecticut.

DISCUSSION AND CONCLUSIONS OF LAW:

First Contention

Sec. 151.328(a)(1) provides as follows:

(a) Aircraft are exempted from the taxes imposed by this chapter if:

(1) sold to a person using the aircraft as a certificated or licensed carrier 
of persons or property;

Rule 3.297 provides as follows:

(a) Carriers generally.

(1) Licensed and certificated carrier - A person authorized by the appropriate 
United States agency or by the appropriate state agency within the United 
States to operate an aircraft, vessel, train, motor vehicle, or pipeline as a 
common or contract carrier transporting persons or property for hire in the 
regular course of business.  Certificates of inspection or airworthiness 
certificates are not the appropriate documents for authorizing a person to 
operate as a common or contract carrier. These documents relate to the carrier 
device itself rather than a person's right to operate a carrier business.

.  .  .  .  .  .

(d) Licensed and certificated carriers. Sales or use tax is not due on aircraft 
used by persons defined in subsection (a)(l) of this section in the regular 
course of business of transporting persons or property for hire. 

The essence of Petitioner's first contention, and its disagreement with the 
AHS, is conveyed in the following quote from its Brief:  "Because Petitioner is 
a 'carrier' and uses the Aircraft in the regular course of its business as a 
carrier, it need not actually carry persons or property for hire in the 
Aircraft to qualify under Section 151.328(a)[1]."  The AHS, among other things, 
argues that "... Petitioner must be authorized by the appropriate United States 
agency or the appropriate state agency to operate an aircraft ... as a common 
carrier transporting persons or property for hire in the regular course of 
business," citing Rule 3.297(a).  

The Comptroller's position in this area is displayed in the following excerpt 
from Decision Nos. 36,563 and 36,594 (1998):

Claimant argues that because it is a common-carrier for its pipeline 
operations, it falls within the definition of a licensed and certificated 
carrier set forth in 3.297(a)(1), and, therefore, qualifies for the exemption.  
The [AHS] responds that, insofar as aircraft are concerned, the language of 
3.297(d) clearly indicates that the "licensed and certificated carrier" 
language of (a)(1) only applies to those carriers that are in the "business of 
transporting persons or property for hire."

[AHS'] argument is the more persuasive.  Rather than look only at the general 
definition provided by 3.297(a)(1), one must look at the entire rule.  The 
general definition applies to all types of carriers, not just aircraft covered 
by Sec. 151.328, as asserted by Claimant, but also certain vessels (Sec. 
151.329), trains (Sec. 151.331) and other common carriers (Sec. 151.330).  The 
different subparagraphs of the rule provide specific applications for the 
different types of carriers.  Subparagraph (d) clearly denotes that the 
exemption provided by Sec. 151.328 is limited to those licensed and 
certificated carriers that are in the business of using aircraft to transport 
persons or property for hire.  Inasmuch as Claimant's aircraft is not used for 
such purposes, Claimant does not qualify for the exemption.

Claimant has attempted to distinguish Comptroller Decision No. 26,644 (1991).  
However, Claimant has overlooked the fact that the Decision included the 
following language:

As to Petitioner's contention that it should be treated as a licensed or 
certificated carrier of persons or property even though it is not certificated 
under Part 135 of the FAA regulations, the Comptroller has already ruled 
against Petitioner's position in earlier cases. See Comptroller's 
Administrative Decision #11,161 (1981) and #17,073 (1985). 

Because Claimant is not so certificated (Finding of Fact No. 4), that holding 
must control this case.  

For a similar result, also see Decision No. 39,831 (2001).

Based on the foregoing, and because Petitioner is not a licensed or 
certificated carrier authorized to transport persons or property for hire via 
the Aircraft, Petitioner's first contention should be denied.

Second Contention

Rules 3.297(c)(3) and (4) provide as follows:

(3)  An aircraft is not subject to use tax if it is hangared outside this state 
and is used more than 50% outside this state. In order to qualify for exemption 
from the use tax, owners or operators of aircraft entering this state must 
maintain sufficient records to show the percentage of time the aircraft was 
used in this state. 

(A)  In determining whether an aircraft is used more than 50% outside this 
state, the comptroller will consider all flight time in this state, including 
the portion of interstate flights in Texas airspace. 

(B)  The comptroller may examine all flight, engine, passenger, airframe, and 
other logs and records maintained on any aircraft brought into this state to 
determine whether it is used more than 50% in this state. 

(4)  An aircraft purchased outside this state is subject to Texas use tax, if 
not otherwise exempt, if it is hangared in this state. Some factors to be 
considered in determining whether an aircraft is hangared in this state 
include: 

(A)  where the aircraft is rendered for ad valorem taxes; 

(B)  whether the owner owns or leases hangar space in this state; and 

(C)  declarations made to the Federal Aviation Administration, an insurer, or 
another taxing authority concerning the place of storage of the aircraft.

Petitioner's second contention involves the alternative claim that the Aircraft 
is not subject to tax under Rule 3.297(c)(3), above.  Part of Petitioner's 
argument in support of its second contention is reproduced below:

As its only challenge to the Petitioner's alternative claim that the Aircraft 
is exempt from use tax pursuant to 34 TAC Section 3.297(c)(3) (i.e. that the 
aircraft is hangared outside of Texas and used more than 50 percent outside the 
State), the AHS avers that the Aircraft is, in fact, hangared within the State 
of Texas.  .  .  .  .  .

Sections 3.297(c)(3) and (4) are far from a model of clarity.  However, Section 
3.297(c)(4) provides that if an aircraft is hangared in Texas, it is subject to 
use tax, "if not otherwise exempt."  Section 3.297(c)(3) provides such an 
exemption where an aircraft hangared in Texas is also hangared outside this 
state by looking to the percentage of time the aircraft is used in Texas 
airspace.  Where, as here, the factors in Section 3.297(c)(4) for determining 
whether an aircraft is hangared in Texas are inconclusive (registered in 
Connecticut, hangar space leased in Texas and Connecticut, Texas and 
Connecticut addresses used in FAA filings, ad valorem tax exemption filed in 
Connecticut), and thus, suggest that the aircraft be viewed as hangared in 
multiple locations, the bright line test is provided by Section 3.297(c)(3) 
through its flight time test.

.  .  .  .  .  .

Notwithstanding Petitioner's alternative claim that the Aircraft is hangared at 
BDL, the Petitioner would alternatively propose that, by its own terms, 34 TAC 
Section 3.297(c)(4) does not preclude the possibility of the Aircraft being 
hangared both in Texas and in Connecticut.  In fact, even the definition of the 
verb "to hangar" cited by the AHS from Webster's New Collegiate Dictionary 
subsumes that when an aircraft comes to rest in multiple locations for varying 
amounts of time, it can be "hangared" at any of multiple locations.  Given the 
ambiguity, the second objective portion of the test, i.e., the aircraft 
"...[must be] used more than 50% outside this state" should control.  That is, 
while the Aircraft spent time "hangared" in Texas, it was also "hangared" in 
Connecticut; therefore, because the flight logs provided by Petitioner evidence 
that the Aircraft was in Texas airspace for only 11.5% of its flight time, the 
Aircraft should be exempt from tax pursuant to the provisions of 34 TAC Section 
3.297(c)(3).

As indicated in Petitioner's argument, the AHS believes the Aircraft was 
actually hangared in Texas.  The basis for the AHS' position is shown in the 
following excerpts from its Brief:

A substance over form analysis should be employed to determine where an 
airplane is hangared.  To do otherwise would create a loophole and invite 
evasive tax planning.  The verb hangar means "to place or store in a hangar."  
The noun hangar means "a covered and usually enclosed area for housing and 
repairing aircraft."  In performing a substance over form analysis the 
airplane's flight logs should be scrutinized to determine where the airplane 
spent the most time consistent with the before mentioned definitions.  During 
calendar year 1998 the Learjet remained in Texas overnight more than 71 percent 
(261 nights/365 nights) of the time and Texas is the location to which the 
plane returned almost every day to be stored overnight before the next use.  
Petitioner, however, avers the airplane is "hangared" at BDL where from October 
9, 1997 to April 13, 1999 the plane was stored overnight only three times - 
less than one percent of the time (3days/551 days).  Petitioner's hangar lease 
agreement does not conclusively prove the airplane is hangared at BDL it only 
evidences that Petitioner executed an agreement to lease space at BDL.  
Petitioner's motive for executing a $************* per month hangar lease 
agreement in a state that does not impose an ad valorem tax on airplanes is 
obvious when considering Texas' use tax is almost $*************.  And while 
this hangar lease agreement seems to provide formalistic evidence in support of 
the assertion that the airplane is hangared at BDL it lacks any substance and 
factual underpinnings as shown by the flight log.

Petitioner's comment about the clarity, or rather the lack thereof, of Rule 
provisions 3.297(c)(3) and (c)(4) is noted.  However, Rule 3.297(c)(3), the 
provision under which Petitioner is attempting to qualify, provides sufficient 
guidance, especially when considered within the context of how tangible 
personal property brought into Texas is treated under the Tax Code.  In that 
regard, Section 151.101 imposes a use tax on tangible personal property 
purchased for use, storage, or consumption in Texas.  Further, under Section 
151.105(a), tangible personal property brought into this state by a purchaser 
is presumed, absent controverting evidence, to have been purchased for storage, 
use, or consumption in Texas.  "Use" means the exercise of a right or power 
incidental to the ownership of tangible personal property over the tangible 
personal property, and "storage" means the keeping or retaining of tangible 
personal property sold by a retailer.  Sections 151.011(a) and (d). [FOOTNOTE: 
Section 151.011 includes certain exclusions from the definitions of "use" and 
"storage", none of which are applicable to the second contention] 

Given the foregoing authority, and the requirement that a taxpayer show it is 
entitled to exempt status by clear and convincing evidence, [FOOTNOTE: American 
Biomedical Corp. v. Bullock, 551 S.W.2d 177 (Tex. Civ. App. - Austin 1977, writ 
ref'd n.r.e. and Rule 1.40(2)(A)] I am of the opinion that Petitioner has 
failed to prove its case.  The facts show that, while Petitioner does have 
hangar space in Connecticut, over the period October 9, 1997 through April 13, 
1999, the Aircraft had only flown to that state four times and only once 
remained overnight in Connecticut during that period.  This is hardly evidence 
of a substantial presence in Connecticut.  Put differently, available hangar 
space and registration in Connecticut are not sufficient, given the minimal 
Connecticut use and storage, to obviate the need to consider the balance of the 
evidence, including that relating to use or storage in Texas.

Fact No. 13 shows that from the date of purchase (i.e., September 30, 1997), 
until November 3, 1999, the total flight time within and outside Texas airspace 
was 11.5% and 88.5%, respectively.  However, as seen earlier, "use" is defined 
to include more than flight time. [FOOTNOTE: Rule 3.297(c)(3) does not prohibit 
the consideration of factors other than flight time when determining 
taxability]  It includes the exercise of a right or power by the owner over the 
Aircraft.  And, the facts show an abundance of Texas use beginning as early as 
October 9, 1997, when the Aircraft was first brought to Texas nine days after 
being purchased in Kansas.  In that regard, for the balance of 1997 the 
Aircraft remained overnight in Texas on 81% of the available nights (i.e., 68 
nights); and, during calendar year 1998, remained overnight in Texas 71% of the 
time (i.e., 261 nights).  Clearly, there is ample justification for the 
imposition of  "use" tax under Section 151.101.

Third Contention

Alternatively, Petitioner contends that the Aircraft is exempt under Section 
151.328(a)(4), which provides as follows:

(a) Aircraft are exempted from the taxes imposed by this chapter if:
(1) sold to a person using the aircraft as a certificated or licensed carrier 
of persons or property;
(2) sold to a person who:
(A) has a sales tax permit issued under this chapter; and
(B) uses the aircraft for the purpose of providing flight instruction that is:
(i) recognized by the Federal Aviation Administration;
(ii) under the direct or general supervision of a flight instructor certified 
by the Federal Aviation Administration; and
(iii) designed to lead to a pilot certificate or rating issued by the Federal 
Aviation Administration or otherwise required by a rule or regulation of the 
Federal Aviation Administration;
(3) sold to a foreign government; or
(4) sold to a person for use and registration in another state or nation before 
any use in this state other than flight training in the aircraft and the 
transportation of the aircraft out of this state.

Petitioner believes that it qualifies for the exempt status afforded under 
Section 151.328(a)(4) because prior to the Aircraft entering Texas on October 
9, 1997, the Aircraft had been used outside Texas (in Arizona during Learjet 
certification), and the Aircraft "... was recognized as registered in 
Connecticut prior to that date."  The AHS opposes Petitioner's third contention 
arguing that "[b]ecause the airplane was not used in Connecticut before its use 
in Texas and the registration in Connecticut did not occur until after use in 
Texas the Administrative Hearings Section recommends denying Petitioner's third 
contention."  

The question to be decided is whether the Aircraft was sold to Petitioner for 
use and registration in another state, before a taxable use of the Aircraft 
occurred in Texas.  Statutory exemptions are to be strictly construed.  
Petitioner is required to clearly show it is entitled to the claimed exemption. 
All doubts are to be resolved in favor of the taxing authority and against the 
person claiming the exemption.  [FOOTNOTE: North Alamo Water Supply Corp. v. 
Willacy County Appraisal Dist., 804 S.W.2d 894 (Tex. 1991) and Bullock v. 
National Bancshares Corp., 584 S.W.2d 268 (Tex. 1979)] Applying the foregoing 
guidance for determining qualification for an exemption, and additional 
guidance provided by the Texas Supreme Court when observing that "the 
legislature is presumed to have chosen statutory language carefully, 
intentionally using every word for meaning and purpose," [FOOTNOTE: Jessen 
Assocs., Inc. v. Bullock, 531 S.W.2d 593 (Tex. 1975)]  I am of the opinion that 
the statutory requirement of being "sold to a person for use and registration 
in another state" before any use occurred in Texas means (1) that use and 
registration must occur in the same state, and (2) that both must occur before 
any Texas use.  This construction is buttressed by a review of Section 151.328 
prior to the 1993 amendment which added Section 151.328(a)(4).  Previously, 
Section 151.328(a)(3) exempted sales of aircraft to a foreign government or to 
persons who were not residents of Texas.  The 1993 amendment to Section 
151.328, in relevant part, allowed only the exemption for sales of aircraft to 
foreign governments to remain in Section 151.328(a)(3), and added a new Section 
151.328(a)(4) apparently aimed at setting more specific exemption criteria to 
be met for sales to persons who purchased aircraft for use and registration in 
states other than Texas.  Accordingly, since the facts show that the Aircraft 
in question was not both used and registered in one certain state before the 
commencement of its Texas use on October 9, 1997, I recomm
end denying Petitioner's third contention. 

RECOMMENDATION:

Petitioner's contentions should be denied.  However, the taxable amount of the 
Aircraft should be reduced as related in Fact No. 1.  Thereafter, the audit 
examination should be made final.

SIGNED November 13, 2001.


JOE GRECO
Administrative Law Judge


HEARING NO. 39,806

ORDER OF THE COMPTROLLER

The above decision of the Administrative Law Judge, resulting in Taxpayer's 
liability as set out in Attachment "A" which is incorporated by reference, is 
approved and adopted in all respects.  This decision becomes final twenty-three 
(23) days from the date of this Order, and the total sum of the tax and 
interest amount is due and payable within twenty (20) days thereafter.  If such 
sum is not paid within such time, a penalty of ten percent of the taxes due 
will accrue, and interest will continue to accrue.

If a rehearing is desired, a Motion for Rehearing must be filed with the 
Administrative Law Judge no later than twenty-three (23) days after the date of 
this Order, and must state the grounds upon which the motion is based.

RENDERED and ISSUED November 13, 2001.


CAROLE KEETON RYLANDER
Comptroller of Public Accounts
of the State of Texas




ACCESSION NUMBER: 200111739H  
SUPERSEDED: S 
DOCUMENT TYPE: H  
DATE: 11/13/2001
TAX TYPE: SALES