200708969H



HEARING NO.  46,207

RE: **************
TAXPAYER NO.: **************
AUDIT OFFICE: **************
AUDIT PERIOD: JULY 1, 1999 THROUGH SEPTEMBER 30, 1999

SALES AND USE TAX/RDT

BEFORE THE COMPTROLLER 
OF PUBLIC ACCOUNTS 
OF THE STATE OF TEXAS

JOE GRECO
Administrative Law Judge

BOB WOOD
Representing Tax Division

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


COMPTROLLER'S DECISION


PRELIMINARY DISCUSSION:

Javier Lopez, of the Comptroller’s Business Activity Research Team, and 
Kimberly Rollins, a Tax Analyst employed by the Comptroller, testified for the 
Tax Division.  ************** (HS), an officer and director of Petitioner, 
testified on behalf of Petitioner.

Unless otherwise indicated, Section references are to Title 2, Texas Tax Code 
Ann. (Vernon 2002), and Rule references are to sections of Title 34, Texas 
Administrative Code.  Notice has been taken of Comptroller’s records pertinent 
to Petitioner or the issues raised in this case.

A Proposed Comptroller’s Decision was issued on January 11, 2007, to which 
Petitioner filed Exceptions on January 26, 2007.  The Tax Division’s late-filed 
Response filed February 21, 2007, was accepted because the Tax Division 
established good cause for filing the Response late.  This Comptroller’s 
Decision represents the ruling on the filings of the parties.

PETITIONER'S CONTENTION:

Petitioner’s aircraft is not subject to the use tax imposed via Section 
151.105.

FINDINGS OF FACT:

1. Petitioner is a Texas corporation.  Petitioner’s office is located in 
**************, Texas.  ************** (MS), is Petitioner’s registered agent.  She 
is also Petitioner’s President.    HS, husband of MS, is an officer and 
director of Petitioner.  HS and MS have resided in **************, Texas, since at 
least 1998.

2. On or about August 2, 1999, Petitioner purchased a 421B Cessna (hereafter 
Aircraft) from COMPANY A.  COMPANY A is located in Kansas.  The Aircraft was 
initially delivered to Petitioner in **************, Kansas.  Petitioner paid 
neither Kansas sales nor use tax in relation to its purchase or use of the 
Aircraft.  There is no evidence of record indicating that Petitioner owns any 
assets other than the Aircraft.

3. On November 1, 2004, the Comptroller issued a Texas Notification of Exam 
Results (Notification), based on the apparent belief that the Aircraft is 
subject to use tax under Sections 151.101 and 151.102.  The Notification 
reflected a tax assessment based on an estimated purchase price of 
$************** for the Aircraft, plus the statutory late-payment penalty and 
interest pursuant to Sections 111.061(a) and 111.060.

4. The parties now agree that the purchase price paid by Petitioner for the 
Aircraft was $**************.

5. After its purchase by Petitioner, at HS’ direction, the Aircraft underwent 
extensive repair, renovation, and upgrading in areas such as engine work, 
window replacement, avionics, and it’s interior.  The work was begun shortly 
after Petitioner purchased the Aircraft and was completed about March 1, 2000, 
and was done primarily at COMPANY B’s location in **************, Kansas, 
although some work was performed in Oklahoma.  None of the work was performed 
in Texas.

6. During the period August 2, 1999 – October 31, 2000, the Aircraft, when not 
being renovated upgraded, or repaired, was “tied-down” on flight lines in 
Kansas and Oklahoma.

7. Beginning November 1, 2000, the Aircraft was “hangered” at COMPANY C, in 
**************, Texas.  For periods thereafter, the Aircraft has been 
consistently “hangered” in Texas, and is currently hangered at an airport in 
**************, Texas.

8. HS was the only pilot specifically covered by Petitioner’s flight insurance 
for the Aircraft.  His “Pilot Logs” show that Petitioner’s initial flight of 
the Aircraft occurred on March 12, 2000.  HS piloted the Aircraft for a total 
of about 106 hours during the period March 12, 2000 – October 31, 2000.  
(Source:  HS’ Pilot Logs. [ENDNOTE])

9. COMPANY D, is a Texas corporation founded by HS in November 1997.  Its 
facilities are located in the **************, Texas, area.  HS founded COMPANY 
D.  He was President of that corporation until he was ousted in June 2002.

10. From March 12, 2000 until HS’ removal from COMPANY D, the Aircraft was used 
primarily to fly COMPANY D equipment and technicians to various locations in 
the United States.  There is no evidence of record specifically identifying 
Aircraft departure and arrival locations during this period.  COMPANY D’s sole 
compensation for use of the Aircraft was fuel costs.

11. Although the work performed on the Aircraft was completed on or about March 
1, 2000 (about seven months after the Aircraft was purchased), Petitioner 
decided to keep the Aircraft at out-of-state locations, rather than “hanger” it 
in Texas, until more than 12 months from the date of purchase in order to avoid 
a use tax liability. (Source: testimony by HS.)

DISCUSSION AND CONCLUSIONS OF LAW:

The disposition of the instant case is ultimately controlled by (1) Section 
151.101, which imposes a use tax on taxable items, such as the Aircraft 
involved in the instant case, that are purchased outside of Texas and brought 
into Texas for use, storage, or consumption; (2) Sections 151.105(a) and 
151.102, which provide that an aircraft brought into Texas by a purchaser is 
presumed to have been purchased for storage or use in Texas, and which also 
provide that the person storing or using the aircraft in Texas is liable for 
the use tax imposed by Section 151.101; and (3) Rule 3.346(c)(5), which 
provides that taxable items purchased and used outside Texas for more than one 
year before being brought into Texas will not be presumed to have been 
purchased for use in Texas.

Petitioner argues that it has effectively rebutted the presumption set forth in 
Section 151.105 by demonstrating that the Aircraft was not purchased with the 
intent to store or use it in the state of Texas.  In that regard, Petitioner 
believes that its evidence clearly establishes that Petitioner’s intention was 
to use and store the Aircraft outside of Texas, referencing the repair, 
renovation, and upgrading work performed outside Texas, and business 
utilization of the Aircraft outside Texas prior to its being brought into Texas 
 (i.e.,“hangered” in Texas) until 14 months after being purchased.  The Tax 
Division argues, among other things, that although Petitioner tried to qualify 
the Aircraft for the Rule 3.346(c)(5) exception to the Section 151.105(a) 
presumption by having the repair, renovation, and upgrading performed outside 
Texas, and storing the Aircraft at airports outside of Texas for more than 12 
months from the date of purchase, the record evidence (particularly HS’ 
testimony) demonstrates that the Aircraft was, in fact, purchased for use in 
Texas.

The Aircraft in question was purchased and delivered to Petitioner outside 
Texas on August 2, 1999, and was not “hangered” and used regularly in Texas 
until 14 months thereafter (i.e., until November 1, 2000).  For periods prior 
to March 12, 2000, the evidence tends to indicate that the Aircraft was stored 
and used primarily outside Texas.  However, for the period March 12, 2000 – 
October 31, 2000, the evidence shows that storage remained outside Texas, but 
is unclear as to the locations of usage.

In any event, purchasing the Aircraft outside Texas, and storing and using the 
Aircraft outside Texas for more than one year before bringing it to Texas, does 
not create a safe harbor from the imposition of the use tax imposed by Section 
151.101; it merely serves to avoid the presumption of taxability provided for 
in Section 151.105(a).  The fundamental question of whether the Aircraft was 
purchased for storage, use, or consumption in Texas still must be resolved.  
Perhaps most telling, in terms of intent, was HS’ response/testimony when asked 
why the Aircraft was not brought into Texas until November 1, 2000, even though 
the work performed on the Aircraft at out-of-state locations was completed on 
or about March 1, 2000, seven months after the Aircraft was purchased.  He 
rather candidly testified that Petitioner waited until more than 12 months from 
the date of purchase had passed before hangering the Aircraft in Texas to avoid 
a use tax liability.  HS’ testimony, along with other evidence of record, 
indicates that the Aircraft was purchased for use in Texas.  To wit, the 
Aircraft was purchased primarily to service the needs of COMPANY D, a Texas 
corporation with facilities in the ************** area in which HS was a 
principal during all relevant periods.  In addition, Petitioner is a closely 
held Texas corporation controlled by HS and MS with offices in the 
************** area.  Those facts, coupled with the hangering of the Aircraft 
in Texas on November 1, 2000, are sufficient to demonstrate that the Aircraft 
was purchased for use and storage in Texas, and, therefore, subject to the use 
tax imposed via Section 151.105(a).  Accordingly, Petitioner’s contention 
should be denied.

RECOMMENDATION:

Petitioner’s contention should be denied.  However, the assessment should be 
amended by adjusting the Aircraft purchase price to $**************, as agreed 
to by the parties.  Thereafter, the liability should be made final, as amended.


JOE GRECO
Administrative Law Judge


HEARING NO. 46,207

ORDER OF THE COMPTROLLER

The above decision resulting in Taxpayer's liability as set out in “Attachment 
A,” which is incorporated by reference, is approved and adopted in all 
respects.  The decision becomes final twenty days after the date Petitioner 
receives notice of this decision, and the total sum of the tax, penalty, and 
interest amounts is due and payable within twenty days thereafter.  If such sum 
is not paid within such time, an additional penalty of ten percent of the taxes 
due will accrue, and interest will continue to accrue.  If either party desires 
a rehearing, that party must file a Motion for Rehearing, which must state the 
grounds for rehearing, no later than twenty days after the date Petitioner 
receives notice of this decision.  Notice of this decision is presumed to occur 
on the third day after the date of this decision.

Signed on this 3rd day of August 2007.


SUSAN COMBS
Texas Comptroller of Public Accounts


by: Martin A. Hubert
Deputy Comptroller


ENDNOTE: 

The Pilot Logs do not identify Aircraft departure and arrival locations.




ACCESSION NUMBER: 200708969H
SUPERSEDED: N
DOCUMENT TYPE: H
DATE: 08/03/2007
TAX TYPE: SALES