Tax Analysts Blog

Texas Comptroller to Look to Legislature for Guidance on Taxing Aircraft

Posted on Feb 4, 2015

In January, Glenn Hegar was sworn in as the Texas comptroller of public accounts. In his inauguration speech, he pledged to help keep the Texas economy on track, but it may be a difficult task. Plummeting oil prices have many in Texas concerned about the future. Nonetheless, Hegar has predicted moderate growth in the economy over the next two years.

Hegar has indicated he will also attempt to bring more clarity to the state’s tax code. At the American Bar Association Section of Taxation meeting in Houston, Hegar suggested he would seek more guidance from the Legislature on a variety of tax issues. For example, he said he plans to ask lawmakers to draft legislation taking airplanes out of the sales tax code and creating a separate chapter specifically for aircraft.

Hegar acknowledged that taxpayers have been frustrated by the comptroller office's shifting positions on the sales taxation of aircraft and agreed that it can be hard to draft a business plan when rules are not set. One problem, he said, is that airplanes are treated differently for sales tax purposes than almost everything else. But he added that it can be difficult to amend the rules for airplanes without unnecessarily changing the rest of the sales tax code.

This is a recurring issue with state tax codes. Often, the problem is that the codes were created decades ago when manufacturing still dominated the national economy and e-commerce had yet to take hold. State governments have historically been slow to adapt their tax codes to technology. Most states are just now getting a handle on the taxation of digital products, but technology doesn't stand still. While states were trying to figure out digital products, businesses discovered (or rediscovered) the benefits of the "cloud."

Most state tax authorities avoid creating new rules by shoehorning modern issues into antiquated laws. Hegar may try to break this mold. "I think that it is important in my office, whether it is airplanes or other issues, that when we have issues that we haven’t been able to crack, then we need to take them to the Legislature and say, ‘Here, you give us some guidance on this,’" Hegar said.

While Hegar’s suggestion for dealing with tough issues makes sense, it seems unlikely he will get much detailed guidance from the Legislature. Asking state lawmakers to provide guidance on how the sales tax should be applied to aircraft (a very narrow issue) could result in a lot of general proposals. Even if legislation were enacted, it would ultimately fall on the comptroller’s office to interpret it and draft regulations.

In the end, Hegar is correct to seek the guidance of the Legislature, but he shouldn’t expect it to give him answers. In a perfect world, the Legislature, Hegar, others in the comptroller’s office, and interested parties would engage in a discussion on ways to more effectively and efficiently tax aircraft (or any number of other tax issues). Problems could be addressed at the beginning rather than having to draft interpretive regulations after the fact. Interested parties could have their say. Everyone could go in fully informed.

I realize this is a pipe dream, but wouldn’t it be nice? We’d solve a lot of problems that way.

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