The Tax Case for Placing Your Texas Aircraft on a Part 135 Charter Certificate
If your business jet is operating under Part 91 in Texas, you may be leaving a significant annual tax reduction on the table. Here's what you need to know.
A quick note before we get into it… I am not a tax attorney or a CPA, and nothing in this article should be taken as legal or tax advice. What I am is someone who's spent a lot of time around this topic, had a lot of conversations with some very sharp aviation tax attorneys and accountants, and done a significant amount of research, including AI-assisted analysis of the relevant statutes and case law, to make sure what's written here is as accurate as I can make it. I find this stuff genuinely interesting, and I think Texas aircraft owners are leaving real money on the table by not understanding how the rules work. If anything here prompts you to want to have a conversation with a qualified professional, Scissortail Aviation Advisors would be happy to refer you to some of the best aviation tax attorneys and CPAs in the business. Just reach out.
Texas doesn't have a state income tax. What we do have is a property tax system that takes a hard look at every business asset you own, including the aircraft sitting in your hangar and how you use it for your business. If you're operating your jet under Part 91, your county appraisal district values it using what the Texas Property Tax Code calls the "business aircraft" formula. That formula, combined with local tax rates that routinely exceed 2% of assessed value annually, can result in a substantial recurring bill. On a $10 million aircraft, you could easily be looking at $200,000 per year or more, every year, simply because of how the aircraft is operated.
There's a legal, FAA-sanctioned path that changes how Texas values your aircraft for property tax purposes. Placing your jet on a Part 135 air carrier certificate unlocks what the Texas Property Tax Code calls the "commercial aircraft" formula, and the difference in taxable value between the two formulas can be significant. This article explains how the two systems work, what it actually takes to qualify for the commercial treatment, and the tradeoffs you'll need to understand before you make any moves.
HOW TEXAS TAXES YOUR AIRCRAFT
Texas assesses business personal property tax at the county level. The rate varies depending on where your aircraft is hangared, but the combined levies from school districts, the county, and various special districts frequently push total effective rates above 2% of assessed value. Some metro counties push closer to 3%. This isn't a one-time event like the sales tax you paid when you bought the airplane. It comes back every January 1st, assessed against the aircraft's fair market value as of that date.
The Texas Property Tax Code recognizes two categories of general aviation aircraft for valuation purposes: business aircraft and commercial aircraft. The category your aircraft falls into determines which formula the appraisal district uses to calculate your taxable value, and the two formulas produce very different results.
AT A GLANCE: THE TWO TEXAS AIRCRAFT FORMULAS
Business Aircraft (Part 91): Taxable value based on fair market value, reduced only by an interstate allocation based on the percentage of total departures occurring outside Texas. At a 2.5% effective tax rate on a $10 million aircraft, that’s $250,000 per year before any allocation.
Commercial Aircraft (Part 135): Taxable value calculated using a revenue-departure formula based on Texas revenue departures. The formula applies a fraction in which the numerator is 1.5× Texas revenue departures, and the denominator is the greater of that amount or 8,760 (the number of hours in a year). For an active charter aircraft with significant interstate flying, this can result in a dramatically lower taxable value.
The law does not permit a hybrid of these two formulas. An aircraft is classified as either a business aircraft or a commercial aircraft, and the applicable formula is applied accordingly.
THE BUSINESS AIRCRAFT FORMULA
Under the Texas Property Tax Code, a "business aircraft" is one that's used for business purposes but isn't a commercial aircraft. For an owner operating under Part 91, that covers virtually every corporate jet in Texas. The taxable value starts at fair market value, and the only structural relief available is an interstate allocation: the percentage of total departures that occurred outside of Texas in the prior year. That reduction is applied to the full fair market value.
So if your aircraft made half of its departures outside Texas last year, you get a 50% allocation reduction. On a $10 million aircraft at a 2.5% effective rate, that still produces a $125,000 tax bill. And you've got to file a timely rendition form with your county appraisal district before May 1 each year to even claim that allocation. Miss the deadline and you lose it.
The Texas Comptroller's office and county appraisal districts have significantly stepped up enforcement of business personal property tax on aircraft. The FAA maintains a public record of every aircraft transaction, and the Comptroller routinely accesses that data. If your aircraft is based in Texas and used for business, the appraisal district will find it.
THE COMMERCIAL AIRCRAFT FORMULA
The Texas Property Tax Code provides a separate valuation formula for "commercial aircraft," defined as aircraft primarily engaged in transporting cargo, passengers, or equipment for others for compensation, operated by a certificated air carrier. A Part 135 certificate holder is generally treated as a certificated air carrier for purposes of this analysis, provided the aircraft is operated in qualifying commercial service.
The commercial formula calculates taxable value differently. It multiplies the aircraft's fair market value by a fraction: the numerator is 1.5 times the number of revenue departures from Texas during the prior year, and the denominator is the greater of 8,760 (the number of hours in a year) or that same numerator. Because the denominator floors at 8,760, an aircraft that isn't conducting revenue departures from Texas around the clock will produce a fraction well below 1.0. For an aircraft generating consistent interstate charter activity, that fraction can result in a taxable value substantially lower than what the business aircraft formula would produce.
Owners who elect to have their aircraft operated under Part 135 gain access to this commercial formula for Texas property tax purposes, which represents a recurring annual benefit rather than a one-time savings event.
By the way, you can thank American and Southwest Airlines for this. Texas has long structured its tax code to support and attract big business. By windfall, aircraft operated by any certificated carriers, including Part 135 operators, are viewed through that same commercial transportation lens, which is why they qualify for a fundamentally different valuation approach than privately operated aircraft.
WHAT IT TAKES TO QUALIFY
This is where the conversation gets more important than the headline numbers. Simply leasing your aircraft to a Part 135 operator on paper isn't enough. The Texas Comptroller's office and county appraisal districts have become more sophisticated about this over the past decade, and their scrutiny of Part 135 claims has increased accordingly.
To legitimately access the commercial aircraft formula, your aircraft needs to actually be operated as a commercial aircraft under Part 135. The NBAA has documented that some taxpayers mistakenly believe it's enough to place their aircraft on a Part 135 certificate without conducting actual commercial operations. That approach draws audit risk and potential disallowance of the exemption. The underlying statute requires that the aircraft be "primarily engaged" in transporting passengers or cargo for others for compensation.
The Texas Property Tax Code doesn't define "primarily engaged" with a bright-line percentage or hour threshold. The standard is interpreted on a facts-and-circumstances basis, and what satisfies one county appraisal district may not survive a Comptroller audit. This is precisely why aviation-specific tax counsel is non-negotiable before you structure anything. An attorney who has litigated these issues in Texas can give you a defensible position for your specific operation; the statute alone won't do that.
What genuine Part 135 operations look like in practice: the aircraft is actually available for and conducting revenue charter flights, the Part 135 certificate holder maintains operational control for those flights, and the arrangement is documented with a management or leaseback agreement that reflects arm's length commercial terms.
Here's something a lot of owners don't think about: even your own trips, the flights you'd otherwise take under Part 91, can be conducted under Part 135. When the Part 135 carrier retains operational control and you're paying a charter rate as owner, those flights count as revenue departures under the certificate. This strengthens your qualification for the commercial formula by increasing the volume of legitimate Part 135 activity on the aircraft. It also transfers operational control and the corresponding liability to the certificate holder for those flights, which is a real risk management benefit in addition to the tax picture.
The natural follow-up question is whether flying your own trips under Part 135 costs you more out of pocket. In most properly structured arrangements, it doesn't, at least not in any way that significantly changes the math. You're paying a charter rate to the Part 135 operator, but that operator is leasing your aircraft, and the lease payments flow back to you. The money largely moves in a circle. What you're actually paying for is the operational overhead of the certificate, which you'd be paying anyway as part of the management arrangement. Run it through your tax counsel and your management company's numbers, but don't assume Part 135 flights are inherently more expensive for the owner just because there's a charter invoice involved. It really depends on the arrangement you have with your management company.
I should also note that on Federal Excise Tax: under IRS final regulations, a registered owner or lessee of an aircraft is not subject to the 7.5% FET when chartering their own aircraft through a Part 135 operator. That’s another common misconception.
There are certainly reasons to operate owner flight Part 91; one example may be arbitrarily elevated handling fees when flying abroad, but generally speaking, it’s our view that the advantages of operating owner flights under Part 135 far outweigh the nominal coast increase, if any, under normal circumstances.
KEY POINT: A HYBRID FORMULA DOESN'T EXIST
Texas appraisal districts sometimes attempt to apply a blended formula when an aircraft is used for both commercial Part 135 operations and private Part 91 operations. The Texas Property Tax Code doesn't authorize a hybrid formula. The law requires the aircraft to be classified as either a business aircraft or a commercial aircraft. If your Part 135 arrangement is legitimate and your aircraft qualifies as a commercial aircraft under the statute, the commercial formula applies. Full stop. Consult an aviation tax attorney if your appraisal district attempts a hybrid approach.
THE SALES AND USE TAX PICTURE
Let's talk about sales and use tax, because there is a myth that has long circulated in Texas that needs to be addressed.
Just as with any purchase, Texas sales tax applies when you purchase an aircraft in Texas, unless you immediately remove it from the state and base it elsewhere. Texas use tax applies when you purchase an aircraft outside Texas and bring it into the state for use here. They're mutually exclusive: you pay one or the other, never both. The rate is identical, 6.25% state plus applicable local rates, because use tax exists to produce the same outcome as sales tax for out-of-state purchases. It's the Comptroller's mechanism for ensuring buyers can't cross a state line to avoid Texas tax and then bring the asset home.
The myth is that closing on an aircraft in Oklahoma or another fly-away state eliminates your Texas tax exposure. It doesn't. Closing outside Texas means Texas sales tax doesn't apply to the purchase transaction. That part is accurate. But the moment that airplane comes back to a Texas hangar as its primary base, use tax applies on the full purchase price. The Comptroller presumes a Texas-based aircraft was purchased for use in Texas, and that presumption is difficult to overcome once the airplane is sitting in your hangar. Where you closed is irrelevant to the use tax analysis. What the Comptroller looks at is where the aircraft is hangared and how much of its flying is in-state. On a $10 million aircraft at combined state and local rates approaching 8.25%, the use tax exposure can be substantial.
There are several avenues Texas buyers use to address the sales tax side of an in-state transaction, including the Statement of Occasional Sale (Form 01-917), the fly-away exemption for aircraft purchased in Texas but immediately registered and used out of state before returning for a period of time, and the certificated carrier exemption for buyers who hold a Part 135 or 121 certificate at the time of purchase.
Use tax is harder to address. Under Texas Tax Code Chapter 163, the sale, lease, or rental of an aircraft to a certificated air carrier engaged under DOT authority and primarily transporting others for consideration is exempt from sales and use tax. When the aircraft is leased to a Part 135 operator as part of a properly structured management arrangement, that transaction falls under the commercial carrier exemption. The use tax exposure that would otherwise follow the aircraft home to Texas is addressed by the certificate structure itself, which is a more durable solution than any transactional workaround.
This is where Part 135 certificate placement provides a structural benefit that goes beyond the property tax story. Under Texas Tax Code Chapter 163, the sale, lease, or rental of an aircraft to a certificated air carrier, which includes a Part 135 operator, is exempt from sales and use tax. When the aircraft is leased to the Part 135 operator as part of a properly structured management arrangement, that transaction falls under the commercial carrier exemption. The use tax exposure that would otherwise follow the aircraft home to Texas is addressed by the certificate structure rather than left to transactional timing or other workarounds. As always, the Comptroller's office construes these exemptions narrowly and the documentation has to hold up, so this is another area where the specifics of your structure matter as much as the general rule.
THE TEXAS MAINTENANCE EXEMPTION
Part 135 certificate placement also affects how maintenance is taxed in Texas. Under Texas Administrative Code Section 3.280, charges for services to complete, repair, remodel, maintain, or restore aircraft, aircraft engines, or component parts by or for a certificated or licensed carrier are exempt from Texas sales and use tax, whether billed as a lump sum or with separately stated charges. The exemption applies to qualifying labor and to parts, materials, and supplies incorporated into the aircraft in the course of those services, as well as certain items used directly and exclusively in providing those services when properly documented.
For a turbine aircraft, annual maintenance bills can run well into six figures on major inspection years. Paying those bills free of Texas sales and use tax is a meaningful, recurring reduction in operating costs. It’s not a “100% write-off” in the federal sense, but it is a real cash savings that stacks on top of the property tax and use tax advantages already described.
SIDEBAR: Pending Texas Legislation Could Expand Maintenance Tax Relief
There has been recurring legislative interest in Texas in expanding the current maintenance exemption beyond certificated air carriers to include all work performed at FAA-certificated Part 145 repair stations, regardless of the operator’s status.
Under current law, the sales and use tax exemption for aircraft maintenance generally applies only when the work is performed by or for a certificated or licensed air carrier (such as a Part 135 operator). Aircraft operated purely under Part 91 do not qualify for that exemption, even if the maintenance is performed at the same FAA-certified repair station.
Proposed legislation in recent Texas sessions has aimed to change that by exempting all aircraft maintenance labor and incorporated parts performed at a Part 145 repair station from sales and use tax. The policy rationale is straightforward:
Economic competitiveness: Texas competes with states that already exempt aircraft maintenance, and taxable maintenance can drive owners to perform work out of state.
Aviation jobs and infrastructure: Expanding the exemption is intended to support in-state MRO (maintenance, repair, and overhaul) providers and related high-skill labor.
Simplification: Tying the exemption to the repair station (Part 145) rather than the operator (Part 91 vs. Part 135) would create a clearer, more uniform standard.
For aircraft owners evaluating Part 135 placement, this legislative backdrop is something to note. If Texas ultimately adopts a broader Part 145-based exemption, it could narrow one of the current tax advantages associated with Part 135 operations while strengthening the state’s overall aviation maintenance ecosystem.
DRY LEASES & SALES TAX
Some owners consider dry leasing their aircraft to a third party as a way to offset ownership costs, essentially renting the airplane to another individual or company without providing a crew. There's absolutely nothing wrong with dry leasing when it's done correctly. It's a legitimate, FAA-recognized arrangement that works well in the right circumstances. The question for an owner isn't whether dry leasing is permissible. It's whether it's the better option compared to a Part 135 arrangement.
The first issue is sales tax. In Texas, a dry lease to any party that isn't a certificated air carrier is a taxable transaction. The lessor is required to collect Texas sales tax on lease payments and remit it to the Comptroller at a combined state and local rate of up to 8.25%. Most owners who've pursued this arrangement have no idea that obligation exists. The Comptroller has access to FAA registration data and can identify ownership and lease structures in an audit. Uncollected sales tax on dry lease payments is an assessable liability regardless of whether you knew about it. The state could ask you to hand over 10% of your revenue.
The second issue is regulatory. I know this dead horse has been thoroughly posthumously beaten, but it bears repeating: The FAA draws a bold line between a legitimate dry lease and what it considers an unintentional illegal charter operation. In a true dry lease, the lessee takes full operational control of the aircraft, provides their own crew, and operates almost entirely independently of the owner. In practice, many dry lease arrangements don't hold up under scrutiny. If the lessor has any involvement in crew selection, scheduling, dispatch, or operational control, the FAA can determine that the arrangement constitutes air carrier operations being conducted without a Part 135 certificate. The consequences are significant: civil penalties, potential certificate action, insurance policies voided because the operation falls outside covered use, and personal liability exposure for everyone connected to the arrangement. Owners who've structured dry leases carefully and in good faith have still found themselves on the wrong side of that determination, because the FAA looks past the paperwork to the operational reality.
A properly structured Part 135 arrangement resolves both issues cleanly. The lease to the certificated operator is tax-exempt under the Texas Tax Code, so there's no sales tax to collect or remit on those lease payments. The operator holds the certificate, maintains operational control, and bears the regulatory responsibility for commercial operations. You get the cost offset you were looking for, a more defensible structure, and the property tax benefit on top of it all.
THE TRADEOFFS
None of this is a free lunch. The Part 135 path involves real operational and compliance obligations, and owners who go in expecting a purely paper transaction will be disappointed at best and exposed at worst.
Part 135 imposes elevated maintenance standards on your aircraft. Inspections, component tracking, and airworthiness requirements are more rigorous than Part 91. If the aircraft is actually flying charter hours, component TBOs can arrive earlier on a flight-hour basis. Depending on the volume of third-party charter activity, wear on the interior and systems is a real consideration.
You may also have reduced availability during periods when the charter operator has bookings. The extent of this depends entirely on how the management agreement is structured. Many owners who primarily want the tax treatment rather than a revenue stream can negotiate terms that limit third-party charter to periods when the aircraft would otherwise be idle. That requires a management company willing to work on those terms, but it's a reasonable ask and many operators will accommodate it.
On the revenue side, the economics for a Texas owner are genuinely attractive when you stack up the full picture. The property tax reduction alone on a mid-market aircraft can run $50,000 to $70,000 or more per year depending on your county's rate and how much of your flying is interstate. Add the maintenance tax exemption, the use tax structure on your acquisition, and whatever charter revenue the operator generates from third-party bookings during your idle time, and the net cost of maintaining the Part 135 structure is often more than offset. Charter revenue is upside on top of a tax benefit that's already doing most of the work. Don't go in expecting the revenue to fully carry the economics, but don't underestimate what the full package looks like either.
Part 135 placement starts with a business decision about how you want to own and operate your aircraft. The tax benefits, and there are real ones, follow from that decision and could even help drive it. If the structure makes sense for how you fly and how you use the asset, the tax math will reinforce it. If it only makes sense on paper because someone showed you a charter revenue projection, that’s a different conversation. Size the decision on the operational fit first, let the tax benefits and the cost offset work in your favor, and you’ll have a clear picture of what you’re actually getting into.
A PRACTICAL EXAMPLE
Consider a hypothetical Texas owner based at a major metro airport with a midsize business jet appraised at $8 million. The owner's county has an effective property tax rate of 2.4%. The aircraft primarily flies interstate, with roughly 40% of its departures in Texas.
Under the business aircraft formula, the owner's taxable value is $8,000,000 reduced by 60% for out-of-state departures, leaving a taxable value of $3,200,000. At 2.4%, the annual property tax bill is approximately $76,800.
Under the commercial aircraft formula, the taxable value is calculated using a revenue-departure fraction. The numerator is 1.5 times the number of revenue departures from Texas, and the denominator is the greater of 8,760 (the number of hours in a year) or that numerator. If the aircraft conducts 80 revenue departures from Texas in a year, the fraction is (1.5 × 80) ÷ 8,760, or approximately 1.37% of fair market value. Applied to $8,000,000, the taxable value is approximately $109,600, and the annual tax bill is around $2,630.
This is just an illustration, and your results may vary, but the directional magnitude of the difference is what makes this conversation worth having with your tax counsel.
THE FEDERAL TAX PICTURE
Texas tax is the primary focus here, but Part 135 placement has federal income tax implications that run in both directions, and you need to understand both before making any structural decisions.
The One Big Beautiful Bill Act, signed July 4, 2025, permanently restored 100% bonus depreciation for qualified business property placed in service after January 19, 2025. A Texas owner buying a $10 million jet and placing it in qualified business use can potentially deduct the entire acquisition cost in year one against ordinary income, under Part 91 or Part 135.
If you elect 100% bonus and it fully applies, the depreciation schedule question is academic because there's nothing left to put on one. But if you elect out, don't fully qualify, or your deductions get suspended, the recovery period becomes relevant. Part 91 business aircraft depreciate over five years under MACRS. Part 135 aircraft used in commercial or contract carriage depreciate over seven years. The annual MACRS percentages for a Part 135 aircraft are: Year 1: 14.29%, Year 2: 24.49%, Year 3: 17.49%, Year 4: 12.49%, Years 5-7: approximately 8.93% each, Year 8: 4.46% (the half-year convention extends the schedule to eight calendar years). If the 50% qualified business use threshold is failed in any year and you're pushed to straight-line ADS, the recovery period is six years under Part 91 and twelve years under Part 135. That's the real cost of the longer schedule if things go sideways.
To qualify for bonus depreciation or MACRS at all, your aircraft must be used more than 50% for qualified business purposes. Qualified business use means use in your actual trade or business, not aircraft ownership or charter management as a stand-alone activity. If you're a land developer, more than 50% of the aircraft's flight hours need to be attributable to your land development operations. Your own flights through the Part 135 operator count toward that threshold provided they serve your underlying business. Third-party charter flights don't count, because those are the operator's commercial activity. Personal use and entertainment flights don't count either. If qualified business use drops below 50% in any year after you've taken accelerated depreciation, you face recapture. The IRS pulls back into income the difference between what you deducted and what straight-line ADS would have allowed from day one.
Now the passive activity issue. When you lease your aircraft to a Part 135 operator, the IRS treats that as a rental activity under IRC Section 469, and rental activities are passive by default regardless of how involved you are in managing the operation. Passive losses can only offset passive income. If you don't have sufficient passive income to absorb large depreciation deductions, those deductions get suspended and carried forward. This is the trap that catches owners who structure for Part 135 primarily to accelerate depreciation against active business income.
Two structural tools can address this. First, the grouping election under IRC Section 469: if you own the aircraft in one entity and your operating business in another, you may be able to elect to group them as a single activity for purposes of the material participation test, pulling the aircraft activity out of the passive bucket. Second, if the average period of customer use under your charter arrangement is seven days or less, the Section 469 regulations may treat the activity as a business rather than a rental, allowing material participation to come into play. Whether either applies to your situation is a question for your tax counsel.
On ownership structure: holding the aircraft in a single-member LLC taxed as a disregarded entity is functionally equivalent to direct ownership for federal tax purposes under Section 280F and is standard practice. It gives you liability separation without complicating the depreciation analysis. What you want to avoid is leasing from your LLC to a related operating company without unrelated-party use, because Section 280F(d)(6)(C) restricts qualified business use treatment for leases to 5% owners and related parties unless at least 25% of use is by unrelated parties. Third-party charter flights under Part 135 satisfy that requirement by definition, which is another structural advantage of genuine commercial operations.
Finally, Section 280F(d)(4)(C) excludes an aircraft from listed property entirely if substantially all of its use is in a trade or business of providing transportation services to unrelated persons for compensation. If your aircraft is genuinely operating as a commercial charter asset with substantial unrelated-party use, it may step outside the Section 280F rules altogether, eliminating the 50% test and recapture risk entirely. That's a high bar, but it's a provision that rewards owners who commit to actual Part 135 operations rather than a paper structure.
The federal picture in plain terms: Part 135 doesn't disqualify you from accelerated depreciation. With the right structure, the grouping election, and genuine commercial operations, the federal tax position can be very favorable. The passive activity rules and the longer recovery periods are real risks that require planning. Run all of this with an aviation CPA before you commit to any structure.
THE BOTTOM LINE
If you own a business jet in Texas, your aircraft is subject to annual ad valorem (property) tax at your county's effective rate, applied to fair market value. The commercial aircraft formula available to Part 135 operators can produce a substantially lower taxable value than the business aircraft formula applicable to Part 91 operations.
Qualifying for that treatment requires a legitimate, documented Part 135 arrangement with actual commercial operations, not a paper transaction. The Texas Comptroller and county appraisal districts have stepped up scrutiny of these arrangements considerably.
Get qualified aviation tax counsel before making any structural changes. The upside is real. The compliance requirements are too.
WHERE TO START
If you own a business jet based in Texas and you're operating under Part 91, the first conversation to have is with an aviation-specific tax attorney and CPA who understand both the Texas Property Tax Code and the FAA regulatory requirements. The tax and FAA sides of this need to be analyzed together, because a structure that works on paper but violates FAA operational control requirements can result in the Comptroller disallowing the exemption and creating additional exposure.
The second conversation is with a qualified aircraft management company that holds a Part 135 certificate and has experience placing owner aircraft on their certificate. Not all management companies are created equal here. You want an operator who understands the compliance obligations, already has your aircraft type on certificate (which significantly simplifies the FAA conformity process), and is willing to structure an arrangement that serves your access requirements alongside the tax objective.
Scissortail Aviation Advisors works with Texas owners at all stages of the aircraft ownership lifecycle, including ownership structure analysis and referrals to qualified aviation tax counsel. If you've got questions about whether a Part 135 placement makes sense for your situation, reach out directly.
DISCLAIMER: The information in this article is provided for general informational and educational purposes only and isn't legal, tax, or financial advice. Aircraft tax planning involves complex federal and Texas state law that changes frequently. Always consult a qualified aviation tax attorney and certified public accountant before making any decisions about aircraft ownership structure or certificate placement. Scissortail Aviation Advisors and APEX Flight Solutions make no representations as to the accuracy of the information herein for any specific situation.
