Aerospace and Aviation Manufacturing Competitiveness

Aerospace & Defense Federal Contracts – Defense-related aerospace activity is a cornerstone of the modern Texas economy, as 17 of the top 20 firms in the nation have a substantial presence in Texas, and more than 44,000 workers currently earn an average of $100,000 or more annually working in this industry.

However, state franchise tax policy does not align with federal acquisition requirements, putting Texas at a competitive disadvantage versus states that are either better aligned and/or willing to offer stronger economic incentives to attract and retain defense-related aerospace activity. Partially as a result, Texas has lost both market share (falling a full percentage point in recent years) or 4,000 net jobs in this premium industry sector from the average level of employment during 2007-2012.

Conversations with aerospace and defense industry leaders suggest that conforming Texas’ franchise tax law to the Federal Acquisition Regulation (FAR) would significantly improve the state’s competitive position to attract and retain defense-related aerospace activity. Companies face a unique challenge because their contracts with the U.S. Department of Defense require not only manufactured goods but also the ongoing services that support those products. Texas franchise tax deductions are not permitted on both expense categories when calculating “cost of goods sold,” thus penalizing Aerospace & Defense companies contracting under the Federal Acquisition Regulation (FAR) program and causing Texas to be out-of-line with other competing states.

2019 Economic Impact Study: The Potential Economic Impact of Conforming the Texas Franchise Tax to the Federal Acquisition Regulation

Maintenance, Repair and Overhaul (MRO) – General aviation alone accounts for $14.6 billion in total economic impact annually in Texas. Our state could realize a significant increase in aviation jobs, facility expansions and overall economic impact if the Legislature addressed the MRO tax impediment. 26 other states have a sales tax exemption for aircraft parts and labor. Texas tax law currently limits the exemption to “commercial carriers” only, which excludes many Texas aviation employers. Texas is the 2nd largest state in the nation for corporate and general aviation aircraft, but unfortunately most general aviation aircraft must leave Texas for maintenance service, repairs and other work – taking high-paying aviation tech and maintenance jobs to those other states, as well.