Can Your Houston Aviation Business Recover Texas Franchise Tax After the American Airlines Ruling?

If your Houston business derives revenue from air commerce or transportation, you may be entitled to a Texas franchise tax refund following the Fifteenth Court of Appeals' April 2026 decision in American Airlines v. Hegar. The court held the Texas franchise tax preempted by federal law as applied to airline transportation revenue, and the four-year refund window for prior years is closing fast.

KEY TAKEAWAYS

• The Fifteenth Court of Appeals held the Texas franchise tax preempted by the federal Anti-Head Tax Act, 49 U.S.C. § 40116, as applied to American Airlines' airline transportation revenue.

• Houston-area companies in airline transportation services, Part 135 charter operators, cargo carriers, helicopter operators serving offshore oil and gas, and similar businesses, may have refund claims for prior franchise tax years.

• The Texas franchise tax refund statute of limitations is four years from the date the tax became due under Tex. Tax Code § 111.104(c).

• Protective refund claims preserve the position pending any appeal to the Texas Supreme Court.

•North Star Law Firm represents Houston aviation operators on Texas franchise tax controversy matters at flat fees with payment plans available.

What Did the Fifteenth Court of Appeals Actually Decide?

The case began with a refund request. American Airlines filed its Texas franchise tax report for the 2015 report year under protest, paying tax on $1 billion of baggage fee revenue and then seeking a $107,577.04 refund on the theory that the federal Anti-Head Tax Act preempted the Texas franchise tax as applied to airline transportation. The Texas Comptroller, represented in litigation as Glenn Hegar, counterclaimed and sought roughly $1.8 million in additional franchise tax, arguing American Airlines could not exclude its passenger ticket and freight transportation revenue from the franchise tax base.

The trial court ruled for American Airlines and held that the franchise tax, as applied to the company, functioned as a gross receipts tax because American Airlines paid tax on 70% of its total revenue with no real deductions or exclusions. The trial court concluded the franchise tax amounted to a tax on gross receipts from air commerce or transportation and was therefore preempted by the AHTA, which prohibits a state from levying or collecting a tax, fee, head charge, or other charge on the gross receipts from air commerce or transportation.

The Fifteenth Court of Appeals affirmed. The court rejected the Comptroller's first argument, that the franchise tax escapes preemption because it taxes a portion of total revenue rather than transportation revenue specifically, and held that AHTA preemption depends on whether the tax is imposed on or measured by gross receipts from transportation, not on the legislative label attached to it. The court rejected the second argument too, observing that American Airlines was effectively taxed on a direct percentage of its apportioned transportation revenue. The 30% deduction Texas allows from total revenue, the court noted, is in substance a tax-rate adjustment rather than an actual exclusion of transportation receipts.

The decision is captioned as an as-applied holding, which matters for how broadly other taxpayers can rely on it. As-applied preemption decisions establish the analytical framework while leaving open how the framework applies to taxpayers whose facts differ. That doesn't make the decision useless to other operators, it makes the analysis fact-dependent.

Which Houston Aviation Businesses Might Qualify for Refunds?

As a Houston tax attorney and CPA who works with closely-held businesses, I want to be specific about who should be evaluating refund claims now.

The American Airlines holding turns on whether the taxable margin was effectively measured by gross receipts from air commerce or transportation. The AHTA defines air commerce broadly under 49 U.S.C. § 40102, and federal preemption analysis under § 40116 has applied to passenger transportation, cargo transportation, and the bundle of services that constitute air transportation as a commercial activity. Houston is one of the densest aviation markets in the country, and the operators who should evaluate refund eligibility cover a wide range:

The middle column matters most. The gray-area businesses are exactly the ones where careful analysis of revenue character, and how Texas applies its apportionment factors to that revenue, separates a successful refund claim from a denied one. An aircraft management company that derives most of its revenue from monthly management fees rather than per-flight transportation charges may have a weaker preemption case than one whose fee structure is fundamentally per-mile or per-flight-hour. An FBO selling jet fuel under federal regulation faces a different statutory framework than the AHTA addresses

How Long Do You Have to File a Refund Claim?

Texas franchise tax refund claims are governed by Tex. Tax Code § 111.104(c), which provides a general four-year statute of limitations measured from the date the tax was due or paid, whichever is later. For a 2022 report year filing made in May 2023, that means a refund claim filed in April 2026 is timely; a claim filed in May 2027 is barred. Each report year runs on its own clock.

The protective claim mechanic exists for situations exactly like this one. Where a controlling decision is favorable but subject to further appeal, a taxpayer can file a refund claim that preserves the position without resolving it. If the Texas Supreme Court accepts review and reverses, the protective claim is denied. If the Texas Supreme Court declines review or affirms, the protective claim is perfected. The cost of filing a protective claim is low; the cost of letting the four-year limitations period run while waiting for a final appellate resolution is potentially the entire refund.

The math matters. A Houston Part 135 charter operator with $20 million in annual revenue paying franchise tax at the 0.75% rate on a 70% margin base is paying roughly $105,000 per year in franchise tax. Four years of preserved refund claims represent more than $400,000 of potential recovery, and that calculation ignores penalties and interest the Comptroller may have collected on prior audit adjustments.

What Should a Houston Aviation Business Do Right Now?

Three steps. First, pull your franchise tax reports for every year still within the four-year limitations period. Second, identify the revenue streams that may qualify as receipts from air commerce or transportation under the AHTA, and be candid about the gray areas, because the protective claim filing is itself a representation that the position has a reasonable basis. Third, calculate the potential refund amount and decide whether the position warrants protective claim filings now or further analysis before filing.

This is the kind of analysis where dual JD/CPA training matters in practice. Most tax attorneys handling Texas franchise tax controversy work don't fluently model the franchise tax mechanics, the apportionment factor, the three margin computations, the cost of goods sold deduction interaction, well enough to identify which revenue streams produce the highest-value refund claims. Most CPAs handling franchise tax compliance don't read federal preemption cases to identify when the doctrine reshapes the tax base. The American Airlines decision is going to produce real refund opportunities for Houston aviation businesses, but capturing those opportunities depends on the analytical work happening in the next several months while the four-year clocks keep running.

Why North Star Law Firm Approaches These Cases Differently

North Star Law Firm represents Houston aviation operators on Texas franchise tax controversy matters at flat fees rather than hourly billing. The flat fee structure matters for refund work because the legal cost has to be small enough relative to the recovery to make the engagement economically sensible, and a fixed-price engagement gives operators the certainty to authorize the work without worrying about runaway costs.

My background combines a JD with an active Texas CPA license and U.S. Tax Court admission. The aviation industry has been a personal interest of mine for years, and I understand the operational structure of the businesses we represent, the difference between Part 91 and Part 135, the economics of dispatch reliability, the regulatory burden of holding an air carrier certificate, the way fuel costs interact with charter pricing. That operational understanding shapes how I evaluate refund claims, which revenue streams to prioritize, and how to structure the engagement so the analysis pays for itself.

Frequently Asked Questions

Does the American Airlines ruling apply to my business if I'm not a major airline?

The American Airlines holding is an as-applied preemption decision. The legal framework, that a state tax measured by gross receipts from air commerce or transportation is preempted by 49 U.S.C. § 40116, applies to taxpayers whose revenue similarly falls within the federal definition of air commerce. Whether your specific facts support a refund claim requires analyzing the revenue character and the way Texas applies its apportionment formula to your business.

How far back can I claim a Texas franchise tax refund?

Texas franchise tax refund claims are subject to a four-year statute of limitations under Tex. Tax Code § 111.104(c), measured from the date the tax was due or paid. For most report years, that gives you roughly four years from the original return filing date to file the claim. Each report year has its own limitations period.

What if my Texas business gets only some revenue from air transportation?

Mixed-revenue businesses can still file refund claims, but only for the portion of franchise tax attributable to qualifying transportation revenue. The analysis requires apportioning total revenue between qualifying and non-qualifying sources and recalculating the franchise tax that would have been owed on the non-qualifying portion alone. This is fact-intensive work that benefits from CPA-level franchise tax modeling.

What happens if the Texas Supreme Court reverses?

If the Texas Supreme Court grants review and reverses, protective refund claims filed pending the appeal are denied and the franchise tax stands. The cost of the protective filing is essentially the legal fee plus any penalty exposure, both of which are typically modest. The cost of not filing a protective claim, if the appellate decision stands and your limitations period runs, is the entire refund.

Is this just for passenger airlines, or does air cargo count too?

Air cargo operators are squarely within the federal definition of air commerce under 49 U.S.C. § 40102, and the AHTA preempts state taxes measured by gross receipts from air transportation regardless of whether the cargo is passenger luggage or commercial freight. Houston has substantial air cargo activity through IAH, and cargo operators should evaluate refund eligibility on the same framework as passenger carriers.

How do I calculate the potential refund amount?

The basic calculation is your franchise tax liability multiplied by the share of your apportioned revenue that qualifies as receipts from air commerce or transportation. A Part 135 charter operator with $20 million in revenue, 95% from charter operations, paying franchise tax of $105,000 per year would have potential refund exposure of roughly $400,000 over the four-year limitations window, before any penalty and interest recovery. Your specific calculation requires modeling the actual margin computation.

What's the deadline to file a protective claim?

There's no single deadline, each report year has its own four-year limitations period under Tex. Tax Code § 111.104(c). The 2021 report year (filed in 2022) is closing soonest for most calendar-year filers. Houston aviation operators should evaluate the 2021 through 2024 report years now, with priority on the 2021 year because its window is the most urgent.

Next Steps for Houston Aviation Operators

If your Houston business is in airline transportation services and you've paid Texas franchise tax over the past four years, the American Airlines decision may have created a refund opportunity worth evaluating now. North Star Law Firm offers initial consultations to assess refund claim eligibility on a flat-fee basis. The earlier you start, the more report years are available within the four-year window and the larger the potential recovery.

Flat Fees. No Hourly Billing. Payment Plans Available.

North Star Law Firm | Houston, Texas

Phillip Zagotti, JD/CPA | 832-384-4526

11740 Katy Freeway, Suite 1700, Houston, TX 77079