DocketNumber: Docket No. 303785
Citation Numbers: 297 Mich. App. 90
Judges: Cavanagh, Hood, Kelly
Filed Date: 5/8/2012
Status: Precedential
Modified Date: 9/9/2022
Fetitioner appeals as of right from an order of the Michigan Tax Tribunal (MTT) affirming respondent’s assessment of use tax. We affirm.
Fetitioner was formed in September 2003 and registered for a use-tax permit, indicating it was in the
In January 2008, respondent issued a bill for use taxes due based on the purchase price of the Pilatus, in the amount of $207,000, plus a penalty in the amount of $51,750. An informal conference followed before a neutral Hearings Division referee who ultimately recommended that the assessment be upheld. Respondent accepted that recommendation. After respondent issued its final bill for taxes due, petitioner filed its petition for review with the MTT. A hearing followed. Some of the stipulated facts included that (1) in 2007, the Pilatus had 74.4 flight hours, 67.9 from use by DJS and 6.5 from use by Donald, (2) in 2008, the Pilatus had 179 flight hours, 145.8 from use by DJS and 33.3 from use by Donald, and (3) in 2009, the Pilatus had 136.5 flight hours, 110.5 from use by DJS and 26 from use by Donald. Donald testified that he purchased the Pilatus
An expert in the aviation industry, Louis Meiners, Jr., testified that, generally, a charter service would charge about $1,300 a flight hour for planes similar to the Pilatus. He further testified that a premium is not paid for a pristine charter aircraft and that the biggest indicator of depreciation is the number of hours that the plane is operated. Other evidence presented at the hearing related to the costs of owning a Pilatus. Presuming 479 flight hours a year, which is fairly typical usage, the fixed and variable costs of owning a Pilatus amount to about $1,580 a flight hour.
Following the hearing, a 59-page proposed opinion and judgment was issued affirming the tax assessed by respondent with credit to be given for remitted tax payments, but disallowing the penalty assessed. The MTT concluded that petitioner was not a “lessor,” as set forth in MCL 205.95(4), because it was not “engaged in the business of renting or leasing” aircraft as set forth in Mich Admin Code, R 205.132 (Rule 82). The MTT considered three factors as indicators of whether an entity is engaged in the business of renting or leasing tangible personal property to others: (1) whether the rates and terms of the lease are consistent with leases resulting from an arm’s-length transaction, (2) whether the taxpayer holds itself out to the public as a lessor, and (3) whether the amount of time that the property is leased is sufficient to produce revenue consistently with other leasing businesses.
The MTT also noted that petitioner did not advertise to the public that it was a lessor of aircraft and did not pursue additional leasing agreements with unrelated companies because petitioner wanted to preserve the resale value of the Pilatus for its own purposes. These circumstances, again, indicated that petitioner was not operating as a leasing business— otherwise it would have had incentive to maximize the rental rates and rental hours to recover, at least,
In summary, the MTT concluded that, considering the two lease agreements as well as petitioner’s activities as a whole, petitioner had failed to establish that it was a lessor engaged in the business of leasing the Pilatus to others for its own gain, benefit, or advantage. Rather, petitioner’s leases were designed to benefit DJS and Donald. Simply stated, petitioner existed to hold the Pilatus for the personal use of petitioner’s sole member, DJS, and the sole members of DJS, Donald and Cynthia Smith. Thus, petitioner was not entitled to elect to pay use tax on the rental payments it received from leasing the aircraft and was liable for use tax on the purchase price of the Pilatus. The MTT rejected petitioner’s argument that the proper remedy was to impose use tax on market-value lease rates rather than the purchase price because petitioner failed to qualify for an election under MCL 205.95(4) or Rule 82. Accordingly, the MTT affirmed respondent’s assessment of use tax on the purchase price of the Pilatus in the amount
Petitioner argues that the MTT erred by concluding that it was not entitled to elect to pay use tax on receipts from the lease of its Pilatus as provided by MCL 205.95(4) after improperly applying Rule 82, which limited and modified the plain language of MCL 205.95(4) to lessors “engaged in the business of renting or leasing tangible personal property to others . . . .” We disagree.
“In the absence of fraud, review of a decision by the Tax Tribunal is limited to determining whether the tribunal erred in applying the law or adopted a wrong principle; its factual findings are conclusive if supported by competent, material, and substantial evidence on the whole record.” Mich Bell Tel Co v Dep’t of Treasury, 445 Mich 470, 476; 518 NW2d 808 (1994). Further, we review de novo issues of statutory interpretation, but accord respectful consideration to the agency’s interpretation. Alvan Motor Freight, Inc v Dep’t of Treasury, 281 Mich App 35, 38; 761 NW2d 269 (2008).
MCL 205.93(1) of the Use Tax Act (UTA) provides:
There is levied upon and there shall be collected from every person in this state a specific tax for the privilege of using, storing, or consuming tangible personal property in this state at a rate equal to 6% of the price of the property or services ....
Former MCL 205.95(1)
*97 Except as otherwise provided in this subsection or [MCL 205.95(5)], a person engaged in the business of selling tangible personal property for storage, use or other consumption in this state shall register with the department [of Treasury] .... Every seller shall source sales in accordance with [MCL 205.110] and collect the tax imposed by this act from the consumer.
MCL 205.95(4) provides:
A lessor may elect to pay use tax on receipts from the rental or lease of the tangible personal property in lieu of payment of sales or use tax on the full cost of the property at the time it is acquired. For tax years that begin after December 31, 2001, in order to make a valid election under this subsection, a lessor of tangible personal property that is an aircraft shall obtain a use tax registration by the earlier of the date set for the first payment of use tax under the lease or rental agreement or 90 days after the lessor first brings the aircraft into this state.
And Rule 82 states:
A person engaged in the business of renting or leasing tangible personal property to others shall pay the Michigan sales or use tax at the time he purchases [the property], or he may report and pay use tax on the rental receipts from the rental thereof. [Mich Admin Code, R 205.132.]
In this case, petitioner elected to pay use tax on receipts from the rental of its aircraft, as set forth in MCL 205.95(4), instead of paying sales or use tax on the purchase price when the aircraft was acquired, as set forth in MCL 205.93(1). The MTT held that petitioner could not make that election because it was not a “lessor.” According to the MTT, petitioner was not a “lessor” under MCL 205.95(4) because it was not “engaged in the business of renting or leasing tangible personal property to others,” as set forth in Rule 82. Petitioner argues that the MTT improperly applied Rule 82, imposing additional requirements by limiting
Rule 82, however, neither imposes additional requirements, nor limits or modifies the application of MCL 205.95(4). Former MCL 205.95(1) required that a “person engaged in the business of selling,” i.e., a seller, “source sales . . . and collect the tax imposed by this act from the consumer.” Under the UTA, a “seller” is defined as “the person from whom a purchase is made . . . .” MCL 205.92(d).
Petitioner also argues that the MTT erroneously denied petitioner the right to elect to pay use tax on receipts from the rental or lease of the Pilatus because the requirements set forth in MCL 205.95(4) were met, including that it was a “lessor.” We disagree.
The MTT held that petitioner was not “engaged in the business of selling,” former MCL 205.95(1), or, as provided in Rule 82, petitioner was not “engaged in the business of renting or leasing tangible personal property to others,” and thus could not elect the option provided under MCL 205.95(4) as a “lessor.” MCL 205.92(h) defines “business” as “all activities engaged in by a person or caused to be engaged in by a person with the object of gain, benefit, or advantage, either direct or indirect.” The MTT held that, contrary to its claim, petitioner was not a lessor because it was not engaged the business of leasing the Pilatus to others for petitioner’s gain, benefit or advantage.
Petitioner argues that it established a gain, benefit, or advantage “through the profitable management of the appreciating asset,” “by providing [Federal Aviation Administration] compliance and liability control,” “by protecting the legal interests of other companies,” and because the business “allowed for easier transfer of the property.” In particular, petitioner argues, “there were clear business reasons both for the establishment of [petitioner] as a distinct legal entity as well as the leasing activity,” including (1) to acquire an appreciating asset without incurring operating costs, (2) for liability protection so that a creditor of DJS could not attach the aircraft, (3) so that Donald could protect his privacy by registering the aircraft in petitioner’s name, and (4) that holding the “aircraft in a separate legal
However, petitioner’s claims of “gain, benefit, or advantage” speak more to the reason petitioner was formed as a separate entity (particularly to benefit Donald) than to any gain, benefit, or advantage petitioner acquired from its alleged business of leasing aircraft. Petitioner obtained a use-tax registration, and thus did not pay tax on the purchase price of the Pilatus, by claiming that it was in the business of leasing equipment, i.e., aircraft. As a consequence, petitioner was required to report, collect from the consumer, and pay use tax on its rental receipts. Petitioner’s claims of gain, benefit, or advantage are not endeavors that would generate rental receipts from which use tax would be paid. In fact, Smith testified that he acquired the Pilatus because he planned on it being an appreciating asset and that leasing the aircraft would cause it to lose value. But petitioner avoided paying tax on the aircraft when it was purchased by claiming that it was in the business of leasing aircraft, not because it was in the business of holding appreciating assets. The fact that petitioner owns an appreciating asset is irrelevant to its purported business of leasing aircraft. And petitioner’s claims that DJS and Donald benefited from the leasing arrangements are of no consequence to the issue whether petitioner itself gained, benefited, or achieved an advantage from its alleged business of leasing aircraft.
To be “engaged in the business of selling tangible personal property for storage, use, or other consumption,” former MCL 205.95(1), so as to be considered a “lessor” under MCL 205.95(4), petitioner must have engaged in the business of selling, i.e., selling activities with the object of gain, benefit, or advantage. And Rule 82 provides for
The MTT’s conclusion that petitioner was not in the business of leasing aircraft to others was also supported by the fact that petitioner did not seek out any other leasing opportunities, for example, by advertising its purported aircraft leasing business. As a consequence of petitioner’s inactivity, the aircraft was flown a minimal number of hours compared to the typical expectation of between 290 and 479 hours a year, producing little revenue for petitioner. Although petitioner argues on appeal that it did not seek out other leasing opportunities in an effort to preserve the aircraft’s resale value, such an objective is not consistent with its claim that it
We conclude that the MTT did not err in applying the law and that its factual findings were adequately supported by the evidence on the whole record. See Mich Bell Tel Co, 445 Mich at 476. That is, the MTT’s conclusion that petitioner was not a “lessor,” as set forth in MCL 205.95(4), because it was not “engaged in the business of renting or leasing [the Pilatus] to others,” as set forth in Rule 82, is affirmed. Because petitioner was never engaged in that business enterprise, and thus was not entitled to make the election provided by MCL 205.95(4), we reject petitioner’s argument that the MTT erred by holding that petitioner is liable for use tax on the full purchase price of the Pilatus.
Affirmed.
MCL 205.95(1) was amended by 2007 PA 93, effective December 1, 2007. Because petitioner purchased the airplane before the effective date of the amendment, this opinion addresses the language in former MCL 205.95(1).
“When a statute specifically defines a given term, that definition alone controls.” Haynes v Neshewat, 477 Mich 29, 35; 729 NW2d 488 (2007).
Statutory provisions of the UTA and the General Sales Tax Act (GSTA), MCL 205.51 et seq., are complementary and supplementary. World Book, Inc v Dep’t of Treasury, 459 Mich 403, 406; 590 NW2d 293 (1999). Accordingly, the definitions set forth in the UTA are consistent with those set forth in the GSTA, which, for example, defines a “sede at retail” as “a sale, lease, or rental of tangible personal property,” MCL 205.51(l)(b), and defines “sales price” as consideration “for which tangible personal property or services axe sold, leased, or rented,” MCL 205.51(l)(d).