Sales Tax State Activity Update - April 2004

Control Of Leased Aircraft Constitutes Use in Michigan

Michigan Court of Appeals has ruled that a Taxpayer leasing its aircraft to a charter company, Corporate Air Management, exerted sufficient right and power over the aircraft to constitute “Use” as defined in MCL 205.92(b).

Taxpayer leased its aircraft to a charter company. The Taxpayer did not pay sales or use tax when it purchased the aircraft and sought protection relying on two cases:

(1) In WPGP1, Inc, supra at 414, where the Appeals Court held that the plaintiff was not liable for use tax because the plaintiff purchased aircraft that were subject to existing leases with Southwest Airlines, and:

(2) In M & M Aerotech, Inc v Dep’t of Treasury, unpublished opinion per curiam of the Court of Appeals, issued November 23, 1999 (Docket No. 211460), where the Appeals Court held that the plaintiff did not use aircraft that it leased to Merit Services.

Taxpayer was audited by the Department and assessed use tax. Taxpayer objected to the assessment and filed a petition with the Michigan Tax Tribunal (MTT). When MTT affirmed the assessment, Taxpayer disagreed and appealed to the higher Court.

The Court of Appeal agreed with MTT legal analysis and affirmed that Taxpayer received preferential treatment in the chartering its aircraft from the charter company whereby the taxpayer only had to reimburse costs and was not charged the standard hourly rate as per the Dry Lease Agreement. The Taxpayer, incident to its ownership, reserved the right to use the aircraft in the lease, and in fact did exercise those rights. This constituted “USE” pursuant to MCL 205.92(b).

Click here to view the complete case.

(Michigan Court of Appeals, Glieberman Aviation,LCC v. Department of Treasury, Appeal No. 2472532, LC No.00-266539, 02/19/2004) 4/04

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