Michigan Court Of Appeals Resolves Issues With Statutory Interpretation Critical To Business Aircraft Sales/Use Tax Planning
In CCXLS, LLC vs. Dept. of Treasury, Michigan Court of Appeals, Doc. No. 297902, October 11, 2012, the Michigan Court of Appeals ruled that the Michigan lessor of a business jet had properly elected to collect use tax on rental receipts (as opposed to paying sales tax on the purchase price) and had entered into a valid lease agreement.
The Department of Treasury argued that the taxpayer had not timely elected to pay use tax on its rental receipts and that the lease/management agreement did not satisfy the statutory definition of a lease. The Department of Treasury was successful at the Michigan Tax Tribunal level, which initially issued a tax assessment against the taxpayer in the amount of approximately $1 million (including interest and penalty).
The Michigan Court of Appeals ruled that the Tax Tribunal erred in its determination that taxpayer must elect to pay use tax on rental payments at the time the property is acquired. The Court cited the relevant statute, which indicates a valid election must be made by obtaining a use tax registration "(1) by the earlier of the date set forth for the first payment of use tax under the lease or rental agreement or (2) 90 days after lessor first brings the aircraft into the state."
The Court ruled that CCXLS properly made a timely election to remit use tax on rental receipts and was not obligated to pay sales tax on the purchase price of the aircraft. The Court also ruled that the lease/management agreement contained all the elements for a "lease" as required under Michigan law.
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