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Business Aviation, LLC v. Director of Revenue

Supreme Court of Missouri, En Banc

July 16, 2019

BUSINESS AVIATION, LLC AND VAUGHN C. ZIMMERMAN, ET AL., Appellants,
v.
DIRECTOR OF REVENUE, Respondent.

          PETITION FOR REVIEW OF A DECISION OF THE ADMINISTRATIVE HEARING COMMISSION The Honorable Audrey Hanson McIntosh, Commissioner

          MARY R. RUSSELL, JUDGE

         Business Aviation LLC and its members (collectively, "Appellants")[1] appeal the Administrative Hearing Commission's ("AHC") decision assessing use tax, additions to tax, and interest against Appellants as a result of Business Aviation's purchase of an aircraft. The aircraft was purchased in Kansas and then leased by Business Aviation to Burgess Aircraft Management LLC, [2] a common carrier in Missouri. Although the AHC found that the right to use the aircraft was transferred from Business Aviation to Burgess, it found it was not fully transferred for valuable consideration. As a result, the AHC determined Appellants owed the use tax.

         Appellants argue they qualify for the resale use tax exemption through the interplay of sections 144.018.1(4), 144.615(3), and 144.030.2(20).[3] In particular, section 144.030.2(20) provides an exemption for sales of aircraft to common carriers. Further, to constitute a "sale," the right to use the aircraft must be transferred for valuable consideration paid or to be paid. See section 144.605(7), RSMo 2000 (use tax definition of "sale"); section 144.010.1(9) (sales tax definition of "sale"). Because Business Aviation transferred the right to use the aircraft to a common carrier for valuable consideration paid or to be paid, the lease agreement constituted a sale pursuant to both the use and sales tax definitions. Accordingly, Appellants qualify for the resale exemption. The AHC's decision is reversed, and the matter is remanded.

         Background

         Business Aviation purchased an aircraft from Cessna Finance Corporation in Kansas. That same day, Business Aviation entered into an aircraft lease agreement with Burgess, a common carrier that provides Part 135 air charter transportation services to third parties. [4] Burgess transported the aircraft from Cessna to Burgess' site of operations in Missouri.

         Pursuant to the lease agreement, Burgess was granted "the exclusive care, custody and control of the Aircraft during the term of [the Lease] and at all times during any Part 135 charter operations conducted by [Burgess]." Further, Burgess was required to perform all maintenance pursuant to Part 91.[5] Burgess was also to manage the aircraft, maintain necessary records, and provide pilots and supplies necessary for the aircraft to operate in accordance with Federal Aviation Act regulations. Business Aviation was to pay all costs for maintenance, insurance, management, cleaning, and repairs, as well as the hangar fees.

The lease further provided in section three:
(c) As consideration for this Lease and use of the Aircraft, [Burgess] shall pay [Business Aviation] the sum of $900.00 per hour based on the Hobbs meter (lift off to touch down) (the "Hourly Rate"), payable on the fifteenth (15th) day of the month immediately following the month in which such hours were operated (the "Lease Payments"), payable in advance on the first Business Day of each month thereafter during the Term.
(d) All lease payments and other amounts payable by [Burgess] hereunder shall be net to [Business Aviation], and free and clear of all deductions, taxes and withholdings of any nature whatsoever, except any amounts due [Burgess] from [Business Aviation] as provided herein.

         Although the lease also provided Business Aviation was required to pay all costs and expenses related to its operation of the aircraft if it chartered or used it, Business Aviation never operated or chartered the aircraft.

         Burgess prepared and provided to Business Aviation monthly financial summaries, which included charges billed to Business Aviation as well as income credited to Business Aviation for Burgess' use of the aircraft. When parties other than Zimmerman Properties and Foster chartered the aircraft, Burgess paid Business Aviation $900 per flight hour. When Zimmerman Properties or Foster chartered the aircraft, they paid Burgess only $434.77 per flight hour, and Burgess then paid that same amount to Business Aviation.

         The director determined Business Aviation owed use tax of $75, 674.41 and issued this assessment to Business Aviation, Foster, and Zimmerman Properties as well as to each of Zimmerman Properties' members. Business Aviation appealed the director's assessment of the use tax to the AHC.[6]

         The AHC found that although Burgess was a common carrier, Business Aviation was not entitled to the use tax exemption because Business Aviation's lease agreement was not a sale for purposes of that exemption. Specifically, the AHC found that although the right to use the aircraft was transferred from Business Aviation to Burgess, it was not fully transferred for valuable consideration. Business Aviation petitioned this Court for review of the AHC's decision.[7]

         Standard of Review

         This Court will affirm a decision of the AHC if it: (1) is authorized by law; (2) is supported by competent and substantial evidence on the whole record; (3) does not violate mandatory procedural safeguards; and (4) is not clearly contrary to the General Assembly's reasonable expectations. Brinker Mo., Inc. v. Dir. of Revenue, 319 S.W.3d 433, 435 (Mo. banc 2010) (citing section 621.193). The AHC's interpretation of revenue statutes receives de novo review. Union Elec. Co. v. Dir. of Revenue, 425 S.W.3d 118, 121 (Mo. banc 2014).

         Exemptions are "strictly construed against the taxpayer," and any doubt is resolved in favor of assessing the tax. Bartlett Int'l, Inc. v. Dir. of Revenue, 487 S.W.3d 470, 472 (Mo. banc 2016). The taxpayer must demonstrate by "clear and unequivocal proof" that an exemption applies. TracFone ...


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