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146234 - NACG Leasing v Treasury

NACG Leasing f/k/a Celtic Leasing, LLC,
           Thomas S.Nowinski
(Appeal from Ct of Appeals)
(Michigan Tax Tribunal)
Department of Treasury,
Jessica A. McGivney


​In April 2005, NACG Leasing, LLC, leased a DC-8 aircraft to Murray Aviation, which owned 50 percent of NACG. (HBJ Leasing, LLC, owned the remaining 50 percent of NACG.) Murray had previously arranged to lease the aircraft from another company and had maintained possession of the DC-8 since January 2005, but when that deal fell through, NACG bought the DC-8 and leased it to Murray.

In 2006, the Michigan Department of Treasury (DOT) assessed a use tax of $414,000 – plus a $103,500 penalty and statutory interest – on NACG in connection with the DC-8. NACG contested the use tax with the Michigan Tax Tribunal, and on June 10, 2011, the Tax Tribunal ruled in NACG’s favor, holding that NACG did not “use” the aircraft within the meaning of Michigan’s Use Tax Act. NACG “did not have possession of the aircraft and did not, at any time, take responsibility for such things as repairs and maintenance, insurance, potential benefit of warranties, or any options for use thereof,” the tribunal explained.

But in August 2011, the Tax Tribunal reversed its decision, citing the Court of Appeals’ ruling in Fisher & Co v Dept of Treasury, 282 Mich App 207 (2009). (The Fisher decision was issued after the parties in NACG’s case filed their briefs with the Tax Tribunal.) As “use” was defined in Fisher, NACG “did use the aircraft as the term is defined in the Michigan Use Tax Act and was, therefore, properly assessed use tax,” the tribunal concluded.

The DOT appealed, and in an unpublished per curiam decision, the Court of Appeals reversed and ruled in NACG’s favor, noting in part that Fisher “involved a vastly different fact pattern than the instant case.”

The Use Tax Act, MCL 205.91 et seq., “is designed to cover transactions not covered under the [General Sales Tax Act, MCL 205.51 et seq.],” the appellate court explained. “A sales-use tax scheme is designed to make all tangible personal property, whether acquired in, or out of, the state subject to a uniform tax burden. Sales and use taxes are mutually exclusive but complementary, and are designed to exact an equal tax based on a percentage of the purchase price of the property in question.”

The UTA provides that “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.” NACG argued that it did not “use” the DC-8 in Michigan, and the Court of Appeals agreed: By leasing the DC-8 to Murray, NACG had ceded control to Murray and therefore could not have “used” the aircraft.

The Court of Appeals said that the UTA defines “use” to mean “‘the exercise of a right or power over tangible personal property incident to the ownership of that property including transfer of the property in a transaction where possession is given.’ MCL 205.92(b).” By ceding “total control” of the DC-8 to Murray – including repairs, maintenance, insurance, taxes, warranties, and all risk of loss – NACG could not have “used” the plane as defined by the UTA, the Court of Appeals reasoned. In addition, the DC-8 “was in Murray’s possession prior to plaintiff’s purchase and that possession was not interrupted. We therefore conclude that plaintiff did not ‘use’ the aircraft under the UTA.”

Fisher did not apply to this case, the Court of Appeals said, because the issue in Fisher “was whether the plaintiff had purchased an actual airplane (as co-owner), or services (which are not subject to use tax). While a majority of the Court determined that plaintiff had purchased a fractional interest in tangible personal property, it did so premised upon the fact that the plaintiff’s use of other airplanes in the fleet was ‘pursuant to its contracts to share ownership rights to its own airplane’ and therefore the plaintiff was subject to use tax…. Here, by contrast, it is undisputed that plaintiff never did anything with the aircraft other than lease it to Murray, which it did simultaneously with its purchase of the aircraft.”

The DOT appealed. In an order dated May 22, 2013, the Supreme Court granted leave to appeal. The Court directed the parties to “address the applicability of the use tax to a transaction where tangible personal property is purchased by one party and leased to another party when the purchaser/lessor does not obtain actual possession of the property.”