Big Blue Express v. Nebraska Dept. of Rev.
309 Neb. 838
| Neb. | 2021Background
- Big Blue Express, Inc., a Nebraska corporation wholly owned by CVE Merchant Services, purchased a 66 2/3% interest in a 2009 Embraer Phenom airplane from a Kansas seller on April 8, 2011, and paid no sales or use tax at purchase.
- Big Blue entered into joint-ownership and management agreements with an unrelated co-owner and signed multiple written and oral "use" agreements leasing the airplane to Michael Schneider (its president), related entities, and a few unrelated lessees; written rates were $1,100–$1,300 per flight hour.
- Big Blue issued relatively few invoices (20 invoices for 237.69 flight hours across 2011–2013), delayed or failed to timely collect many payments (some paid 200–570 days late), charged no late interest, and made little to no public marketing of the airplane.
- Big Blue’s lease revenue was substantially below operating costs (average ~$9,600 monthly revenue v. ~$20,000 monthly operating expenses); CVE made substantial capital infusions to Big Blue despite CVE not using the airplane.
- The Nebraska Department of Revenue assessed a use-tax deficiency of $161,373.31 (including penalty and interest) under Neb. Rev. Stat. § 77-2703, the Tax Commissioner affirmed, the Lancaster County District Court affirmed on the ground Big Blue failed to prove a sale-for-resale exemption, and the Nebraska Supreme Court affirmed.
Issues
| Issue | Big Blue's Argument | Department's Argument | Held |
|---|---|---|---|
| Whether purchase was a "sale for resale" (exempt from sales/use tax) | Big Blue: purchased to lease at fair market value in the normal course of business; thus exempt under § 77-2701.34 | Dept: Big Blue failed to lease in the normal course of business and thus exemption does not apply | Held: Not a sale for resale; Big Blue failed to prove leasing was in normal course of business |
| Whether lease payments were at fair market value | Big Blue: $1,100–$1,300/hr reflected fair market rates | Dept: some rates below market and overall receipts insufficient; pricing evidence weak | Held: Mixed pricing and evidence insufficient to establish fair-market leasing for business purpose |
| Whether leasing was in the normal course of Big Blue's business (activity engaged "with the object of gain, benefit, or advantage") | Big Blue: leasing activity intended as business; formed agreements, issued invoices, collected later | Dept: leases largely to related parties, minimal marketing, poor collection, losses, and parent subsidies show lack of business purpose | Held: Big Blue not engaged in business leasing for its own gain; leasing chiefly benefitted Schneider/related entities |
| Equitable recoupment / credit for sales tax paid by related lessees | Big Blue: if lessees paid sales tax, Big Blue should get offset or equitable recoupment under § 77-2704.28/§ 77-2709 | Dept: Tax Commissioner denied credit; § 77-2704.28 requires tax previously paid by lessor; equitable claim not preserved to district court | Held: Argument not preserved for appellate review; court declined to reach merits |
Key Cases Cited
- Intralot, Inc. v. Nebraska Dept. of Rev., 276 Neb. 708 (Neb. 2008) (burden of proof that purchase was sale for resale on claimant)
- Lackawanna Leather Co. v. Nebraska Dept. of Rev., 259 Neb. 100 (Neb. 2000) (use tax applies when in-state purchase would have been taxable)
- Devonair Enterprises, L.L.C. v. Dep’t of Treasury, 297 Mich. App. 90 (Mich. Ct. App. 2012) (insufficient leasing activity and related-party leasing do not constitute business leasing)
- Pi In The Sky, L.L.C. v. Testa, 119 N.E.3d 417 (Ohio 2018) (single-member entity leasing only to member and lack of marketing does not satisfy "engaging in business")
- Interstate Printing Co. v. Department of Revenue, 236 Neb. 110 (Neb. 1990) (discussion of sale-for-resale treatment)
- May Broadcasting Co. v. Boehm, 241 Neb. 660 (Neb. 1992) (treatment of sales tax exemptions)