Big Blue Express v. Nebraska Dept. of Rev.
962 N.W.2d 528
Neb.2021Background
- Big Blue Express (Nebraska corp.) purchased a 2/3 interest in a 2009 Embraer Phenom aircraft from a Kansas seller in April 2011 and paid no Nebraska sales or use tax on the purchase.
- Big Blue entered into joint-ownership/management and written "use" agreements anticipating leasing; most actual invoices and leases were to the president (Schneider) or related entities; nonrelated lessees accounted for few hours.
- Big Blue issued flight-hour invoices (mostly $1,100–$1,300/hr) but often delayed billing/collection for hundreds of days and seldom enforced contractual interest; it did little marketing and insured the plane for "pleasure and business," excluding commercial "for hire or reward.”
- Leasing generated far less revenue than operating costs (average ~$9k/mo revenue vs ~$20k/mo expenses); Big Blue received capital infusions from parent CVE, which never used the plane.
- Nebraska Dept. of Revenue assessed a use-tax deficiency (~$161,373.31) on 2/3 of the purchase price; Tax Commissioner and the Lancaster County District Court affirmed, finding Big Blue failed to prove a sale-for-resale exemption. The Nebraska Supreme Court affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Big Blue's purchase was a nontaxable "sale for resale" (i.e., bought to lease in the normal course of business at fair market rates) | Big Blue: purchased to lease aircraft; leases were at fair market value and thus exempt as sale-for-resale | Dept: Big Blue failed to show leases were arm's-length, at fair market value, or carried out in the normal course of business (leases mostly to related parties; little revenue; no marketing; delayed invoicing) | Held: Big Blue failed its burden; purchase not a sale-for-resale; deficiency affirmed under §77-2703(2) |
| Whether Big Blue is entitled to equitable recoupment / credit for sales tax paid by related lessees under §77-2704.28 and §77-2709 | Big Blue: related lessees (CVE, PowerPay, CR Services) paid sales tax on leases and should offset Big Blue's deficiency via equitable recoupment or statutory credit | Dept/Tax Commissioner: rejected Big Blue's statutory interpretation and denied credit; Tax Commissioner found no prior tax paid by lessor and rejected credit | Held: Argument not preserved for judicial review (Tax Commissioner rejected it and Big Blue did not appeal that discrete ruling to the district court); court declined to reach equitable-recoupment merits |
| Whether §77-2704.28 requires tax on a lessor who leases to a related company (cross-appeal) | Dept: §77-2704.28’s second sentence imposes tax on a lessor when leasing to a related entity even if lessee otherwise exempt | Big Blue: Dept’s reading is incoherent; statute should not convert an exemption into a retroactive tax on lessors | Held: Court did not decide cross-appeal as unnecessary; left statutory ambiguities for the Legislature to address |
Key Cases Cited
- Intralot, Inc. v. Nebraska Dept. of Rev., 276 Neb. 708, 757 N.W.2d 182 (Neb. 2008) (burden of proving purchase was sale for resale is on party claiming exemption)
- Prokop v. Lower Loup Natural Resources Dist., 302 Neb. 10, 921 N.W.2d 375 (Neb. 2019) (standard of review for APA judicial review)
- Devonair Enter., L.L.C. v. Dep’t of Treasury, 297 Mich. App. 90, 823 N.W.2d 328 (Mich. Ct. App. 2012) (aircraft purchase/lease facts; limited leasing to related parties and inadequate revenue undercut sale-for-resale claim)
- Pi In The Sky, L.L.C. v. Testa, 119 N.E.3d 417 (Ohio 2018) (single-member LLC leased aircraft only to member; insufficient evidence of engaging in business to claim resale exemption)
- Ash Grove Cement Co. v. Nebraska Dept. of Rev., 306 Neb. 947, 947 N.W.2d 731 (Neb. 2020) (tax exemptions interpreted narrowly in favor of the state)
- Woodmen of the World v. Nebraska Dept. of Rev., 299 Neb. 43, 907 N.W.2d 1 (Neb. 2018) (principles on construction of tax exemptions)