CAO Holdings, Inc. v. Trost
2010 Tenn. LEXIS 1149
| Tenn. | 2010Background
- CAO Holdings purchased a $10,022,800 aircraft and leased it to CAM Management via a dry lease.
- CAO Holdings registered for Tennessee sales/use tax in February 2005, with resale certificate to be issued later.
- CAM Management, under CAO’s ownership, began time-sharing arrangements with third parties in April 2005.
- Tennessee assessed CAO Holdings for use tax based on the aircraft purchase; CAO paid a partial amount and later sought a refund.
- The trial court granted CAO Holdings summary judgment that the lease qualified as a resale, which the Department appealed.
- The Court of Appeals affirmed in part, later the Tennessee Supreme Court granted review to address the sale-for-resale exemption and related facts.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether CAO's lease to CAM Management qualifies as a sale for resale | CAO argues the exclusive use for leasing satisfies the exemption | Department contends the use was not exclusive and the lease may be illusory | Genuine issues of material fact remain; summary judgment inappropriate |
| Whether CAO Holdings used the aircraft exclusively for leasing | Flight logs and structure show CAM Management was the operator for leasing purposes | CAO/Holdings and Clayton used the aircraft personally; not exclusive use | Disputed factual inferences require trial; not one-party entitled to judgment |
| Whether the lease is illusory or a sham to evade tax | Lease is a valid, genuine arrangement between separate entities | Lease appears controlled by Clayton; may be illusory | Cannot resolve on summary judgment; needs trial evidence |
| Whether veil-piercing or disregard of corporate separateness applies | Separate entities should be respected as legitimate businesses | Equities may favor disregarding corporate form to enforce tax | Not appropriate on summary judgment; requires trial on merits |
Key Cases Cited
- Eusco, Inc. v. Huddleston, 835 S.W.2d 576 (Tenn. 1992) (exemption construction; resale definition)
- NASCO, Inc. v. Jackson, 748 S.W.2d 193 (Tenn. 1988) (for resale exemptions, strict interpretation)
- Cape Fear Paging Co. v. Huddleston, 937 S.W.2d 787 (Tenn. 1996) (definition of sale for resale; lease considered sale)
- Schenley Distillers Corp. v. United States, 326 U.S. 432 (Supreme Court) (veil/alter ego considerations; corporate form respect)
- Standard Adver. Agency, Inc. v. Jackson, 735 S.W.2d 441 (Tenn. 1987) (piercing corporate veil considerations; equity-focused)
- FDIC v. Allen, 584 F. Supp. 386 (E.D. Tenn. 1984) (factors for piercing corporate veil (FDIC v. Allen factors))
- United Inter-Mountain Tel. Co. v. Moyers, 221 S.W.3d 246 (Tenn. 2004) (interpretation of tax statutes; overall approach)
- Stratton v. Jackson, 707 S.W.2d 865 (Tenn. 1986) (purpose of tax statutes; general interpretive approach)