Devonair Enterprises, LLC v. Department of Treasury
297 Mich. App. 90
| Mich. Ct. App. | 2012Background
- Petitioner was formed in 2003 and registered for a use-tax permit for equipment leasing; its sole member was DJS Enterprise Group, LLC, owned by Donald and Cynthia Smith.
- On July 31, 2007, petitioner purchased a 2007 Pilatus PC-12 for $3,610,690 and entered into two lease agreements: one with DJS (petitioner’s affiliate) and one with Donald Smith.
- The DJS lease obligated DJS to pay all operating costs and to use the aircraft nonexclusively, with petitioner retaining control and the ability to terminate; the Donald Smith lease charged a separate hourly rate.
- Petitioner did not pay use tax on the aircraft purchase; instead, it claimed entitlement to pay use tax on rental receipts under MCL 205.95(4).
- In 2008, the Department issued a use-tax bill based on the purchase price, plus penalties, which the Tax Tribunal (MTT) upheld after considering evidence about use hours and economic arrangements.
- The MTT concluded petitioner was not a “lessor” engaged in the business of leasing aircraft to others, citing considerations such as favorable terms to DJS and limited hours of use, leading to use tax on the purchase price rather than on rental receipts.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether petitioner qualifies as a lessor under MCL 205.95(4) to elect use tax on receipts. | Petitioner argues it is engaged in leasing and may elect to pay use tax on rental receipts. | MTT held petitioner was not engaged in the leasing business and thus could not elect under MCL 205.95(4). | Affirmed; petitioner not a lessor; cannot elect use tax on receipts. |
Key Cases Cited
- Mich Bell Tel Co v Dep’t of Treasury, 445 Mich 470 (Mich. 1994) (standard of review for tribunal decisions; deference to agency interpretations)
- World Book, Inc v Dep’t of Treasury, 459 Mich 403 (Mich. 1999) (UTA/GSTA definitions align; purchaser bears use tax, with seller collecting when election applies)
- Haynes v Neshewat, 477 Mich 29 (Mich. 2007) (statutory definitions control when terms are defined by statute)
- Clonlara, Inc v State Bd of Ed, 442 Mich 230 (Mich. 1993) (agency interpretation given deference but not beyond statutory scope)
- Guardian Indus Corp v Dep’t of Treasury, 243 Mich App 244 (Mich. Ct. App. 2000) (Rule 82 interpretive rule consistent with statutes; no conflict)
- Alvan Motor Freight, Inc v Dep’t of Treasury, 281 Mich App 35 (Mich. Ct. App. 2008) (agency interpretations respected when supported by statutory framework)