Lоren Cook Co. (“Cook”) seeks review of the decision of the Administrative Hearing Commission (“AHC”) determining that the sale of an aircraft and subsequent purchase of another from different entities did not meet the requirements of the “taken in trade” exemption under section 144.025, RSMo Supp.2012. This Court finds that because the use of an intermediary did not transform the separate sale and purchase transactions into one trade-in transaction, Cook could not claim a trade-in exemption. The AHC’s decision is affirmed.
I. Facts
Cook purchased a Cessna 525B aircraft from Cessna Aircraft Company in 2005 for $7,240,125. The purchase agreement listed Cоok as the purchaser and Cessna as the seller and contained a trade-in provision that the parties struck through. Cook made payments to Cessna. Two years later, Cook sold a Cessna 525A aircraft to C.B. Aviation for $4,725,000 million. The sales agreement listed Cook as seller and C.B. Aviation as purchaser.
To capture a tax benefit under section 1031 of the United States Internal Revenue Code, Cook used Time Vаlue Property Exchange Sales, LLC (“TVPX”), an FAA-registered aircraft dealer, as an intermediary. Cook assigned its rights and obligations under both its purchase agreement and its sales agreement to TVPX. Cook and TVPX also entered an “Exchange and Trade-in Contract” under which TVPX was obligated to transfer title of the 525B aircraft to Cook and transfer title of the 525A aircraft to C.B. Aviation.
Cook issued a bill of sale to TVPX for the 525A aircraft, whiсh TVPX then sold to C.B. Aviation on the same day. Additionally, on that same day, Cessna issued an invoice to TVPX for the 525B aircraft, and TVPX in turn issued an invoice to Cook. TVPX held title to each aircraft for only minutes before transfеrring the title to the respective parties pursuant to its contractual obligations.
Cook reported $2,515,125 — the difference between the purchase price of the 525B aircraft and the sale price of the 525A aircraft — on its tax return for the period it was subject to use tax in Missouri. It claimed that it was entitled to a $4,725,000 million credit under section 144.025.1, which allows a tax exemption for an amount “taken in trade as а credit or part payment on the purchase price.” Based on the trade-in credit, Cook paid $140,847 in use tax on the 525B aircraft. The director of revenue subsequently determined that Cook was not entitlеd to the trade-in credit and assed use tax in the amount of $264,600 plus statutory interest in the amount of $45,054.47. Cook appeals.
This Court has exclusive jurisdiction to review cases involving the construction of the revenue laws of this state. Mo. Const, art. V, sec. 3. The AHC’s interpretation of revenue laws is reviewed de novo. DST Sys., Inc. v. Dir. of Revenue,
III. Analysis
The issue to be decided here is whether the sale of an aircraft and subsequent purchase of another from different entities can be considered a “trade-in” for purposes of the “taken in trade” tax exemption when an intermediary is used to facilitate the transaction.
Under section 144.610.1, RSMo 2000, a use tax “is imposed for the privilege of storing, using or consuming within this state any article of tangible personal proрerty ... in an amount equivalent to the percentage imposed on the sales price in the sales tax law in section 144.020.” Section 144.020, in turn, allows a trade-in exemption of the amount taxed under section 144.025. See sеction 144.020.1, RSMo Supp.2012. In relevant part, section 144.025 provides:
[I]n any retail sale ... where any article on which sales or use tax has been paid, credited, or otherwise satisfied ... is taken in trade as a crеdit or part payment on the purchase price of the article being sold, the tax imposed by sections 144.020 and 144.440 shall be computed only on that portion of the purchase price which exceeds the actual allowance made for the article traded in or exchanged, if there is a bill of sale or other record showing the actual allowance made for the article traded in or exchanged.
In effect, this statute exempts from the use tax the amount for which already-owned property is traded-in as a credit toward the purchase price of newly acquired property. Great Southern Bank v. Dir. of Revenue,
Cook argues that it was entitled to the “taken in trade” exemption in section 144.025.1 even though it bought and sold the 525A and 525B aircraft through different entities because it used TVPX as an intermediary. Because the phrase “taken in trade” is not defined in-the statute, courts apply the ordinary meaning of the term. Cook Tractor Co., Inc. v. Dir. of Revenue,
This Court had an opportunity to examine the meaning of “taken in trade” in Great Southern v. Dir. of Revenue. There, it was found that a trade “requires that the parties each have title to or ownership of their respective items and then exchange them.” Great Southern,
Cook argues its situation differs from Great Southern in that TVPX is an FAA-registered dealer and actually took title to the aircraft before making the required transfers. It further argues that during the time TVPX had title to the aircraft, it bore the risk of loss and could have breached its contracts by selling them to other entities. Cook contends the steps it took were part of one mutual, interdependent transaction in which it exchanged title of the 525A aircraft with TVPX for title of the 525B aircraft.
However, “[w]hen determining the merits of revenue cases, it is important to look beyond legal fictions ... to discover the economic realities of the case.” Great Southern,
The plain language of section 144.025.1 further supports the conclusion that Cook engaged in two separate transactions instead of one mutual exchange. The statute includes a provision stating the trade-in exemption “shall also apply to motor vehicles, trailers, boats, and outboard motors sold by the owner ... if the seller purchases or contracts to purchase a subsequent motor vehicle, trailer, boat, or outboard motor within one hundred eighty days.” Section 144.025.1 (emphasis added). This provision, known as the separate sale reduction provision, essentially allows a taxpayer to claim the trаde-in exemption on certain types of property even when the taxpayer sells already-owned property separately from the purchase of new property.
Aircraft, however, are not listed as one of the types of property entitled to the exemption. This Court must examine the language of the statutes as they are written. City of Wellston v. SBC Commc’ns, Inc.,
Finally, it is undisputed that the transactions presented in this case qualified as a tax-free exchange of property under section 1031 of the Internal Revenue Code. Cook argues that Missouri should treat these transactions consistently — as one mutually dependent exchange. The Internal Revenue Code, however, does not govern the application of Missouri’s use tax. See Great Southern,
To receive a tax exemption under section 144.025, the taxpayer must demonstrate that its relinquished property was “taken in trade” for the acquired property. While the use of a qualified intermediary will make a transaction exempt under federal law, the plain language of section 144.025.1 does not so allow.
IV. Conclusion
For the foregoing reasons, the decision of the AHC is affirmed.