A Lessor Could Not Claim an Exemption Based on the Subsidiary's Exempt Status
In AeroGenesis Inc. v. Department of Treasury, Michigan Tax Tribunal, No. 272692, August 25, 2010, released January 26, 2011 the Michigan use tax was assessed on an aircraft that was leased to the taxpayer's subsidiary because the taxpayer could not claim an exemption based on the subsidiary's exempt status.
The statute applicable to the 1996 purchase contained an exemption for the "storage, use, or consumption of an aircraft by a domestic air carrier. . . for use solely in the transport of air cargo, passengers, or a combination. . . that has a maximum certificated takeoff weight of at least 6,000 pounds." The taxpayer did not qualify as a "domestic air carrier" as it was not primarily engaged in the commercial transport for hire of air cargo and passengers as a business activity. Furthermore, unlike its subsidiary, the taxpayer did not hold a federal air carrier certificate.
The Tax Tribunal ruled the taxpayer could not claim an exemption based on the use of the aircraft by its subsidiary because the taxpayer did not demonstrate that it was wholly owned and controlled by the subsidiary such that they constituted one entity for tax purposes.
As the taxpayer was not registered for sales or use tax in Michigan before the time of the aircraft's purchase, it could not make a Rule 82 election to pay tax on rental receipts. Therefore, the taxpayer was liable for use tax based on the purchase price of the aircraft. Though the Department of Treasury's assessment was upheld, the amount was reduced due to stipulation by the parties of a lower purchase price.