Aircraft Owner Not Engaged in Leasing Business, leases Not At Arms Length
In Devonair Enterprises LLC v. Department of Treasury, Michigan Court of Appeals, No. 303785, May 8, 2012 an assessment of Michigan use tax based on the purchase price of an aircraft was upheld because the aircraft's owner, a single member LLC, did not qualify as a "lessor" for purposes of a Rule 82 election. The taxpayer was not allowed to make use tax payments on the rental receipts received, as it was not engaged in the business of renting or leasing tangible personal property to others. The only leasing agreements into which the taxpayer entered were with the LLC's sole member, and with an individual that created and operated that sole member. The leases were not arm's-length transactions, as the rate charged per flight hour to the individual was far lower than the costs incurred by the taxpayer per flight hour. Also, the lease terms with the LLC's sole member were unreasonably disadvantageous, for the lessee was liable for all operational costs even though the lease was terminable at will by the taxpayer. Furthermore, the taxpayer failed to seek out other leasing opportunities by advertising its aircraft leasing business.