Lessor Ceded Control of Aircraft to Lessee
In NACG Leasing v. Department of Treasury, Michigan Court of Appeals, No. 306773, October 16, 2012, a taxpayer that leased an aircraft to a related entity was not liable for Michigan use tax because it ceded total control over the aircraft to its lessee.
For purposes of the Use Tax Act, "use" is defined as the "exercise of a right or power over tangible personal property incident to the ownership of that property including transfer of the property in a transaction where possession is given." In the present case, the taxpayer executed the lease contemporaneously with its purchase of the aircraft and ceded total control to the lessee. The lessee was already in possession of the aircraft prior to the taxpayer's purchase, and this possession was uninterrupted. The lessee was responsible for all repairs, insurance, and taxes and bore the risk of loss of the aircraft. The purchase and simultaneous lease of an aircraft that was in possession of the lessee does not incur use tax liability for a taxpayer when complete control of the aircraft is ceded to the lessee.