Aircraft Owner Engaged in Personal Use of the Aircraft
In C.D.M. Leasing L.L.C. v. Department of Treasury, Michigan Tax Tribunal, No. 440908, June 28, 2013, released August 2013, an assessment of Michigan use tax based on the purchase price of an aircraft was upheld because the aircraft’s owner engaged in personal use of the aircraft and was not engaged in the business of leasing the aircraft to others. Rule 82 allows a taxpayer to elect to pay use tax on rental receipts from the lease of tangible personal property rather than on the property’s purchase price. However, any storage, use, or consumption of the property outside the scope of the leasing activity defeats the Rule 82 election. In the present case, in addition to flights taken by the lessee, the taxpayer’s flight logs showed numerous personal trips by non-lessees. The personal use of the aircraft by the taxpayer was a conversion to a taxable use.
Furthermore, the taxpayer did not qualify as a lessor of the aircraft within the meaning of the Use Tax Act or Rule 82. The taxpayer did not submit evidence which showed that it held itself out to the public as the lessor of the aircraft. The taxpayer did not advertise its leasing services or attempt to pursue additional lease agreements with nonaffiliated parties. Also, the aircraft averaged only 10 flight hours per month for the relevant period, which was inconsistent with a leasing business trying to maximize profits.