APLUX, LLC v. Dir. of Revenue

• Decision Date: 02 March 2021
• Docket Number: No. SC 98409,SC 98409
• Citation: APLUX, LLC v. Dir. of Revenue, 619 S.W.3d 462 (Mo. 2021)
• Parties: APLUX, LLC, and Paul & Ann Lux Associates, L.P., Respondents, v. DIRECTOR OF REVENUE, Appellant.
• Court: Missouri Supreme Court

619 S.W.3d 462

APLUX, LLC, and Paul & Ann Lux Associates, L.P., Respondents,

v.DIRECTOR OF REVENUE, Appellant.

No. SC 98409

Supreme Court of Missouri, en banc.

Opinion issued March 2, 2021

The director was represented by Julia E. Rives of the attorney general's office in Jefferson City, (573) 751-8824.

APLUX was represented by Lowell D. Pearson of Husch Blackwell LLP in Jefferson City, (573) 635-9118, and Michael A. Cosby and Laura C. Robinson of Husch Blackwell LLP in Springfield, (417) 268-4000.

Laura Denvir Stith, Judge

The director of revenue seeks review of the decision of the administrative hearing commission (AHC) finding no use tax liability for APLUX LLC and Paul and Ann Lux Associates L.P. on the out-of-state purchase of two aircraft, referred to as "the TBM" and "the Excel." After purchase, both aircraft were brought to Missouri. APLUX asserts it leased each aircraft on a non-exclusive basis—the TBM to its parent company, Luxco Inc., and the Excel concurrently to both Luxco and Aero Charter Inc., a common carrier. The issue before this Court is whether the AHC erred in holding each lease agreement constituted a "sale" for purposes of the use tax resale exemption set out in section 144.018 and related statutes.¹ If each agreement was a "sale," the AHC correctly held APLUX was entitled to elect to pay sales tax on the lease payments it received from Luxco.² The director, however, argues APLUX could not elect to pay tax on the lease payments and, instead, owed the substantially greater use tax on the purchase price of each aircraft because its transaction with neither Luxco nor Aero constituted a lease for purposes of the use tax law.³

With respect to the APLUX-Luxco agreement for both the TBM and the Excel, this Court agrees with the director that APLUX's agreement with Luxco did not transfer use of either aircraft because APLUX retained general control and priority use of both aircraft and Luxco, which had no priority to use either aircraft, could operate the aircraft only if APLUX had not already leased them to a third party or claimed priority use for itself. This is not a transfer of use, which requires both the exercise of "any right or power" over property and either "ownership or control" of that property. § 144.605(13). For that reason, a "sale" to Luxco did not occur, and APLUX is not entitled to a resale exemption on the purchase of either aircraft based on the Luxco agreement. This Court reverses the AHC's contrary conclusion and remands the case for a determination of the tax due.

The AHC correctly held the APLUX-Aero agreement for the Excel did qualify for the use tax exemption relied on by APLUX. Under that agreement, APLUX was required to deliver the Excel to Aero's base of operation at the Spirit of St. Louis Airport, where it was required to be hangered in Aero's custody throughout Aero's lease. Aero could and did conduct charter flights at any time, without APLUX's permission, and APLUX could not override Aero's schedule (with the sole exception that Aero could not refuse to honor a flight already scheduled by APLUX). Further, Aero had operational control of the Excel during charter flights and was solely responsible for its maintenance. These factors are comparable to those in Business Aviation, LLC v. Director of Revenue, 579 S.W.3d 212, 217 (Mo. banc 2019) , which this Court found sufficient to constitute a "sale" under the tax law. They are also sufficient here. For that reason, the AHC did not err in concluding APLUX was entitled to a resale exemption on its purchase of the Excel for resale to Aero under sections 144.018.1(4), 144.615(3), and 144.030.2(20).

The AHC's decision is affirmed in part and reversed in part, and the case is remanded.

I. FACTUAL AND PROCEDURAL BACKGROUND

APLUX is a manager-managed Missouri limited liability company created by Donn Lux and Stephen Soucy.⁴ It has no employees, and its sole business purpose is to own and lease aircraft. It is a wholly owned subsidiary of Luxco, a Missouri S-corporation that makes and markets alcoholic beverages.⁵ Donn Lux is both a managing member of APLUX and the chief executive officer and chairman of Luxco.

A. Purchase and Agreement as to the TBM

In August 2011, APLUX purchased a 2011 Socata TBM 850 aircraft ("the TBM") from a Texas company for $3.22 million.⁶ It provided the Texas seller with a sales tax exemption certificate stating the TBM would not be used in Texas and would be hangered in Missouri. Ten days after purchase, APLUX and Luxco executed what they claimed was a "non-exclusive dry lease agreement"⁷ for the TBM. Under the agreement, Luxco agreed to pay APLUX $114,000 annually in exchange for the ability to use the TBM on a non-exclusive basis. But, as discussed in detail below in analyzing whether this agreement was a "sale" under the use tax statutes, the agreement did not cede control of the TBM to Luxco. To the contrary, it provided that APLUX had priority of use of the TBM and could, at its sole discretion, "lease" the TBM to others during the term of Luxco's agreement. The agreement also stated the lease was non-exclusive, gave APLUX at all times the "absolute right" to determine whether to make the TBM available to Luxco, and provided Luxco operational control of the plane only while the TBM actually was in its possession.⁸

After executing the "lease" agreement with Luxco, APLUX also signed a management agreement with Aero for the TBM. Aero is a private charter company and common carrier based out of the Spirit of St. Louis Airport in Chesterfield, Missouri. In addition to charter services under part 135 of the Federal Aviation Administration ("FAA") regulations,⁹ Aero provides aircraft management and maintenance services.¹⁰ Under the management agreement, APLUX paid Aero to provide insurance, maintenance, and hangar space for the TBM. Luxco did not enter into its own management agreement with Aero for the TBM until nearly a year after APLUX executed the TBM agreement with Luxco.

B. Purchase and Agreement as to the Excel

In January 2012, APLUX purchased a 1999 Cessna 560XL ("Excel") in Kansas for $3.15 million. APLUX provided the Kansas seller with a sales tax exemption certificate. The next month, APLUX executed the same type of agreement with Luxco for the Excel as it had for the TBM, except, in the case of the Excel, the parties agreed on a $117,600 annual payment. As in the case of the TBM agreement, the Excel agreement provided that APLUX retained for itself: 1) the unfettered right to "lease" the Excel to others during Luxco's term; 2) priority use of the Excel; and 3) the absolute authority to determine the Excel's availability for Luxco.¹¹ Luxco was granted operational control of the Excel only if and when it operated it.

APLUX also executed what it again styled a "dry lease agreement" with Aero for the same Excel and, at a later point, a management agreement. At this point, Aero was not just a manager as to the Excel but also was a second lessee of the Excel along with Luxco. The agreement between Aero and APLUX for the Excel did not mirror APLUX's agreement with Luxco for either the Excel or the TBM. Instead, it allowed Aero to use the Excel for charter flights in exchange for a monthly rental fee that would be calculated according to the number of hours Aero chartered the plane. The agreement also required Aero to maintain its "operating certificate" and comply with all FAA regulations and United States Department of Transportation registration requirements; gave Aero operational control of the Excel while operating it for charter flights; and required APLUX to deliver the Excel to Aero. Only at the expiration of the agreement's term would Aero return the plane to APLUX. In addition, the agreement required the Excel to be hangered with Aero for the duration of the term and remain in Aero's legal and actual possession even when not in use. It also required Aero to provide maintenance and insurance for the Excel at APLUX's expense.

C. APLUX Did Not Pay Use Tax on the Purchase Price of the TBM or Excel

APLUX did not pay use tax on the purchase of either the TBM or the Excel. Instead, it remitted sales tax on the "lease" payments it received from Luxco for both aircraft, believing that its "lease" agreement with Luxco constituted a "sale" and qualified for the resale tax exemption such that it could pay sales tax on the "lease" payments instead of use tax on the purchase price as permitted under 12 C.S.R. § 10-108.700(3) :

(A) When a lessor purchases tangible personal property for the purpose of leasing, the lessor may pay tax on the purchase price or claim a resale exemption based on the intended lease of the tangible personal property.

1. If the lessor pays tax on the purchase price, the subsequent lease of the tangible personal property is not subject to tax.

2. If the lessor claims a resale exemption on its purchase, the amount charged for lease of the tangible personal property is subject to tax.

3. The election to pay tax on the purchase price must be made at the time the tangible personal property is purchased by the lessor. If tax is not paid on the tangible personal property at the time of the purchase, the lease is subject to tax.

4. If the lessor acquires the property in some way other than a taxable purchase (e.g., through a repossession or foreclosure, or by self-manufacturing), the amount charged for lease of the tangible personal property is subject to tax.

APLUX did not pay sales tax on APLUX's lease of the Excel to Aero because Aero is a common carrier and section 144.030.2(20) contains an express exemption for tax on sales, including leases, to common carriers.¹²

In 2014, the director conducted sales and use tax audits of APLUX and issued his assessment finding APLUX owed use tax on the purchase price of both aircraft and could not elect instead to pay sales tax on the alleged lease payments from Luxco.¹³ APLUX filed a petition with the AHC challenging the director's assessment.

The AHC...