Aviation v. State Tax Assessor.

• Decision Date: 26 April 2011
• Docket Number: Docket No. BCD–10–2.
• Citation: 17 A.3d 1237,2011 ME 50
• Parties: VICTOR BRAVO AVIATION, LLCv.STATE TAX ASSESSOR.
• Court: Maine Supreme Court

17 A.3d 1237

2011 ME 50

VICTOR BRAVO AVIATION, LLC

v.STATE TAX ASSESSOR.

Docket No. BCD–10–2.

Supreme Judicial Court of Maine.

Argued Sept. 14, 2010.Decided April 26, 2011.

Jonathan A. Block, Esq., Robert A. Creamer, Esq. (orally), Pierce Atwood LLP, Portland, ME, for Victor Bravo Aviation, LLC.Janet T. Mills, Attorney General, Scott W. Boak, Asst. Atty. Gen. (orally), Office of the Attorney General, Augusta, ME, for the State Tax Assessor.Panel: SAUFLEY, C.J., and ALEXANDER, LEVY, SILVER, MEAD, and GORMAN, JJ.Majority: SAUFLEY, C.J., and ALEXANDER, SILVER, and GORMAN, JJ.Concurrence: LEVY, and MEAD, JJ.SAUFLEY, C.J.

[¶ 1] In this case, we must decide whether an aircraft was exempt from Maine's use tax when it was purchased and delivered outside of Maine and was never registered in Maine but was present in the state on 156 days during its first twelve months of use. We considered a similar question in Blue Yonder, LLC v. State Tax Assessor, 2011 ME 49, 17 A.3d 667, in which the aircraft at issue was present in Maine significantly less frequently during the first twelve months of ownership than the aircraft in the matter before us. Based on the particular facts of the present case, the law in place when the aircraft was purchased, and the analysis set forth in Blue Yonder, we conclude that Victor Bravo Aviation, LLC's aircraft was appropriately subject to the use tax. [¶ 2] Victor Bravo Aviation, LLC, appeals from a summary judgment entered on the Business and Consumer Docket ( Humphrey, C.J.) affirming the State Tax Assessor's imposition of a use tax on an aircraft owned by Victor Bravo. Victor Bravo argues that a use tax should not have been imposed because the aircraft was not “located in this State,” 36 M.R.S. § 1752(21) (2005), and because three use tax exemptions applied, 36 M.R.S. § 1760(23–C)(C), (45)(B), (82) (2005).¹ Victor Bravo also argues that the interest assessed against it should be waived or abated. See 36 M.R.S. § 186 (2005).

[¶ 3] The Assessor cross-appeals from the court's decision vacating the Assessor's denial of Victor Bravo's request for abatement of penalties. See 36 M.R.S. § 187–B(7) (2005). We affirm the summary judgment except with regard to interest.

I. BACKGROUND

[¶ 4] The parties do not dispute that Victor Bravo is a limited liability company organized in Connecticut in 2002. Between November 20, 2002, and January 5, 2005, Victor Bravo had two members, E. Brian Cleary and his wife, Vicki Cleary. On January 5, 2005, the structure of ownership changed, and the sole member of Victor Bravo was Cleary Benefits Group, Inc., the Clearys' primary business. The Clearys also formed an LLC in Maine called Saddle Ridge Holdings, LLC, in May 2004 and were its sole members through April 2008. During 2005 and 2006, E. Brian Cleary was also the half-owner of Danbury Powersports, Inc., a Connecticut corporation.

[¶ 5] In December 2004, Victor Bravo contracted to purchase an aircraft from Columbia Aircraft Sales in Connecticut. The aircraft was constructed in France and flown to the United States in May 2005 with stops in Maine along its way to Connecticut, where Victor Bravo took possession of the aircraft. The aircraft was used both in Maine and in other states, including Connecticut, during the first twelve months that Victor Bravo owned it. According to a stipulation of the parties, the aircraft made thirty-seven trips to Maine, was present in the state on 156 days during that time period, and was in Maine overnight on at least 121 occasions. The aircraft was in Maine for the entire day on eighty-nine days during the first twelve months that Victor Bravo owned it.

[¶ 6] Victor Bravo never registered the aircraft in Maine. On occasion, however, the aircraft was placed in a hangar in Maine that Victor Bravo owned for storage of another aircraft that it owned. Victor Bravo had paid a use tax for the other aircraft in Maine, but it did not pay sales or use tax in any jurisdiction on the aircraft at issue here.

[¶ 7] Although the parties agree on these basic facts, they dispute whether making the above-listed trips constituted “use” in Maine by Victor Bravo or whether the trips instead constituted “use” by Saddle Ridge, Cleary Benefits, or Danbury Powersports, which rented the aircraft from Victor Bravo to make those trips. Saddle Ridge, Cleary Benefits, and Danbury Powersports entered into written rental agreements with Victor Bravo and compensated Victor Bravo when they leased the aircraft.

[¶ 8] On or about February 2, 2007, Victor Bravo was assessed with Maine use tax on the aircraft of $120,850, plus interest of $20,397.12 and penalties and costs of $36,255. Maine Revenue Services asserted that Victor Bravo owed $177,502.12. Upon reconsideration, the Assessor upheld the assessment of the tax. Victor Bravo appealed and sought a de novo determination from the Superior Court. See 36 M.R.S. § 151 (2010); M.R. Civ. P. 80C. Upon cross-motions for summary judgment, see M.R. Civ. P. 56, the court entered a summary judgment for the Assessor on the assessment of the tax and interest but for Victor Bravo on the issue of penalty waiver or abatement.

II. DISCUSSION

[¶ 9] As we observed in Blue Yonder, LLC, 2011 ME 49, ¶ 8, 17 A.3d at 670–71, the use tax is designed “to minimize unfair competition between intrastate and interstate sales of tangible personal property,” Brent Leasing Co. v. State Tax Assessor, 2001 ME 90, ¶ 11, 773 A.2d 457, 460 (quotation marks omitted). It is a tax imposed on personal property that is purchased outside of Maine and brought into Maine for use. See Brent Leasing Co., 2001 ME 90, ¶ 11, 773 A.2d at 460. The use tax diminishes the incentive to purchase goods in out-of-state locations where there are lower, or no, sales taxes. Id. at 460–61. The use tax serves as a necessary complement to the sales tax. John Swenson Granite, Inc. v. State Tax Assessor, 685 A.2d 425, 428 (Me.1996).

[¶ 10] We review the decision of the court in this matter because the court was required by statute to determine questions of law and fact raised in an appeal from the Assessor's decision de novo. See 36 M.R.S. § 151; see Blue Yonder, LLC, 2011 ME 49, ¶ 6, 17 A.3d at 670. In light of the procedural posture of this tax appeal, which was decided on summary judgment, we review the grant of summary judgment de novo, viewing the facts in the light most favorable to the nonprevailing party to determine whether the court correctly concluded that there were no genuine issues of material fact and that the prevailing party was entitled to judgment as a matter of law. See M.R. Civ. P. 56(c); Blue Yonder, LLC, 2011 ME 49, ¶ 7, 17 A.3d at 670; Stewart Title Guar. Co. v. State Tax Assessor, 2009 ME 8, ¶ 11, 963 A.2d 169, 173.

[¶ 11] Guided by the principles established in Blue Yonder, LLC, 2011 ME 49, 17 A.3d 667, we first determine whether the aircraft was “used” in Maine by Victor Bravo, rather than the renters of the aircraft, such that the imposition of the use tax would be consistent with the purpose of that tax to complement the sales tax. We next examine the applicability of the exemptions that Victor Bravo claims in connection with exemptions for in-state sales of property delivered or immediately transported outside of Maine. See 36 M.R.S. § 1760(23–C), (82). We then address the applicability of the asserted exemption that applies to certain property purchased outside of Maine. See id. § 1760(45)(B). Finally, we review the determinations regarding interest and penalties.

A. Use of the Aircraft in Maine

[¶ 12] Before addressing any of the asserted exemptions, we must determine whether Victor Bravo was using the aircraft during that twelve-month period. By statute, the term “use” was defined as follows:

“Use” includes the exercise in this State of any right or power over tangible personal property incident to its ownership, including the derivation of income, whether received in money or in the form of other benefits, by a lessor from the rental of tangible personal property located in this State.

36 M.R.S. § 1752(21) (emphasis added). The statute plainly included the lease of property for consideration as a form of use by the lessor, Victor Bravo. The remaining question is whether the aircraft was “located in this State.”

[¶ 13] We have interpreted the phrase “located in this State” to mean “coming to rest in the State after importation and ... becoming part of the common mass of property within the State.” Realco Servs., Inc. v. Halperin, 355 A.2d 743, 747 (Me.1976) (emphasis omitted) (citing Hunnewell Trucking, Inc. v. Johnson, 157 Me. 338, 172 A.2d 732 (1961) and Commercial Leasing Inc. v. Johnson, 160 Me. 32, 197 A.2d 323 (1964)). Conducting a plain-meaning analysis, we held that “the Legislature intended the words ‘located in this State’ to relate to personal property which, in fact, had come to rest within the State with a corresponding loss of all transient characteristics.” Id. Applying this interpretation, we held that trailers that had a mere “temporary presence” in Maine for the “purely transient purpose of reshipment to destinations outside the State” were not located in Maine and were not, therefore, subject to Maine's use tax. Id. [¶ 14] The present case is distinguishable from the facts of Realco, however, because the aircraft at issue here was not merely a conveyance used for shipping across state lines. Rather, the aircraft was destined for Maine on thirty-seven trips and was present in Maine during at least 156 days in the first year of Victor Bravo's ownership. In these circumstances, the aircraft was properly considered to have “come to rest” in Maine in a way that went beyond a temporary, transient presence. Accordingly, the statute is properly interpreted to permit the assessment of a use tax on the aircraft, unless an exemption applies.

B. Exemptions from Sales Tax for Certain Purchases in Maine

[¶ 15] Subsection (23–C) exempted from use taxation any sale or...