Big Blue Express, Inc. v. Neb. Dep't of Revenue

• Decision Date: 30 July 2021
• Docket Number: No. S-20-518.,S-20-518.
• Citation: 309 Neb. 838,962 N.W.2d 528
• Parties: BIG BLUE EXPRESS, INC., appellant and cross-appellee, v. NEBRASKA DEPARTMENT OF REVENUE et al., appellees and cross-appellants.
• Court: Nebraska Supreme Court

309 Neb. 838

962 N.W.2d 528

BIG BLUE EXPRESS, INC., appellant and cross-appellee,

v.NEBRASKA DEPARTMENT OF REVENUE et al., appellees and cross-appellants.

No. S-20-518.

Supreme Court of Nebraska.

Filed July 30, 2021

Matthew R. Ottemann, of McGrath, North, Mullin & Kratz, P.C., L.L.O., Omaha, for appellant.

Douglas J. Peterson, Attorney General, and L. Jay Bartel, Lincoln, for appellees.

Heavican, C.J., Cassel, Stacy, Funke, Papik, and Freudenberg, JJ.

Stacy, J.

A Nebraska corporation purchased an interest in an airplane from a Kansas seller without paying Nebraska sales or use taxes. The Nebraska Department of Revenue (Department) assessed a tax deficiency, and the corporation claimed no taxes were owed because the purchase was a "sale for resale."¹ After a hearing, the Tax Commissioner concluded the corporation failed to prove the purchase was a sale for resale and affirmed the Department's deficiency assessment of $161,373.31. The corporation appealed to the Lancaster County District Court pursuant to the Administrative Procedure Act (APA),² and the district court affirmed. The corporation appeals, and the Department, along with the Tax Commissioner and the State, cross-appeals. We affirm.

I. FACTS

1. BIG BLUE AND RELATED ENTITIES

Big Blue Express, Inc. (Big Blue), is a Nebraska corporation formed in 2004. Michael Schneider is its president, treasurer, and director. Rick Shaneyfelt is its secretary and chief financial officer. Big Blue has no employees. Big Blue and its officers have close business relationships with several other entities, and because an understanding of those relationships is helpful to our legal analysis later, we describe them in some detail when reciting the facts.

CVE Merchant Services, Inc. (CVE), owns 100 percent of Big Blue, and Schneider is the president and a 100-percent owner of CVE. CVE is also the only owner and the sole member of Cheque Point Payment Processing, LLC, which does business under the names "PowerPay" and "PowerPay Central." Schneider is also the owner and director of Tamarack Aerospace Group, Inc., and the president of CR Services, Inc. Additionally, Schneider has business relationships with The First Group, Inc., and Tactical Air Support, and he is a partner of Schay Enterprises Limited Partnership (Schay). PowerPay, Schay, The First Group, and CVE all have the same mailing address as does Big Blue.

2. AIRPLANE PURCHASE

On April 8, 2011, Big Blue purchased a 66²/₃ interest in a "2009 Embraer Phenom 100 Emb-500" airplane from a seller in Kansas. The total price of the airplane was $2,821,500, and the parties agree that Big Blue paid no sales or use tax on the airplane in any state. Robinson's Hangar LLC purchased the remaining 33? interest in the airplane. Robinson's Hangar is unrelated to either Schneider or Big Blue.

An "Aircraft Joint Ownership Agreement" and an "Aircraft Management Agreement" were entered into by Big Blue and Robinson's Hangar approximately 1 week before the purchase of the airplane. Pursuant to these agreements, Robinson's Hangar is entitled to use the airplane for 100 flight hours per year and may utilize up to 50 additional flight hours by paying Big Blue $222 per flight hour. Big Blue is entitled to use the airplane for 200 flight hours per year and may utilize up to 100 additional flight hours by paying Robinson's Hangar $111 per flight hour.

These agreements anticipated that Big Blue and Robinson's Hangar each would "lease the aircraft to their respective owners and such owner's affiliates," and the agreements authorized each party to keep the revenue from such leases. The agreements identified Big Blue as the manager of the airplane, which was hangared at an airport in Wahoo, Nebraska.

3. INSURANCE ON AIRPLANE

Big Blue purchased an aviation insurance policy on the airplane. The declarations page indicated the airplane would be used for "PLEASURE AND BUSINESS" but not "COMMERCIAL." The policy defined those terms as follows:

Commercial means used principally in the business of the insured, including ... passenger or freight carrying for hire or reward, rental to others for the purpose of pleasure and business and those uses defined under pleasure and business.

....

Pleasure and business means used in the business of the insured including personal and pleasure uses but excluding any operation for hire or reward.

(Emphasis omitted.)

4. USE AGREEMENTS

On April 30, 2011, Big Blue (as the lessor) entered into written use agreements for the airplane with lessees Schneider, CVE, Schay, and CR Services. Schneider signed all these agreements for Big Blue in his capacity as president. Schneider also signed the agreements on behalf of lessees CR Services and Schay in his capacity as president for those companies. Shaneyfelt signed as the lessee for CVE, in his capacity as its secretary. The same day, a use agreement with Cheque Point Payment Processing, doing business as PowerPay, was signed by Shaneyfelt as "CFO" of PowerPay. In that agreement, the signature for the lessor was to be Schneider as president of Big Blue, but it appears Schneider never signed.

Almost 2 years later, on July 15, 2013, Big Blue entered into a written use agreement for the airplane with Tamarack Aerospace Group. Schneider signed that agreement as the lessor in his capacity as president of Big Blue, and as the lessee in his capacity as "CEO" of Tamarack Aerospace Group. Schneider testified that on unspecified dates he, as president of Big Blue, also entered into oral use agreements with The First Group, Tactical Air Support, Steve Meyer, and Steve Buchanan.

All of the written use agreements provided for a payment of $1,300 per flight hour and made the lessees responsible for expenses such as fuel, providing a pilot and crew, and paying for insurance and hangar costs. The agreements further provided that Big Blue would send invoices for flight hours used and that unless invoices were paid within 15 days, interest would accrue at 18 percent per annum.

5. INVOICES

Big Blue's records show the airplane was flown 20 times in the 20-month period between April 2011, when it was purchased, and December 2012. Flight hour invoices prepared by Big Blue at the end of each calendar year documented these flights. Specifically, invoices dated December 31, 2011, were sent by Big Blue to Schneider, PowerPay, Meyer, Buchanan, and The First Group. These invoices all charged a rate of $1,100 per flight hour and related to flight dates between May 2011 and December 2011. Three flight hour invoices dated December 31, 2012, were sent to Schneider; two invoices charged $1,300 per flight hour, and one charged $1,100.

Big Blue's financial records show none of the invoices it sent in December 2011 and December 2012 were paid until after Big Blue was contacted by the Department in July 2013. Specifically, the December 31, 2011, invoices were paid between 495 and 570 days past their due dates; the December 31, 2012, invoices were paid 204 days after their due dates. Many of the invoices issued by Big Blue between December 2011 and December 2012 were paid from an investment account owned by Schneider and his wife, including the invoices issued by Big Blue to Meyer, Buchanan, PowerPay, and Schay.

On July 2, 2013, the Department contacted Big Blue about its sales tax returns and the airplane purchase. At that time, Big Blue reported that it had not collected any revenue related to leasing the airplane. As noted, however, Big Blue subsequently collected payment on the various invoices issued in 2011 and 2012. Big Blue did not charge interest on any late invoice payments.

Between July and December 2013, Big Blue issued five flight hour invoices to Tamarack Aerospace Group that were promptly paid, four flight hour invoices to Schneider that were promptly paid, and flight hour invoices to PowerPay and Schay that were promptly paid. All of these invoices appear to relate to flight dates in 2013 and charge $1,300 per flight hour.

In total, Big Blue issued 20 flight hour invoices between December 31, 2011, and December 31, 2013, showing the airplane was leased for a total of 237.69 flight hours. Six of the invoices billed $1,100 per flight hour, and the remaining 14 billed $1,300 per flight hour. Of the 237.69 flight hours, 133.9, or 56 percent, were invoiced directly to Schneider.

Schneider testified that Big Blue issued invoices after details from the airplane's flight logbook were sent to him. Although he testified that he was involved in the preparation of the invoices, he also testified that he did not recognize any of the flight hour invoices offered at trial as being prepared by him. Schneider suggested that a person named "Brenda," surname unknown to him, or perhaps Pam Schendt, had created them. He did not know which of his many related entities employed either Brenda or Schendt. Shaneyfelt testified that he supervised Big Blue's invoicing, which was performed by Schendt, and that he generally was guided by Schneider in doing so. Neither Schneider nor Shaneyfelt could explain the years-long delay in preparing some of the invoices.

6. FLIGHT HOUR RATE AND ADVERTISING

Schneider is a pilot with certifications to fly multiple aircraft, and he testified that he established the $1,300 flight hour rate contained in the use agreements. He also testified he thought the rate reflected fair market value in 2011 through 2013. Schneider explained that when setting the $1,300 flight hour rate, he reviewed industry publications that analyze the hourly cost involved in owning an aircraft and then added a rate of profit to that hourly cost. He also relied on his experience as a pilot and his previous experience in leasing airplanes.

Big Blue also offered the testimony of Vincent Barone. Barone testified he graduated from high school in 2016 and was pursuing a bachelor's degree in aviation while he worked as a commercial pilot for a company specializing in aircraft consulting and management. Barone generally testified that he reviewed...