Sales/Use/Indirect:
Missouri: State High Court Disallows Resale Exemption Based on Terms of Aircraft Reuse Agreement

Case No. SC98409, Mo. (3/2/21). The Missouri Supreme Court (Court) partially reversed a Missouri Administrative Hearing Commission (Commission) decision to hold that a taxpayer is liable for state use tax on its purchase of two aircraft, because the transactions did not qualify for Missouri’s resale exemption based upon the terms of a subsequent aircraft lease agreement with its parent company. In doing so, the Court agreed with the Missouri Director of Revenue that the arrangement terms with its parent did not transfer use of either aircraft because the taxpayer retained general control and priority use of both aircraft and the parent, which had no priority to use either aircraft, could operate the aircraft only if the taxpayer had not already leased them to a third-party or claimed priority use for itself. According to the Court, such an arrangement is not a transfer of use, which under statute requires both the exercise of “any right or power” over property and either “ownership or control” of that property. For this reason, the Court concluded that a subsequent aircraft “sale” to the parent did not occur and thus the taxpayer was not entitled to a resale exemption on its purchase of either aircraft.

However, the Court affirmed a separate part of the Commission’s ruling that the taxpayer was entitled to a resale exemption on its purchase of one of the aircraft based upon the terms of another lease. Specifically, the Court agreed with the Commission that a separate lease agreement to a common carrier was sufficient to constitute a “sale” under state tax law, comparing the facts to those in a previous Court case from 2019. The terms of this other agreement required the taxpayer to deliver the aircraft to the lessee’s base of operation, where it was required to be hangered in the lessee’s custody throughout the lease, and, during the lease period, the taxpayer could not override the lessee’s schedule. Further, the lessee had operational control of the aircraft during charter flights and was solely responsible for its maintenance. Therefore, the Court concluded that the Commission did not err in allowing the resale exemption for that aircraft. Please contact us with any questions.