STATE
OF WISCONSIN
TAX APPEALS COMMISSION
CITATION PARTNERS, LLC, DOCKET NO. 18-S-192
Petitioner,
vs.
WISCONSIN DEPARTMENT OF REVENUE,
Respondent.
RULING AND ORDER
LORNA
HEMP BOLL, COMMISSIONER:
This case comes before the
Commission for decision on simultaneous Motions for Summary Judgment. The Petitioner, Citation Partners, LLC, Beaver Dam,
Wisconsin, appears by Attorneys Frederic J. Brouner and Megan A. Senatori, of
DeWitt, LLP[1].
The Respondent, the Wisconsin Department of Revenue (“the Department”), is
represented by Attorney Mark S. Zimmer.[2]
The parties have filed a Stipulation of Facts; both have filed briefs, and
Petitioner has filed an affidavit in support of its position. For the reasons
stated below, we find for the Department.
FACTS
Material Facts
1.
Petitioner, Citation Partners, LLC, is a limited
liability company based in Beaver Dam, Wisconsin. (Petition.)
2.
The Petitioner/Lessor owns a Cessna Citation aircraft
(the “Aircraft”) which it leases to Lessees pursuant to an Aircraft Dry Lease
(“Dry Lease”). The Dry Lease (Petition, Ex. C), does not include the financial
terms of the lease. Those terms are included in what is called a Side
Agreement. (Stip. ¶ 1.)[3]
3.
Each Lessee executes a Side Agreement each calendar year
in the forms set forth in the Petition, Exhibit D (dated January 1, 2014, and
January 1, 2015). The Side Agreement governs billings to Lessees for an
allocable share of flight time and the cost of Aircraft maintenance and the
cost of engine maintenance and parts. (Stip. ¶ 1.)
4.
Identical Dry Leases and Side Agreements are signed by
each Lessee of the Aircraft.[4] (Stip. ¶
2.)
5.
This case involves two forms of Side Agreements, one
dated January 1, 2014, before the July 2014 enactment of Act 185, and one dated
January 1, 2015, after the enactment of Act 185. (Petition, Ex. D.)
6.
The January 1, 2014 Side Agreement, under “Hourly Fee,”
lists a flight hour charge and an additional separately identified engine
maintenance charge of $286.42 per flight hour, described as “Tap Elite Engine
Maintenance Program Hourly Rate.” The TAP Elite Engine maintenance hourly rate
is the exact hourly rate for engine maintenance billed to Petitioner by
Williams International for maintenance of the Aircraft engines. (Stip. ¶ 3.)
7.
Act 185 became effective July 1, 2014.
8.
When Petitioner became aware
of the passage of Act 185 in the late fall of 2014, Petitioner changed its
invoicing to separately identify “Airplane Repairs” (previously included in the
flight hour charge) so that both “Airplane Repairs” and “Engine TAP Costs” were
identified in its invoices to its Lessees on and after November 1, 2014, to
December 31, 2015. (Stip. ¶ 3; Petition, Ex. D-1, pp. 2-4.)
9.
While the Aircraft
maintenance cost per flight hour was not broken out in the Side Agreement until
the January 1, 2015 Side Agreement, on and after January 1, 2015, the Side
Agreements and invoices to Lessees expressly provided for dollar for dollar
reimbursement by each of the Lessees of the Aircraft of both engine maintenance
cost and Aircraft maintenance cost. (Stip. ¶3.)
10.
Petitioner revised Side
Agreement as of January 1, 2015, to break out the amount to be billed as the
Aircraft maintenance hourly rate at $488 per flight hour (Stip. ¶ 3; Petition, Exs.
D and D-1.)
11.
Petitioner determined a
separate per flight hour charge for (a) engine maintenance (“TAP”)
and for (b) Aircraft maintenance parts and services (“airplane
repairs”) to obtain a dollar for dollar “reimbursement”[5]
to Petitioner for actual engine maintenance and estimated Aircraft maintenance
cost for purposes of claiming the Act 185 exemption. (Stip. ¶ 3.)
12.
The Dry Lease and the related Side Agreements
for 2014 and 2015 (Petition, Exs. C and D) signed between the Petitioner and
its Lessees are not maintenance or service contracts providing for future
performance or payment for repair services but, instead, obligate the Lessee to
“reimburse” the Petitioner for costs of engine maintenance and parts and
Aircraft maintenance previously paid by the Petitioner.[6]
(Stip. ¶ 5.)
13.
The governing Dry Lease provides that the
Aircraft is to be maintained by certified and qualified mechanics. (Stip. ¶ 6.)
14.
The Dry Lease requires the Lessee to be in
exclusive operational control of the Aircraft at all times as required by 14
C.F.R. 1.1 imposed by the FAA. (Stip. ¶ 6.)
15.
The Dry Lease further requires the Lessee to
inspect the Aircraft and maintenance records pertaining to the Aircraft to
confirm the air worthiness of the Aircraft prior to each flight and expressly
prohibits the Lessee from operating the Aircraft unless and until such time as
certificated and qualified mechanics have completed any required repairs and
maintenance. (Stip. ¶ 6.)
16.
The Dry Lease requires the Lessor (the
Petitioner) to schedule and pay for all repairs and maintenance on the Aircraft
and then states that the Lessor (the Petitioner) will bill the Lessee for its
proportionate share of such maintenance and repair costs. Each Lessee executes
the same Dry Lease which, in turn, must be filed with and accepted by the FAA
and must be kept on board the Aircraft during use by the Lessee. (Stip. ¶ 6.)
17.
Engine Maintenance: The Aircraft engines are physically
removed from the Aircraft and shipped to the State of Michigan for maintenance
by Williams International. Williams International billed the Petitioner $286.42
per flight hour in 2014 and $292.26 per flight hour in 2015 for the engine
maintenance, and then that exact hourly cost is, in turn, billed by the Petitioner
to all of the Lessees based on their respective use of the Aircraft as measured
by flight hours. (Stip. ¶ 7.)
18.
Aircraft Maintenance/Repairs: Unlike the
engine maintenance done by Williams International in the State of Michigan, the
actual Aircraft maintenance was performed in the State of Wisconsin and was itemized
in the invoices from the Petitioner to Lessees at a rate of $475 per flight
hour on and after November 1, 2014, and $488 per flight hour in 2015 as a
reasonable estimate made by the Petitioner based on its prior actual costs for
such Aircraft maintenance. (Stip. ¶ 8.)
19.
The Petitioner insists there be one
maintenance shop (Cessna for the Aircraft and Williams International for the
engines) in order to know the engine and the Aircraft maintenance will be done
properly and in compliance with FAA rules. The Lessor does not want, and cannot
allow, Lessees to take the Aircraft or the engines to any other maintenance or
engine repair shop and risk air worthiness of the Aircraft. (Stip. ¶ 9.)
20.
The Dry Lease mandates the specific
maintenance procedure and expressly provides that Lessor (the Petitioner) will
control the maintenance. The portion of the total fees charged to each Lessee
represents that Lessee’s pro rata share of Lessor’s Aircraft maintenance cost
and engine maintenance and parts cost based on defined hourly rates set forth
in the Side Agreement and the Lessor’s billings to the Lessees. (Stip. ¶ 10.)
21.
Prior to November 1, 2014,
Petitioner collected sales tax on the entire price of the lease of its
aircraft. (Stip. ¶ 11.)
22.
Starting November 1, 2014, because of the Act 185
exemption, Petitioner no longer collected sales tax from the Lessees on the
portion of their lease payments that was attributable to the Aircraft
maintenance and engine maintenance costs and parts. Also beginning November 1,
2014, Petitioner implemented the invoicing procedure discussed paragraph 8,
et. seq., above. (Stip. ¶ 11.)
23.
Petitioner applied to the Department for a refund of
sales tax for the period July 1, 2014, to October 31, 2014, to recover sales
tax previously paid to Respondent and previously collected from Lessees for
Aircraft maintenance and engine maintenance cost. The Department issued a
refund for the months of July through October 2014. (Petition, Ex. D-2.)
Petitioner then issued credit memos to all Lessees for previously collected
sales tax to reflect the four-month refund from the Department. (Stip. ¶ 11.)
24.
Following a field audit, the Department assessed sales
tax on the portion of Petitioner's lease receipts from Lessees attributable to their
pro rata shares of Aircraft maintenance and engine maintenance and parts costs
on which Petitioner had not remitted tax during the periods November 1, 2014,
through December 31, 2015. The assessment also sought to recover the amounts
previously refunded for the months of July through October 2014.[7] (Stip. ¶
12.)
Procedural History
25.
After a field audit of the Petitioner, the Department
issued a Notice of Amount Due dated November 20, 2017, assessing sales/use tax
due for the tax years ending December 31, 2012, through December 31, 2015, in
the amount of $47,501.13, inclusive of interest through January 19, 2018.
(Stip. ¶ 14, Ex. B.) Several related issues have been resolved, so that the
period at issue is July 1, 2014 – December 31, 2015.
26.
On or about December 20, 2017, Petitioner petitioned for
a timely redetermination of the November 20, 2017 determination. (Stip. ¶ 15, Ex.
C.)
27.
In a notice dated July 27, 2018, the Department denied
the Petition for Redetermination. (Stip. ¶ 16, Ex. D.)
28.
On September 7, 2018, Petitioner filed a timely Petition
for Review with the Commission. (Stip. ¶ 17; Commission file.)
29.
Exhibit A to the
parties’ Stipulation is the revised sales tax assessment, which assesses sales
tax on the portion of the lease payments representing amounts paid by the Petitioner
for aircraft maintenance and engine maintenance and parts costs.[8]
The Petitioner claims these amounts are exempt from tax under Act 185 when
separately invoiced to its Lessees; however, the Department has determined that
this portion of the lease payments is not exempt from sales tax. (Stip. ¶ 13.)
APPLICABLE LAW
In Wisconsin, the lease of tangible personal property is taxable. Sales
tax applies to the sales price of a lease unless an exception in subchapter
77.52 applies.
Wis. Stat. § 77.52 Imposition
of retail sales tax.
(1)(a) For the privilege of selling, licensing, leasing
or renting tangible personal property at retail a tax is imposed upon all
retailers at the rate of 5 percent of the sales price from the sale,
license, lease or rental of tangible personal property sold, licensed, leased
or rented at retail in this state, as determined under s. 77.522.
(1b) All sales, licenses, leases, or rentals
of tangible personal property or items, property, or goods under sub. (1) (b),
(c), or (d) at retail in this state are subject to the tax imposed under sub.
(1) unless an exemption in this subchapter applies.
(emphasis added)
Wisconsin Statutes define “sales price” as
follows:
Wis. Stat. § 77.51(15b)(a) “Sales price" means the total amount of consideration, including cash, credit, property, and services, for
which tangible personal property, or items, property, or goods under s. 77.52
(1) (b), (c), or (d) or services are sold, licensed, leased, or rented, valued
in money, whether received in money or otherwise, without any deduction for
the following:
1. The seller's cost of
the property or items, property, or goods under s. 77.52 (1) (b), (c), or
(d) sold.
2. The cost of materials
used, labor or service cost, interest, losses, all costs of transportation
to the seller, all taxes imposed on the seller, except as provided in par. (b)
3m. and 3s., and any other expense of the seller.
(emphasis added)
Goods sold in Wisconsin are generally taxable under Wis. Stat. § 77.52.
However, pursuant to 2013 Wis. Act 185 (eff. July 1, 2014), sales of aircraft
parts are exempt.
Wis. Stat. § 77.54 General exemptions. There are exempted from the taxes imposed by this
subchapter:
(5) The
sales price from the sale of and the storage, use or other consumption of:
(a) 3. Parts
used to modify or repair aircraft.
Only specifically designated services
are subject to sales tax in Wisconsin. Maintenance services are included in the
list of taxable services. However, the “Act 185 Exemption” specifically excludes
the sale of aircraft maintenance services from sales tax. The statutory section
imposing sales on maintenance services now begins as follows:
Wis. Stat. § 77.52(2)(a) The tax imposed herein applies to the following types of
services:
10. Except for the repair, service, alteration, fitting,
cleaning, painting, coating, towing, inspection, and maintenance of any
aircraft or aircraft parts . . . .
ANALYSIS
Summary
judgment is appropriate when the pleadings, depositions, answers to
interrogatories, and admissions on file, together with affidavits, show there
is no genuine issue as to any material fact and that the moving party is
entitled to judgment as a matter of law. Wis. Stat. § 802.08(2). Sales
tax is imposed on the sale of all goods sold in the state. Sales tax is
explicitly imposed on all leases in Wisconsin, per Wis. Stat. § 77.52(1)(a),
unless an exemption applies. Wis. Stat. § 77.52(1b). The tax is measured as a
percentage of the sales price of, in this case, the Lease.
The Lease Agreements
Petitioner leases the Aircraft to
various Lessees pursuant to a governing contract, called an Aircraft Dry Lease.
The Dry Lease sets forth the parties’ respective responsibilities under the
Lease. For $1.00 “and other good and valuable consideration,” the Petitioner,
as Lessor, agrees to lease the Aircraft to the Lessee.
The Lessor commits to not default on its
related obligations, to pay taxes, and to procure insurance. Of note, the Dry Lease informs the Lessee that Lessee’s
proportionate share of the insurance costs and maintenance costs will be
included in the Lease Payments. (Dry Lease, Sections Five and Nine.)
The Lessee must provide its own pilots and
must provide Lessor with all the pertinent details planned for each rental
period. The Dry Lease also places some restrictions on Lessee’s use of the
Aircraft as to purpose, locations, operating procedures, and pilot qualifications.
(Dry Lease, Section Six.) Additionally, for every flight, Lessee must maintain
all logbooks and records in accordance with FAA rules, and Lessor may inspect
those records at any reasonable time. (Dry Lease, Sections Seven and Nine.)
This case concerns the maintenance of
the Aircraft. Pertinent to that issue, before using the Aircraft, the Lessee is
charged with doing its own inspection of the Aircraft and in doing so accepts
that the Aircraft is in good condition and repair. (Dry Lease, Sections One and
Nine.)
If Lessee
determines any repair or maintenance should be completed prior to any flight,
Lessee shall notify Lessor and shall not operate the Aircraft until such time
as certificated [sic] and qualified mechanics have completed such repairs or
maintenance. Lessor shall schedule and pay for all repairs and maintenance on
the Aircraft during the term of this Lease, including all ferrying flights and
transportation charges on replacements [sic] parts and accessories.
As
with insurance, the Dry Lease informs the Lessee that “Lessee’s proportionate
share of the cost of all repairs and maintenance is included in Lessee’s lease
payments to Lessor.” (Dry Lease, Section Nine.)
The extent of Lessee’s authority to take
care of maintenance issues itself is limited by the Dry Lease as follows:
Lessee,
through its pilot in command, is authorized to incur up to $5000 worth of
necessary maintenance and repair work for the Aircraft per flight, by certified
and qualified mechanics, without the prior written approval of the Lessor.
Lessee will be reimbursed for such expenditures upon Lessor’s receipt of
invoices and proof of payment by Lessee.
(Dry
Lease, Section Six.)
Otherwise,
“Lessee will not have the right to alter, modify, or make additions or
improvements to the Aircraft without the written permission of the Lessor.”
(Dry Lease, Section Eight.)[9]
“[T]he Aircraft Dry Lease requires the Lessor
(the Petitioner) to schedule and pay for all repairs and maintenance on the
Aircraft . . . .” (Stip. 6.) These costs, like the cost of insurance, clearly
go into the calculation of the lease payments per the language of the Dry
Lease, which explains that the lease payments will include each Lessee’s
“proportionate share” of such expense paid for by the Lessor.[10]
The Dry Lease is supplemented by the
Side Agreement in the form of a letter with a regarding line which reads, “Consideration
for Aircraft pursuant to Aircraft Dry Lease dated March 17, 2011 (“Lease”),
by and between [Lessee] and Citation Partners, LLC (“Lessor”).” The Side
Agreement begins, “This letter is to set forth our understanding concerning the
amounts Lessee will pay for the Aircraft pursuant to the above-reference Lease.”[11]
(emphasis added in both quotations)
The Side Agreement indicates the amounts
per flight hour the Lessee will be charged under the Lease, followed by a
clarification of which party is responsible for paying which types of expenses.
In the fee portion of the January 2015 letter, the Lessee will pay a total of
three hourly rates based on the number of flight hours the Aircraft is used by
the Lessee.[12]
Two hourly amounts are listed under “Hourly Fee.” According to the Stipulation,
the first amount ($724.50) represents charges the parties agree are taxable and
the second charge ($488.00) represents expenditures paid by the Lessor for
aircraft repair parts and maintenance. Petitioner asserts the second hourly fee
charge should not be taxable. A third hourly charge ($292.26) reflects amounts paid
by the Lessor for an engine maintenance program. Petitioner asserts this fee also
should not be subject to tax.
Below the hourly fee descriptions, the
Side Agreement clarifies the parties’ responsibilities for expenses. The
Lessor’s list includes scheduled and unscheduled maintenance. The Lessee’s list
does not include any maintenance related expenses.
ISSUE
The question is whether sales tax
applies to the full lease payment or whether certain portions can be carved out
as non-taxable because those portions represent non-taxable expenditures incurred
by the Petitioner/Lessor which are essentially passed on to the Lessees in the
lease price.
Reimbursement
The parties frame the issue as a
question regarding reimbursement. (Stip. ¶¶ 3, 5, 11, 12, and 13, as well as
the parties’ briefs.) In support of that label, since the end of
2014, in the Side Agreements, Petitioner has allocated the full repairs and
maintenance costs over all Lessees according to the flight hours the Aircraft
was used by each Lessee, arriving at what the parties consider an “exact dollar
amounts attributable to each Lessee” for repairs and maintenance as a function
of flight hours.
That starting point, reimbursement,
presupposes that each Lessee was obligated to pay for repair and maintenance
such that the Lessor, in effect, paid the expenses on behalf of the Lessees.
That is not what happens under these Agreements.
The ease of determining how much of any
expense is proportionately attributable to each Lessee does not transform the Lessor’s
expenses into separate and direct obligations of the Lessee. Under the Dry Lease,
the Lessee must inspect the Aircraft before taking it for flight, and the
Lessee must alert the Lessor to any observed need for repair. But it is the
Lessor who is obliged to arrange for and pay for all repair and maintenance.[13]
The Lessor “does not want, and cannot allow, Lessees to take the Aircraft or
the engines to any other maintenance or engine repair shop and risk air
worthiness of the Aircraft.” [14]
(Stip. 9.)
The Dry Lease, with its Side Agreement, does
not confer a responsibility for maintenance on the Lessee. To the contrary, it
is the Lessor who is expressly responsible for the repairs and maintenance.
Because the Lessees are not obligated to maintain the aircraft, they are not
reimbursing the Lessor for something paid on their behalf. Thus, this portion
of the lease payment is not a reimbursement.
Moreover, if, for example, a Lessee experiences
a mechanical malfunction, e.g., a light on the wing burns out, and spends less
than $5000 for repairs, under Section 6 of the Dry Lease, the Lessor will
reimburse the Lessee for that repair work and then spread the cost proportionately
over all Lessees. Spreading that cost over all Lessees is evidence that the
repair and maintenance work is a business cost the Lessor builds into the lease
price charged to all Lessees rather than a reimbursement from Lessees to Lessor
for maintenance. If this actually were a reimbursement, there would be no need
for the $5,000 reimbursement clause; each particular Lessee would simply pay
for all maintenance actually incurred during use.
Measure of Sales
This case involves a lease of an aircraft.
Leases of tangible personal property are taxable in Wisconsin. Wis. Stat. § 77.52(1b).
The tax is levied upon the sales price of the lease. Wis. Stat. § 77.52(1)(a).
Sales price is defined as the “full consideration” for which tangible property
is leased, with no deduction for costs or other expenses of the seller. Wis.
Stat. § 77.51(15b)(a).
The details of consideration for the Lease
are described in the Side Agreement, which shows “the amounts Lessee will pay
for the Aircraft pursuant to the above-reference Lease.” The full consideration
for the Lease is the sum of all three hourly rates shown in the more recent Side
Agreement.
Under Wis. Stat. § 77.51(15b)(a), “Sales
price" means the total amount of consideration . . . without any deduction
for” 1) the seller’s cost of the property sold, or for 2) service costs “or any
other expense of the seller.” Although the sale of repair and maintenance parts
and service for aircraft is now generally exempt under Act 185, the
expenditures for those repair and maintenance parts and services are not
separately exempt when incorporated into the lease payments of a subsequent
lease of the entire Aircraft. The ability to itemize a seller’s expenses does
not remove those costs from the sale price of the lease.
Itemization also does not convert Petitioner
into a seller of exempt repair parts or a seller of exempt maintenance
services.[15] When Petitioner purchases
such goods and services, Act 185 could apply to exempt those purchases. However,
in the transaction between the Petitioner and its Lessees, the Petitioner is
not selling excluded repair parts to or performing exempt repair and
maintenance service for its Lessees, so Act 185 does not apply.
The parties agree, and rightly so, that if
the Lessees had paid for the repairs and maintenance directly, those
transactions could be exempt from taxation per Act 185. But the Lessees do not
pay these costs directly.[16]
They do not even pay for repairs and maintenance due to their own specific use (for
example, something that wears out while the Aircraft is in their possession),
but are charged a proportion of the total cost of maintenance spread over all
Lessees’ use.
Perhaps our holding is, as Petitioner
asserts, a case of form over substance. However, we must evaluate the facts and
apply the law as written. We do not find ambiguity in the statutory provisions at
issue, so we refrain from comment on legislative history or intent. Instead, we
find the Petitioner is not selling exempt repair parts, nor is the Petitioner
providing exempt aircraft engine or maintenance services. Although a portion of
the lease payment can be said to represent Petitioner’s expenses for repairs
and maintenance, the Lessees are simply contracting with the Petitioner to
lease the Aircraft. It is worthwhile noting that, because the Petitioner’s
purchases of the repairs and maintenance were not taxed, the Lessees are not
subject to what could possibly be viewed as double taxation.
Petitioner posits a handful of undeveloped
arguments in its response brief. First, Petitioner fails to show evidence of an
agency relationship that requires Petitioner to arrange for and pay for repairs
on behalf of the Lessees. As noted, the Dry Lease and Side Agreements expressly
state the opposite. Petitioner has the obligation to maintain the Aircraft and
the cost related to that maintenance are included in the lease payments. The
Lessees have no express duty to maintain the Aircraft. The Petitioner does not
do so as the Lessees’ agent.
Second, Petitioner urges us to “collapse” the
related entities into a single entity because they have “100% common
ownership.” This argument is underdeveloped. There is no
evidence regarding how these entities handled tax reporting, nor of details
surrounding the related corporate structures beyond a brief description of ownership
percentages, which differ for each entity.[17]
No evidence was presented of the specifics of lease payments and taxes
collected, if any, with respect to these two particular Lessees. We reject this
argument in keeping with M.C.I., Inc. v. Elbin, 146 Wis. 2d 239,
244-245, 430 N.W.2d 366, 369 (Ct. App. 1988) (we need not address undeveloped
arguments).
Petitioner argues that this conclusion is inequitable
and places small business owners at a tax disadvantage. It is not our role to
determine the intent of the legislature unless we find ambiguity, which we do
not. Kalal v. Circuit Court of Dane Co., 2004 WI 58, 271 Wis. 2d 633,
681 N.W.2d 110 (“It is the enacted law, not the enacted intent, that is binding
on the public.”) This holding may or may not have been an intended consequence
of Act 185; if it is not, it is for the legislature to adjust its language accordingly.
CONCLUSIONS OF LAW
1.
The parties’ stipulation presents a sufficient factual
basis to allow for summary judgment in this case.
2.
For the purposes of taxation, the sales price of the
leases includes the full amount charged and paid to the Petitioner by its Lessees.
3.
While Act 185 may apply to Petitioner’s purchase of
aircraft maintenance services and repair parts, it does not apply to any
portion of the subsequent lease payments to Petitioner from its Lessees. Sales price
is the total consideration received without any reduction for such expenses of
the seller. The cost of maintenance services and repair parts is an expense of
the seller which is not to be deducted from the “sales price” of the leases.
4.
The Department
is entitled to summary judgment as a matter of law.
ORDER
Based on the
foregoing, it is the order of this
Commission that the Department’s Motion for Summary Judgment is granted,
its Redetermination is upheld, and the Petitioner’s Petition is dismissed.
Dated in Madison, Wisconsin, this 4th day of December,
2019.
WISCONSIN TAX APPEALS COMMISSION
Elizabeth
Kessler, Chair
Lorna
Hemp Boll, Commissioner
David L. Coon, Commissioner
ATTACHMENT:
NOTICE OF APPEAL INFORMATION
[1] Attorney Richard W. Pitzner also
initially represented the Petitioner.
[2] Attorney Julie A. Zimmer initially
represented the Department.
[3] Most of the factual information is
set forth in present tense although the years at issue are 2014 and 2015.
[4] Some agreements differed in the
hourly amount charged, but that difference is not pertinent to the issues
addressed in this decision.
[5] As will be discussed below, the
Lessee does not “reimburse” the Lessor. The lease price consists of, among
other things, a share of Lessor’s Aircraft maintenance and repair expenses
attributed to each Lessee as a function of the flight hours each Lessee uses
the Aircraft. These hourly fees are broken out on the invoice.
[6] As with Paragraph 10 of the parties’
Stipulation begins, “The lessee then reimburses the lessor for each lessee’s
pro rata share . . . .” See also Stipulation paragraphs 3, 5, 11, 12, and 13.
As the previous footnote noted and the analysis will explain, “reimbursement”
is an erroneous characterization.
[7] The audit resulted in additional
assessed amounts unrelated to this decision; those issues have been resolved.
[8] A small amount of use tax is also included, which the Petitioner concedes.
[9] The parties quote language in the Dry
Lease which requires the Lessee to be in exclusive operational control at all
times. This requirement, found in the Restrictions on Use section, appears
simply to restrict the Lessee from allowing others to use the Aircraft. Per 14
CFR 1.1, “Operational control, with respect to a flight, means the exercise of
authority over initiating, conducting or terminating a flight.”
[10] Although the language regarding
insurance costs is identical, it is interesting that insurance costs have not
been broken out as an itemized cost as the maintenance costs have been.
[11] The Agreement does not mention nor do
the billing statements show a separate $1.00 billed in keeping with the first
Section of the Dry Lease.
[12] The amounts referenced are from the
sample Side Agreement attached to the Petition as Exhibit D and dated January
1, 2015.
[13] The Dry Lease allows the Lessee to
make some small repairs (up to $5000) for which the Lessor will reimburse the
Lessee.
[14] With the exception of the $5000
maximum reimbursable repairs.
[15] Under the Dry Lease, it is apparent that
insurance costs could be similarly separated out and allocated upon flight
hours, but those expenses are also the obligation of the Lessor. Such
itemization would not mean the Lessor is selling insurance.
[16] Other than the small expenditures
allowed under the Dry Lease allows, which the Lessor reimburses.
[17] Affidavit of Duane Foulkes, ¶ 5,
states that Citation Partners, LLC, is owned 97.5% by Mr. Foulkes, with the
remaining 2.5% owned by his daughters. Apache Holdings, Inc., one of the Lessees,
is owned 100% by Mr. Foulkes. Apache Leasing, LLC, another Lessee, is owned 2/3
by Mr. Foulkes and 1/3 by his daughters.