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Warner Norcross + Judd LLP is a corporate law firm with over 230 attorneys serving clients in nine offices throughout Michigan. Among the largest law firms in Michigan, Warner works in virtually all areas of business law.

Michigan Law Firm - Warner Norcross + Judd LLP

Michigan's Use Tax imposes "a tax for the privilege of using, storing, or consuming tangible personal property in this state." MCL 205.93(1). But a lessor may elect to pay the use tax on receipts from rental or lease of the tangible personal property instead of on the purchase price, if it is "engaged in the business of renting or leasing to others." In <em><a href="http://coa.courts.mi.gov/documents/opinions/final/coa/20120508_c303785_39_303785.opn.pdf" target="_blank" rel="noreferrer noopener">Devonair Enterprises, L.L.C. v. Department of Treasury</a></em>, the Michigan Court of Appeals held that the petitioner was not 'engaged in the business of renting or leasing' its sole asset, a $3.6 million plane, because petitioner did not intend to derive a gain, benefit, or advantage from its business. The Michigan Tax Tribunal therefore did not err as a matter of law in upholding the Department of Treasury's assessment of $207,000 in use taxes based on the purchase price of the plane.

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In <em>Devonair</em>, the petitioner was a limited liability company with one member Enterprise Group, LLC ("DJS"), and one asset, a 2007 Pilatus airplane. The only members of DJS are Donald and Cynthia Smith. Petitioner entered into two lease agreements, one with DJS for $200 per flight hour, and the other with Donald Smith for $680 per flight hour. An expert testified that a charter service would typically charge $1,300 per flight hour and that typically a chartered aircraft of this type would fly 479 flight hours per year. The aircraft in question was flown for less then 150 flight hours per year. The Court determined that to be in the business of renting, the person running the business must intend to derive gain, benefit, or advantage from the business. Because the petitioner leased the plane for a price far below market value, for far fewer hours then was typical, and did not attempt to advertise to create more business, the Court found that the petitioner did not intend to derive a gain, benefit, or advantage from its business. Therefore, petitioner was not "engaged in the business of renting or leasing to others" as required by the exception to statute and was required to pay the use tax based on the purchase price of the airplane.

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COA Opinion: Lessor of $3.6 million plane was not “engaged in the business of renting or leasing” for purposes of Michigan’s use tax where objective was not to derive gain, benefit, or advantage from

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