Next Thursday, October 10th, I am presenting an update on Indiana sales and use tax at an Aviation Law program, where I will discuss this ruling.
In Letter of Findings No. 04-20120368 (2012 tax year) (posted 2/27/2013), the Taxpayer, a Montana LLC, paid no sales tax when it purchased an aircraft from a Nevada dealership. Two Indiana residents, a husband and wife, engaged a Montana attorney to set up the LLC (of which they were the sole members) and hold title to the aircraft. The Department of Revenue issued a use tax assessment on the purchase of the aircraft. In its protest of the assessment, the LLC argued that the assessment was improper because it was issued for an aircraft purchased and titled out-of-state by a Montana company. The LLC further asserted that it used the aircraft for legitimate business purposes, i.e. the “business of investing in real and personal property in Montana and in any other lawful business. . . .” According to the LLC, the aircraft was used mostly outside Indiana, and it was flown to Indiana only during the time the husband was getting his pilot license.
The Department denied the protest. In so doing, the Department did “not contest that the LLC may have been formed for a purpose other than avoiding the tax.” But the Department observed that the attorney who established the LLC represents on his web site that taxpayers can “avoid sales tax and licensing fees” by registering in Montana. And the Department further noted that the LLC’s Montana registration designates the aircraft’s use as “private.” The LLC could rely upon the attorney’s representations to avoid a fraud penalty, but not to avoid the tax altogether.
The LLC conceded that the aircraft was stored in Dayton, Ohio, for a few months after purchase and then transferred to Indiana. Invoices showed that the aircraft was stored in hangars both inside and outside Indiana. Husband and wife were Indiana residents, and the aircraft was stored in Indiana at least part of the time. Consequently, LLC failed to show that the aircraft was not used or stored in Indiana and that the Department’s assessment was erroneous. The Department elaborated:
Unfortunately, the Department is unable to accept the proposition that Indiana residents may avoid paying sales and use tax on tangible personal property simply by titling that property outside the state. In this particular case, the Department is unable to agree that either the law, the facts presented by Taxpayer, or simple common sense compel the conclusion that Taxpayer should not be responsible for paying use tax on this airplane.
In Supplemental Letter of Findings No. 04-20120368 (posted 03/27/2013), the Department allowed the “one-time abatement of the [10%] late payment negligence penalty” because the LLC’s reliance on its attorney’s advice was “reasonable cause” for the LLC to presume that “its arrangement comported with the requirements of the law.”
Letter of Findings No. 04-20120368 can be viewed here.
Supplemental Letter of Findings No. 04-20120368 can be viewed here.