|
Note: We are crunching Supreme Court of Wisconsin decisions down to size. The rule for this is that no justice gets more than 10 paragraphs as written in the actual decision. The "upshot" and "background" sections do not count as part of the 10 paragraphs because of their summary and very necessary nature. We've also removed citations from the opinion for ease of reading, but have linked to important cases cited or information about them. Italics indicate WJI insertions except for case names, which also are italicized. The case: Citation Partners LLC v Wisconsin Department of Revenue Majority: Justice Rebecca F. Dallet (12 pages), joined by Justices Ann Walsh Bradley, Brian Hagedorn, and Jill J. Karofsky. Dissent: Justice Patience D. Roggensack (13 pages), joined by Chief Justice Annette K. Ziegler and Justice Rebecca Grassl Bradley.  Dallet The upshot Citation Partners, LLC owns an aircraft which it leases to third parties, the Lessees. As part of the total amount the Lessees pay to lease the aircraft, Citation Partners charges per-flight-hour rates for aircraft repairs and engine maintenance. Those rates correspond to the amount Citation Partners spends on aircraft repairs and engine maintenance. Citation Partners argues that this portion of the lease payment is tax exempt because it is a sale of aircraft parts or maintenance. We disagree. The per-flight-hour charges for aircraft repairs and engine maintenance are taxable because they are part of the total amount of consideration the Lessees pay to lease Citation Partners' aircraft. We therefore affirm the court of appeals' decision. Background Citation Partners owns an aircraft that it leases to the Lessees. The Lessees signed a contract called the Aircraft Dry Lease, defining the responsibilities they and Citation Partners have with regard to the lease of the aircraft. The Dry Lease requires the Lessees to notify Citation Partners if the aircraft needs repairs or maintenance. If so, Citation Partners is responsible for scheduling and paying for all repairs or maintenance. It does not perform any of the repairs or maintenance itself. In addition to the Dry Lease, the Lessees entered into a Side Agreement with Citation Partners that sets forth the financial terms for the lease of the aircraft. The Side Agreement includes costs-per-flight-hour that Citation Partners charges the Lessees for aircraft repairs and engine maintenance. Those charges are substantially similar to the amount Citation Partners spends when it purchases aircraft repairs and engine maintenance directly from vendors. In 2013, the Legislature passed Wisconsin Act 185, which expanded an existing sales tax exemption to include the sale of aircraft parts or maintenance. After the Act took effect, Citation Partners stopped collecting sales tax on the amounts it charged Lessees for aircraft repairs and engine maintenance. In 2017, the Wisconsin Department of Revenue notified Citation Partners that unpaid sales taxes were due on those amounts. Citation Partners appealed and won in Dodge County Circuit Court before Circuit Judge Martin J. De Vries, but the Court of Appeals reversed that decision, meaning Citation Partners was on the hook for the taxes again.  The guts State statutes together state that the total amount of consideration paid for a lease – the "sales price" – is taxable, with no deduction for the lessor's costs. *** The sum of those (per-hour flight) costs – including for aircraft repair and engine maintenance – is thus "the total amount of consideration . . . for which [the aircraft is] . . . leased" and is therefore taxable. If there were any doubt remaining as to whether Citation Partners' costs for aircraft repairs and engine maintenance can be deducted from the sales price, § 77.51(15b)(a) confirms that the "total amount of consideration" must be calculated "without any deduction" for Citation Partners' costs. Citation Partners argues that the payments are not taxable because they are not consideration at all. That is because, in its view, Citation Partners simply hands the money the Lessees pay for repairs and maintenance over to the vendors that provide those services. But consideration is "any act of the plaintiff from which the defendant . . . derives a benefit or advantage." And Citation Partners clearly benefits from these payments by passing along to its Lessees the costs of maintaining its aircraft. For that reason, these payments are – by definition – consideration. Additionally, accepting Citation Partners' argument that it receives no consideration from the Lessees' payments for aircraft repairs and engine maintenance simply because that payment corresponds to anticipated repair costs would render part of (the statute) meaningless. After all, if Citation Partners is right, it is not clear what (the law) means when it says that the "sales price" – the "total amount of consideration" – is calculated "without any deduction" for Citation Partners' costs. Citation Partners claims that the costs-per-flight-hour that it receives for aircraft parts and engine maintenance are nevertheless tax exempt. It points to two statutory exemptions related to aircraft: Wis. Stat. § 77.54(5)(a)3., which exempts the sale of "parts used to modify or repair aircraft," and Wis. Stat. § 77.52(2)(a)10., which exempts the sale of "repair, service, . . . and maintenance of any aircraft or aircraft parts." Citation Partners argues that since the plain language of both exemptions covers the costs of aircraft repairs and engine maintenance, then "the reimbursement payments that Citation Partners receives from the Lessees are exempt from sales tax." We disagree because neither of these statutory exemptions applies to the payments Citation Partners receives from the Lessees. Simply put, Citation Partners does not sell its Lessees "parts used to modify or repair aircraft," or "repair, service, . . . and maintenance of any aircraft." It leases its aircraft to the Lessees. And as explained previously, the statutes already make clear that the total amount of consideration paid on an aircraft lease is taxable without any deduction for the Lessor's costs. When Citation Partners (or the Lessees for that matter) buy aircraft repairs or engine maintenance directly, those transactions are tax-exempt. But when Citation Partners passes those costs along to its customers as part of the total amount of consideration in a lease, that transaction is taxable. *** Citation Partners tries to circumvent the plain language of the statutes by arguing that it is the Lessees' agent when it purchases aircraft repairs and engine maintenance. And for that reason, the per-flight-hour reimbursements for aircraft repairs and engine maintenance are akin to the Lessees purchasing those repairs and maintenance directly. An agency relationship is a "fiduciary relation which results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control." ... Citation Partners relies on the lease documents as "provid[ing] the framework for the agency relationship." It points out that the Dry Lease makes the Lessees responsible for "inspect[ing] the Aircraft" and notifying Citation Partners if "any repair or maintenance should be completed." Additionally, the Dry Lease contains an indemnification provision under which the Lessees are "ultimately responsible for all obligations, expenses and disbursements asserted against Citation Partners arising out of the operation of the Aircraft." Rather than prove an agency relationship exists, the lease documents reveal the opposite. The Dry Lease states that Citation Partners – not the Lessees – "shall schedule and pay for all repairs and maintenance." And that decision is not "directed" by the Lessees just because they must notify Citation Partners of necessary maintenance upon inspection of the aircraft. Rather, the Lessees' inspection obligation is limited to confirming that the aircraft is flightworthy before using it. Likewise, under the Dry Lease, the Lessees have only limited authority to purchase repairs and maintenance up to $5,000, and are reimbursed by Citation Partners if they do so. Additionally, although the parties entered into a new Side Agreement in 2015 which states that the Lessees are "responsible for fixed and indirect operating expenses and charges attributable to the operation and maintenance of the Aircraft," including "[s]cheduled and unscheduled maintenance," nothing in that Agreement or the Dry Lease suggests that the Lessees control Citation Partners' aircraft-maintenance activities. *** Wisconsin imposes a five percent sales tax on the sale or lease of tangible personal property like Citation Partners' aircraft. The tax applies to the total "sales price" of the lease unless there is an applicable exemption. Two such exemptions exist for the sale of aircraft parts and maintenance, but neither apply to the Lessees' payments to Citation Partners for aircraft repairs and engine maintenance. Accordingly, we hold that the total amount of consideration the Lessees pay to lease Citation Partners' aircraft is taxable, and affirm the court of appeals' decision.  Roggensack Dissent
The majority opinion never interprets §§ 77.52(2)(a)10. or 77.54(5)(a)3, (see Dallet's opinion above for her reasoning rejecting the application of these exemptions) which address aircraft repairs and aircraft parts. It skips over the plain meaning of those two statutes, and instead, it interprets Wis. Stat. §§ 77.51(15b)(a) and 77.52(1)(a), neither of which contains the word, "aircraft," nor does either statute mention aircraft parts or aircraft maintenance. ... The plain meaning of those statutes grants Citation Partners the sales tax exemption it seeks. Because the majority opinion chooses to follow the error-strewn path of the Tax Appeals Commission (TAC), which contravenes the clear statutory direction to exempt the sales price of aircraft parts and aircraft maintenance from state sales taxes, I respectfully dissent. *** Section 77.52(2)(a)10. is broadly stated. The statute applies to "any aircraft or aircraft parts." (Emphasis added.) There is no statutory limitation on the statute's use that refers to whether the "selling, licensing, performing or furnishing" of aircraft parts or services are set out in a written agreement or performed without a written agreement. There is no limitation on whether the person responsible for that financial obligation pays the vendor directly or pays another who has paid the vendor on that person's behalf. *** In this matter, we are concerned about how TAC's factual findings affected its decision not to apply Wis. Stat. §§ 77.52(2)(a)10. and 77.54(5)(a)3. to the transaction under review here. As explained below, I conclude that the TAC's material factual findings that underlie its legal conclusion are not supported by substantial evidence, and therefore, TAC's decision must be set aside. *** (U)nder the Side Agreement, the lessees are obligated to pay for repairs and maintenance of the aircraft. Therefore, Citation Partners is being reimbursed under the Side Agreement for obligations of the lessees that it paid on their behalves. In addition to its misreading of record exhibits, the TAC ignores the Stipulation of Facts that the parties jointly submitted. That stipulation in paragraph 3 states, "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." Notwithstanding that factual stipulation the TAC says, "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." However, reimbursement from the lessees for expenses that Citation Partners paid for the lessees is exactly what the parties represented in the Factual Stipulation that they provided to TAC, as well as under other record exhibits. Accordingly, TAC's material factual findings are not supported by substantial evidence, and they must be set aside based on documents in the record and the Stipulation of Facts that the parties provided to the TAC. TAC's legal conclusions are grounded in its erroneous factual findings. As with the majority opinion, the TAC does not interpret the statutes that are at issue here. Instead, it interprets Wis. Stat. § 77.51(15b)(a), which does not mention aircraft maintenance, aircraft parts or aircraft in any regard. Nevertheless, TAC concludes that "expenditures for those repairs and maintenance parts and services are not separately exempt when incorporated into the lease payments of a subsequent lease of the entire Aircraft." Rather, it is Wis. Stat. § 77.54(5)(a)3. that creates an "exemption" for the "sales price" of "[p]arts used to modify or repair aircraft," and Wis. Stat. § 77.52(2)(a)10. that sets sales of "repair, service, alteration, fitting, cleaning, painting, coating, towing, inspection and maintenance of any aircraft or aircraft parts" outside the scope of state sales taxes. Nothing in either statute changes those exemptions when an aircraft is leased. Stated otherwise, there is nothing in either statute that limits its use when obligations to pay for aircraft maintenance and parts are incurred pursuant to written documents rather than directly to the vendors. *** Rather, it is Wis. Stat. § 77.54(5)(a)3. that creates an "exemption" for the "sales price" of "[p]arts used to modify or repair aircraft," and Wis. Stat. § 77.52(2)(a)10. that sets sales of "repair, service, alteration, fitting, cleaning, painting, coating, towing, inspection and maintenance of any aircraft or aircraft parts" outside the scope of state sales taxes. Nothing in either statute changes those exemptions when an aircraft is leased. Stated otherwise, there is nothing in either statute that limits its use when obligations to pay for aircraft maintenance and parts are incurred pursuant to written documents rather than directly to the vendors.
0 Comments
Your comment will be posted after it is approved.
Leave a Reply. |
Donate
Help WJI advocate for justice in Wisconsin
|
RSS Feed