SALT Report 1214 – In November 1996, a Michigan corporation (taxpayer) purchased an aircraft which it then leased to its subsidiary, AeroGenesis Aviation, Inc. for use in AeroGenesis’ cargo and passenger transport business. AeroGenesis was certified to operate as a carrier under Federal Aviation Administration regulations, but the taxpayer was not.
In December 1996, the Michigan Department of Treasury notified the taxpayer of a 6% use tax on the aircraft. The taxpayer responded that the aircraft was exempt because it was “being used by a domestic air carrier in the scheduled transport of passengers.” The taxpayer provided supporting documentation, and the MDoT informed the taxpayer that the aircraft was exempt and that the taxpayer would not be billed. Subsequently, the MDoT determined they had incorrectly allowed the taxpayer to share the exemption with AeroGenesis and sent a final assessment for taxes due.