SALT Report 1891 – The Maine Superior Court determined that an LLC member’s transfer of a vehicle to the LLC was exempt from use tax. In early 2008, before the LLC officially existed, the Taxpayer purchased a motor vehicle and used it for approximately fifteen months to make heating oil deliveries. In August 2008, the Taxpayer transferred the vehicle to the LLC pursuant to a casual sale. The LLC paid no Maine Sales or Use Tax on the sale and the Taxpayer claimed he did not owe use tax because he owned 51% of the LLC.
When the Taxpayer sold the vehicle to the LLC he relied on the tax provision set forth in 36 M.R.S.A. §1764 which states that use tax must be imposed on all casual sales of motor vehicles except those sold to a limited liability company, “when the seller is the owner of a majority…of the ownership interests in the…limited liability company.”
In 2009, the tax assessor issued a letter stating that the exemption did not apply to the transfer, and assessed use tax in the amount of $3,749.75 plus additional interest. The LLC filed an appeal.
During the appeal the Court had to determine if the Taxpayer did in fact have a majority ownership in the LLC at the time the vehicle was transferred. The issue was with the way the shares were divided; the Taxpayer owned a 26% share of the LLC, his wife owned a 25% share of the LLC, and their son owned a 49% share of the LLC. Ultimately, the Court determined that the Taxpayer and his wife held a 51% interest in the LLC as joint tenants. The issue then was whether or not the joint tenancy rule allows the Taxpayer to act individually as the majority owner.
In their ruling the Court notes that it is a basic principle of joint tenancy law that “joint tenants own equal undivided shares even though their initial contributions may have been unequal.” Therefore, since the Taxpayer and his wife owned 51% of the LLC as joint tenants, the Taxpayer had an equal undivided interest in the whole of the 51% interest. Further, because the Taxpayer was the owner of the vehicle and later transferred it to the LLC as the majority owner, the transfer should not be taxed, and should be exempt under§ 1764.
Based on that decision, the Court overturned the use tax assessment.
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