Title: Five Delta Alpha, LLC v. Dir. of Revenue

State: missouri

Issuer: Missouri Supreme Court

Document:

SUPREME COURT OF MISSOURI 
en banc 
 
FIVE DELTA ALPHA, LLC, 
 
 
) 
 
 
 
 
 
 
 
) 
 
 
Appellant, 
 
 
 
) 
 
 
 
 
 
 
 
) 
v. 
) 
No. SC94224 
) 
DIRECTOR OF REVENUE, 
 
 
) 
 
 
 
 
 
 
 
) 
 
 
Respondent.  
 
 
) 
 
PETITION FOR REVIEW OF A DECISION OF THE  
ADMINISTRATIVE HEARING COMMISSION 
The Honorable Sreenivasa Rao Dandamudi, Commissioner 
 
Opinion issued February 24, 2015 
 
PER CURIAM 
 
Five Delta Alpha, LLC ("FDA") filed a complaint with the Administrative 
Hearing Commission ("AHC"), appealing the denial by the Director of Revenue 
("Director") of FDA's use tax refund claim on its purchase and subsequent lease of an 
aircraft to JetSelect, LLC ("JetSelect").  The AHC denied FDA the refund, finding the 
lease to JetSelect did not constitute a "sale" for purposes of the statutory exemption in 
section 144.030.2(20), RSMo Supp. 2010.1  The decision of the AHC is reversed, and the 
matter is remanded.  
 
                                              
1 Further amendment of this section resulted in renumbering the subdivision to (21).  See section 
144.030.2, RSMo Noncom. Supp. 2014.  All statutory citations will be for the time period 
relevant to the transactions and the payment of the taxes under protest, i.e., RSMo 2000 and 
RSMo Supp. 2010, unless otherwise noted. 
Factual and Procedural History 
FDA purchased a Bombardier Challenger 300 aircraft in Kansas and immediately 
leased the aircraft to JetSelect.2  JetSelect then moved the aircraft to Missouri where it 
has since been based in Kansas City for use in JetSelect's air carrier operations.3 
FDA paid Missouri use tax in the amount of $1,396,083.33 under protest and filed 
a tax protest payment affidavit with the Director.  FDA asserted that the purchase of the 
aircraft was eligible for exemption pursuant to section 144.030.2(20), because the aircraft 
is leased to JetSelect as a common carrier providing air carrier service to the general 
public pursuant to JetSelect's Federal Aviation Administration certificate.  The Director 
denied FDA's refund, and FDA appealed the Director's decision to the AHC.   
The AHC found JetSelect to be a common carrier but concluded that FDA was not 
entitled to the refund because FDA's lease was not a "sale" for purposes of the resale 
exemption.  FDA appealed the "sale" issue, and the Director cross-appealed the AHC's 
determination that JetSelect was a common carrier.  The Director subsequently dismissed 
her cross-appeal pursuant to Rule 84.09.  This Court has jurisdiction under Article V, 
Section 3 of the Missouri Constitution because the case involves the construction of the 
revenue laws of this state. 
 
                                              
2 The purchase was completed on March 8, 2011, the effective date of the lease to JetSelect.  
3 JetSelect is engaged in the business of providing on-demand air transportation to paying 
customers in accordance with FAA requirements for air carriers contained in Part 135 of the 
Federal Aviation Regulations ("FARs") (14 CFR Sections 135.1 and following) and maintains a 
Part 135 certificate authorizing common carrier operations.  The company holds itself out to the 
general public as engaging in the transportation of passengers or property for hire under 
individual agreements, without refusal if the fare or charge is paid and there is an empty aircraft 
available to transport the customer or group.  
3 
 
Standard of Review 
"A decision of the AHC will be affirmed if: (1) it is authorized by law; (2) it is 
supported by competent and substantial evidence based on the whole record;                  
(3) mandatory procedural safeguards are not violated; and (4) it is not clearly contrary to 
the reasonable expectations of the legislature."  Circuit City Stores, Inc. v. Dir. of 
Revenue, 438 S.W.3d 397, 399 (Mo. banc 2014); Mo. Const. art. V, sec. 18; section 
621.193.  If the evidence supports either of two opposing findings of fact, deference is 
afforded to the administrative decision.  Street v. Dir. of Revenue, 361 S.W.3d 355, 357 
(Mo. banc 2012).  However, the Court reviews the AHC's interpretation of revenue 
statutes de novo. Circuit City, 438 S.W.3d at 399.  A taxpayer must show by "clear and 
unequivocal proof that it qualifies for an exemption, and all doubts are resolved against 
the taxpayer."  Fred Weber, Inc. v. Dir. of Revenue, ___ S.W.3d ___, No. SC94109, 2015 
WL 161751, at *2 (Mo. banc 2015).  See also section 621.050.2 ("burden of proof shall 
be on the taxpayer"). 
Analysis 
FDA argues the AHC erred in finding FDA did not qualify for the resale 
exemption for use tax as provided in section 144.018, pursuant to the exemption to 
common carriers in section 144.030.2(20).  FDA further claims the AHC erred in 
excluding three exhibits from the record because FDA believes the evidence is relevant to 
the determination of whether JetSelect was a common carrier.   
In her cross-appeal, the Director challenged the AHC's finding that JetSelect was a 
"common carrier" for purposes of section 144.030.2(20).  The Director subsequently 
4 
 
dismissed that cross-appeal.  The Director concedes that "at least in certain 
circumstances, leases can constitute 'sales' for purposes for determining whether a 
particular purchase – even the purchase of an airplane – was 'for resale,'" as was found in 
Brambles Indus., Inc. v Dir. of Revenue, 981 S.W.2d 568, 570 (Mo. banc 1998).  In her 
brief, the Director also agrees that if JetSelect is a "common carrier" then FDA's purchase 
was for "resale."  And when questioned at oral argument, the Director stated that for 
purposes of this appeal the record below supported the determination that JetSelect is a 
common carrier.  Thus, the Director concedes that FDA's purchase of the plane qualifies 
for the "resale" exemption in section 144.030.2(20). 
Evidence Excluded by the AHC 
 
 
FDA argued that the AHC erred in its evidentiary rulings when excluding its 
proffered exhibits O, P and Q, which it claims were relevant to the issue of whether 
JetSelect is a common carrier for purposes of Missouri sales and use tax.  Each of these 
exhibits was excluded when the AHC sustained the Director's objection on the basis of 
the exhibit's relevancy.4  Even if the Court assumes the AHC erred in these evidentiary 
rulings, that error was harmless because the AHC ultimately determined that JetSelect 
                                              
4 Exhibit O is an FAA Advisory Circular discussing Common Carriage.  Exhibit P is a 
screenshot from the website of Priceline.com.  The exhibit was offered to show that airlines do 
not lose their common carrier status simply by negotiating prices with passengers – the airline 
does not become a "contract carrier."  FDA asserts that the negotiability of price in JetSelect's 
agreement with its customers does not disqualify JetSelect as a common carrier.  Exhibit Q is 
Southwest Airline's published Contract of Carriage and applies to every ticket sold by Southwest 
Airlines to its passengers.  FDA offered the exhibit to refute the Director's assertion that 
JetSelect could not be a common carrier because it entered into individual agreements with its 
customers.  The AHC excluded exhibit O stating it believed that the Advisory Circular did not 
address whether JetSelect is a common carrier for purposes of Missouri law.  The AHC excluded 
exhibits P and Q believing this Court's analysis of what constitutes a common carrier does not 
involve price negotiation or individual customer agreements.   
5 
 
was a common carrier and the Director, at oral argument, conceded that the AHC's 
determination that JetSelect is a common carrier is supported by the record in this case. 
Harmless error cannot justify reversal.  Rule 84.13(b). 
FDA's Lease to JetSelect was a "Sale"  
 
FDA purchased the aircraft solely for lease to JetSelect.  After the purchase was 
made in Kansas, the aircraft was based in Missouri. 
A "purchase" is defined as "the acquisition of the ownership of, or title to, tangible 
personal property, through a sale, as defined herein, for the purpose of storage, use or 
consumption in this state."  Section 144.605(5).  A "sale" is "any transfer, barter or 
exchange of the title or ownership of tangible personal property, or the right to use, store 
or consume the same, for a consideration paid or to be paid, and any transaction 
whether called leases, … or otherwise, and notwithstanding that the title or possession 
of the property is retained for security."  Section 144.605(7).5  (Emphasis added). 
"Tangible personal property" is defined as "all items subject to Missouri sales tax as 
provided in subdivisions (1) and (3) of section 144.020."  Section 144.605(11).  An 
aircraft is an item subject to Missouri sales tax as tangible personal property.  Fall Creek  
Const. Co. v. Dir. of Revenue, 109 S.W.3d 165, 169 (Mo. banc 2003).6  
                                              
5 Similarly, the definition of the term "gross receipts" in section 144.010.1(3) addresses the 
consideration of leases as sales, providing in pertinent part: "Gross receipts", ... For the purposes 
of sections 144.010 to 144.525 the total amount of the sale price … shall also include the lease or 
rental consideration where the right to continuous possession or use of any article of tangible 
personal property is granted under a lease or contract and such transfer of possession would be 
taxable if outright sale were made and, in such cases, the same shall be taxable as if outright sale 
were made and considered as a sale of such article …." 
6 See also Westwood Country Club v. Dir. of Revenue, 6 S.W.3d 885, 887 (Mo. banc 1999) 
(when aircraft are sold to non-exempt entities a sales or use tax is to be collected on the sale of 
the final product.). 
6 
 
Section 144.018.1(4) governs the purchase of tangible personal property for the 
purpose of resale, and provides in pertinent part:  
1. Notwithstanding any other provision of law to the contrary, … when a 
purchase of tangible personal property or service subject to tax is made for 
the purpose of resale, such purchase shall be either exempt or excluded 
under this chapter if the subsequent sale is:  
           *** 
(4) Subject to tax but exempt under this chapter; …  
 
Section 144.615(3) addresses the use tax exemption for resales stating:  
 
There are specifically exempted from the taxes levied in sections 144.600 
to 144.745:7  
*** 
(3) Tangible personal property, the sale or other transfer of which, if made 
in this state, would be exempt from or not subject to the Missouri sales tax 
pursuant to the provisions of subsection 2 of section 144.030 …  
 
Subsection 2 of section 144.030 describes exemptions from state and local sales and use 
taxes, providing in pertinent part:  
 
2. There are also specifically exempted from … the computation of the tax 
levied, assessed or payable pursuant to … sections 144.010 to 144.525 and 
144.600 to 144.745:  
*** 
"(20) All sales of aircraft to common carriers for storage or for use in 
interstate commerce …." 
 
The interplay of these statutes would exempt FDA from paying Missouri sales or use tax, 
pursuant to chapter 144, if FDA purchased the aircraft for the purpose of leasing it to 
JetSelect and the lease constituted a "resale" subject to tax but exempt under section 
144.018(4). 
This Court, applying the statutory definition of "sale," has previously held that a 
lease can constitute a sale for resale where the right of use is fully transferred, even if the 
                                              
7 Sections 144.600 through 144.746 are collectively known as the "Compensation Use Tax Law."  
Section 144.600. 
7 
 
title or ownership of the property is not transferred.  Brambles, 981 S.W.2d at 570.8  The 
end result of the lease in this matter is, as it was in Brambles, the same as though an 
outright sale had been made.  Id.9 
The facts of this case are on point with Brambles.  The lease to JetSelect 
constitutes a sale for sales tax purposes because the right of the aircraft's use was fully 
transferred to JetSelect, who in turn, provided air courier service for valuable 
consideration.  The Director conceded at oral argument that for purposes of this appeal 
this record supported the determination that JetSelect is a common carrier.  Based on this 
record and the concessions of the Director, FDA has shown clear and unequivocal proof 
that it qualifies for the exemption. 
Conclusion 
The decision of the AHC is reversed, and the matter is remanded to the AHC. 
 
All concur.   
 
 
                                              
8 The taxpayer in Brambles (Brambles Industries, Inc. d/b/a "Chep") leased pallets to Proctor & 
Gamble ("P&G") for use in shipping soap from P&G's St. Louis plant to its customers.  Chep 
collected tax on the lease proceeds and remitted it to the Department of Revenue.  Chep then 
filed for a refund, arguing that an outright sale of the pallets would qualify for the sale for resale 
exemption to sales tax and so should leases of the pallets.  This Court held that proceeds from the 
lease were exempt from sales tax the same as from outright sales of such property because the 
packaging material was leased for the purpose of transferring the right to use the packaging 
material to a subsequent purchaser for valuable consideration.  Brambles, 981 S.W.2d 568 at 
569-571. 
9 See also Weather Guard Inc. v. Dir. of Revenue, 746 S.W.2d 657 (Mo. App. 1988) (rentals of 
tangible personal property are "sales" for purposes of the resale exemption to use tax in section 
144.615).