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Nebraska Supreme Court Advance Sheets

309 Nebraska Reports

BIG BLUE EXPRESS v. NEBRASKA DEPT. OF REV.

Cite as 309 Neb. 838

Big Blue Express, Inc., appellant and 

cross-appellee, v. Nebraska Department 

of Revenue et al., appellees and 

cross-appellants.

___ N.W.2d ___

Filed July 30, 2021. No. S-20-518.

1. Administrative Law: Judgments: Appeal and Error. A judgment or 

final order rendered by a district court in a judicial review pursuant to 

the Administrative Procedure Act may be reversed, vacated, or modified 

by an appellate court for errors appearing on the record.

2. ____: ____: ____. When reviewing an order of a district court under 

the Administrative Procedure Act for errors appearing on the record, 

the inquiry is whether the decision conforms to the law, is supported by competent evidence, and is neither arbitrary, capricious, nor 

unreasonable.

3. Judgments: Appeal and Error. Whether a decision conforms to law 

is by definition a question of law, in connection with which an appellate court reaches a conclusion independent of that reached by the 

lower court.

4. ____: ____. An appellate court, in reviewing a district court judgment 

for errors appearing on the record, will not substitute its factual findings for those of the district court where competent evidence supports 

those findings.

5. Taxation: Property. Nebraska imposes a tax on each item of tangible 

personal property in this state at some point in the chain of commerce, 

unless the item is specifically excluded from taxation. If the item is purchased in Nebraska, the sales tax applies, and if the item is purchased 

outside Nebraska, the use tax applies. Nebraska’s sales and use taxes 

are interrelated, and together, they provide a uniform tax upon the sale, 

lease, rental, use, storage, distribution, or other consumption of all tangible personal property.

Nebraska Supreme Court Online Library

www.nebraska.gov/apps-courts-epub/

08/27/2021 01:07 AM CDT
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BIG BLUE EXPRESS v. NEBRASKA DEPT. OF REV.

Cite as 309 Neb. 838

6. Taxation: Words and Phrases. A “sale for resale” as that term is 

defined in Neb. Rev. Stat. § 77-2701.34 (Reissue 2018) is an exemption 

from sales and use taxes.

7. Taxation: Proof. The burden of establishing a tax exemption is placed 

on the party claiming the exemption.

8. Taxation: Property. When determining whether property is being 

leased in the normal course of a taxpayer’s business within the meaning 

of Neb. Rev. Stat. § 77-2701.34 (Reissue 2018), a court may consider 

factors including, but not limited to, whether the leases are entered 

into with consumers who are related to or associated with the taxpayer, 

whether the terms of the leases and the parties’ subsequent conduct 

reflect an arm’s-length business transaction, whether the leases produced 

reasonable revenue for the taxpayer’s business in relation to operating 

expenses, and whether the taxpayer held itself out to the public as being 

in the business of leasing the property.

9. Appeal and Error. An appellate court is not obligated to engage in 

analysis that is not necessary to adjudicate the case and controversy 

before it.

Appeal from the District Court for Lancaster County: Kevin 

R. McManaman, Judge. Affirmed.

Matthew R. Ottemann, of McGrath, North, Mullin & Kratz, 

P.C., L.L.O., for appellant.

Douglas J. Peterson, Attorney General, and L. Jay Bartel for 

appellees.

Heavican, C.J., Cassel, Stacy, Funke, Papik, and 

Freudenberg, JJ.

Stacy, J.

A Nebraska corporation purchased an interest in an airplane 

from a Kansas seller without paying Nebraska sales or use 

taxes. The Nebraska Department of Revenue (Department) 

assessed a tax deficiency, and the corporation claimed no taxes 

were owed because the purchase was a “sale for resale.” 1 After 

a hearing, the Tax Commissioner concluded the corporation 

1 See Neb. Rev. Stat. §§ 77-2701.34 (Reissue 2018) and 77-2703 (Cum. 

Supp. 2020).
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BIG BLUE EXPRESS v. NEBRASKA DEPT. OF REV.

Cite as 309 Neb. 838

failed to prove the purchase was a sale for resale and affirmed 

the Department’s deficiency assessment of $161,373.31. The 

corporation appealed to the Lancaster County District Court 

pursuant to the Administrative Procedure Act (APA), 2 and 

the district court affirmed. The corporation appeals, and the 

Department, along with the Tax Commissioner and the State, 

cross-appeals. We affirm.

I. FACTS

1. Big Blue and Related Entities

Big Blue Express, Inc. (Big Blue), is a Nebraska corporation 

formed in 2004. Michael Schneider is its president, treasurer, 

and director. Rick Shaneyfelt is its secretary and chief financial 

officer. Big Blue has no employees. Big Blue and its officers 

have close business relationships with several other entities, 

and because an understanding of those relationships is helpful to our legal analysis later, we describe them in some detail 

when reciting the facts.

CVE Merchant Services, Inc. (CVE), owns 100 percent of 

Big Blue, and Schneider is the president and a 100-percent 

owner of CVE. CVE is also the only owner and the sole 

member of Cheque Point Payment Processing, LLC, which 

does business under the names “PowerPay” and “PowerPay 

Central.” Schneider is also the owner and director of Tamarack 

Aerospace Group, Inc., and the president of CR Services, Inc. 

Additionally, Schneider has business relationships with The 

First Group, Inc., and Tactical Air Support, and he is a partner 

of Schay Enterprises Limited Partnership (Schay). PowerPay, 

Schay, The First Group, and CVE all have the same mailing 

address as does Big Blue.

2. Airplane Purchase

On April 8, 2011, Big Blue purchased a 662⁄3 interest in a 

“2009 Embraer Phenom 100 Emb-500” airplane from a seller 

in Kansas. The total price of the airplane was $2,821,500, 

2 See Neb. Rev. Stat. § 84-917 (Reissue 2014).
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BIG BLUE EXPRESS v. NEBRASKA DEPT. OF REV.

Cite as 309 Neb. 838

and the parties agree that Big Blue paid no sales or use tax on 

the airplane in any state. Robinson’s Hangar LLC purchased 

the remaining 331⁄3 interest in the airplane. Robinson’s Hangar 

is unrelated to either Schneider or Big Blue.

An “Aircraft Joint Ownership Agreement” and an “Aircraft 

Management Agreement” were entered into by Big Blue and 

Robinson’s Hangar approximately 1 week before the purchase of the airplane. Pursuant to these agreements, Robinson’s 

Hangar is entitled to use the airplane for 100 flight hours per 

year and may utilize up to 50 additional flight hours by paying 

Big Blue $222 per flight hour. Big Blue is entitled to use the 

airplane for 200 flight hours per year and may utilize up to 100 

additional flight hours by paying Robinson’s Hangar $111 per 

flight hour.

These agreements anticipated that Big Blue and Robinson’s 

Hangar each would “lease the aircraft to their respective owners and such owner’s affiliates,” and the agreements authorized 

each party to keep the revenue from such leases. The agreements identified Big Blue as the manager of the airplane, 

which was hangared at an airport in Wahoo, Nebraska.

3. Insurance on Airplane

Big Blue purchased an aviation insurance policy on the 

airplane. The declarations page indicated the airplane 

would be used for “PLEASURE AND BUSINESS” but not 

“COMMERCIAL.” The policy defined those terms as follows:

Commercial means used principally in the business 

of the insured, including . . . passenger or freight carrying for hire or reward, rental to others for the purpose of 

pleasure and business and those uses defined under pleasure and business.

. . . .

Pleasure and business means used in the business 

of the insured including personal and pleasure uses but 

excluding any operation for hire or reward.

(Emphasis omitted.)
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BIG BLUE EXPRESS v. NEBRASKA DEPT. OF REV.

Cite as 309 Neb. 838

4. Use Agreements

On April 30, 2011, Big Blue (as the lessor) entered into 

written use agreements for the airplane with lessees Schneider, 

CVE, Schay, and CR Services. Schneider signed all these 

agreements for Big Blue in his capacity as president. Schneider 

also signed the agreements on behalf of lessees CR Services 

and Schay in his capacity as president for those companies. 

Shaneyfelt signed as the lessee for CVE, in his capacity as its 

secretary. The same day, a use agreement with Cheque Point 

Payment Processing, doing business as PowerPay, was signed 

by Shaneyfelt as “CFO” of PowerPay. In that agreement, the 

signature for the lessor was to be Schneider as president of Big 

Blue, but it appears Schneider never signed.

Almost 2 years later, on July 15, 2013, Big Blue entered 

into a written use agreement for the airplane with Tamarack 

Aerospace Group. Schneider signed that agreement as the 

lessor in his capacity as president of Big Blue, and as the lessee in his capacity as “CEO” of Tamarack Aerospace Group. 

Schneider testified that on unspecified dates he, as president of Big Blue, also entered into oral use agreements with 

The First Group, Tactical Air Support, Steve Meyer, and 

Steve Buchanan.

All of the written use agreements provided for a payment 

of $1,300 per flight hour and made the lessees responsible for 

expenses such as fuel, providing a pilot and crew, and paying 

for insurance and hangar costs. The agreements further provided that Big Blue would send invoices for flight hours used 

and that unless invoices were paid within 15 days, interest 

would accrue at 18 percent per annum.

5. Invoices

Big Blue’s records show the airplane was flown 20 times 

in the 20-month period between April 2011, when it was purchased, and December 2012. Flight hour invoices prepared by 

Big Blue at the end of each calendar year documented these 

flights. Specifically, invoices dated December 31, 2011, were 
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BIG BLUE EXPRESS v. NEBRASKA DEPT. OF REV.

Cite as 309 Neb. 838

sent by Big Blue to Schneider, PowerPay, Meyer, Buchanan, 

and The First Group. These invoices all charged a rate of 

$1,100 per flight hour and related to flight dates between May 

2011 and December 2011. Three flight hour invoices dated 

December 31, 2012, were sent to Schneider; two invoices 

charged $1,300 per flight hour, and one charged $1,100.

Big Blue’s financial records show none of the invoices 

it sent in December 2011 and December 2012 were paid 

until after Big Blue was contacted by the Department in July 

2013. Specifically, the December 31, 2011, invoices were paid 

between 495 and 570 days past their due dates; the December 

31, 2012, invoices were paid 204 days after their due dates. 

Many of the invoices issued by Big Blue between December 

2011 and December 2012 were paid from an investment account 

owned by Schneider and his wife, including the invoices issued 

by Big Blue to Meyer, Buchanan, PowerPay, and Schay.

On July 2, 2013, the Department contacted Big Blue about 

its sales tax returns and the airplane purchase. At that time, 

Big Blue reported that it had not collected any revenue related 

to leasing the airplane. As noted, however, Big Blue subsequently collected payment on the various invoices issued in 

2011 and 2012. Big Blue did not charge interest on any late 

invoice payments.

Between July and December 2013, Big Blue issued five 

flight hour invoices to Tamarack Aerospace Group that were 

promptly paid, four flight hour invoices to Schneider that were 

promptly paid, and flight hour invoices to PowerPay and Schay 

that were promptly paid. All of these invoices appear to relate 

to flight dates in 2013 and charge $1,300 per flight hour.

In total, Big Blue issued 20 flight hour invoices between 

December 31, 2011, and December 31, 2013, showing the airplane was leased for a total of 237.69 flight hours. Six of the 

invoices billed $1,100 per flight hour, and the remaining 14 

billed $1,300 per flight hour. Of the 237.69 flight hours, 133.9, 

or 56 percent, were invoiced directly to Schneider.
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BIG BLUE EXPRESS v. NEBRASKA DEPT. OF REV.

Cite as 309 Neb. 838

Schneider testified that Big Blue issued invoices after details 

from the airplane’s flight logbook were sent to him. Although 

he testified that he was involved in the preparation of the 

invoices, he also testified that he did not recognize any of the 

flight hour invoices offered at trial as being prepared by him. 

Schneider suggested that a person named “Brenda,” surname 

unknown to him, or perhaps Pam Schendt, had created them. 

He did not know which of his many related entities employed 

either Brenda or Schendt. Shaneyfelt testified that he supervised Big Blue’s invoicing, which was performed by Schendt, 

and that he generally was guided by Schneider in doing so. 

Neither Schneider nor Shaneyfelt could explain the years-long 

delay in preparing some of the invoices.

6. Flight Hour Rate 

and Advertising

Schneider is a pilot with certifications to fly multiple aircraft, 

and he testified that he established the $1,300 flight hour rate 

contained in the use agreements. He also testified he thought 

the rate reflected fair market value in 2011 through 2013. 

Schneider explained that when setting the $1,300 flight hour 

rate, he reviewed industry publications that analyze the hourly 

cost involved in owning an aircraft and then added a rate of 

profit to that hourly cost. He also relied on his experience as a 

pilot and his previous experience in leasing airplanes.

Big Blue also offered the testimony of Vincent Barone. 

Barone testified he graduated from high school in 2016 and 

was pursuing a bachelor’s degree in aviation while he worked 

as a commercial pilot for a company specializing in aircraft consulting and management. Barone generally testified 

that he reviewed industry publications and industry standards 

and thought the cost to operate the airplane was somewhere 

between $1,100 and $1,250 per flight hour, so the rate of 

$1,300 per flight hour for the airplane was “about fair market value” in 2011 through 2013. Barone testified on crossexamination that Big Blue would have to lease the airplane 
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BIG BLUE EXPRESS v. NEBRASKA DEPT. OF REV.

Cite as 309 Neb. 838

at least 200 flight hours per year to break even with a flight 

hour rate of $1,300.

Schneider testified that he was busy with other endeavors 

and thus made no attempt to market or advertise the airplane 

as available for lease; he merely talked to individuals he “knew 

who needed aircraft.” When asked by the Department who 

he had talked to in this regard, Schneider could recall only 

one person.

7. Big Blue’s Finances

Rental revenue from the airplane is Big Blue’s sole source 

of ordinary income. At $1,300 per flight hour, the 237.69 flight 

hours during the 32-month period from May 2011 to December 

2013 generated an average monthly revenue of approximately 

$9,600 for Big Blue. Big Blue’s financial records show that 

during the same period, its operating expenses were approximately $20,000 per month. The records also show that in 2011, 

Big Blue received paid in capital of $277,000 and $166,000 

from CVE. In 2012, Big Blue received paid in capital of 

$304,296 from CVE. And in 2013, Big Blue received paid in 

capital from CVE of $154,000.

Big Blue’s profit-and-loss statements show it had net income 

of approximately $95,000 in 2011 and net losses in 2012 and 

2013 of approximately $186,000 and $2,614, respectively.

8. Department Assessment and 

Tax Commissioner Order

On April 28, 2014, the Department issued a notice of deficiency determination to Big Blue for the period of April 1 

through 30, 2011, in the total amount of $161,373.31. This 

included a use tax in the amount of $131,670, a penalty of 

$13,167, and interest calculated through June 27, 2014, in the 

amount of $16,536.31. The deficiency was calculated using a 

tax rate of 7 percent on two-thirds of the total purchase price 

of the airplane.

Big Blue timely protested the notice and assessment, and 

the parties attempted to resolve the issue on their own. When 
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BIG BLUE EXPRESS v. NEBRASKA DEPT. OF REV.

Cite as 309 Neb. 838

they were unsuccessful, an administrative hearing was held 

before the Tax Commissioner in December 2018.

At that hearing, Big Blue generally claimed the airplane 

purchase was not subject to Nebraska sales and use taxes under 

§ 77-2703(2) because it was a sale for resale, 3 purchased for 

the purpose of leasing to others and leased at fair market value. 

Big Blue also argued that if the Tax Commissioner found the 

airplane purchase was not a sale for resale, then Big Blue 

should get a credit for sales tax paid by the lessees on some 

of the airplane leases pursuant to Neb. Rev. Stat. §§ 77-2709 

and 77-2704.28 (Reissue 2018). The Department argued that 

Big Blue’s purchase and use of the airplane did not qualify as 

a sale for resale, and it further argued that Big Blue’s lease of 

the airplane to its sister company subjected it to sales and use 

taxes under § 77-2704.28. The Department generally denied 

that Big Blue was entitled to any credit or setoff for sales tax 

paid by lessees.

After the hearing, the Tax Commissioner found Big Blue was 

liable for use tax under both § 77-2704.28 and § 77-2703(2) 

and affirmed the Department’s deficiency assessment. The Tax 

Commissioner denied Big Blue any credit or setoff for sales 

tax paid by any lessee.

9. District Court Order

Big Blue appealed to the Lancaster County District Court 

pursuant to the APA. In an order entered July 1, 2020, the district court affirmed the Tax Commissioner’s order. The court 

disagreed with the Tax Commissioner as to the applicability of 

§ 77-2704.28 and found that statute did not subject Big Blue’s 

airplane purchase to Nebraska sales or use tax. But it agreed 

Big Blue failed to prove the purchase and use of the airplane 

was a “sale for resale,” and thus, it affirmed the tax deficiency 

assessment under § 77-2703(2).

The district court focused on the requirement that a sale for 

resale must be a sale in the normal course of the taxpayer’s 

3 See § 77-2701.34 (defining sale for resale).
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Cite as 309 Neb. 838

business, 4 and it particularly emphasized the statutory definition of “business” as an “activity engaged in . . . with the 

object of gain, benefit, or advantage, either direct or indirect.” 5

Relying in part on case law from Michigan and Ohio 6 that 

interpreted similar statutory language in similar circumstances, 

the district court reasoned Big Blue had not shown the airplane 

was purchased to be resold in the normal course of its business because the evidence showed Big Blue made little or no 

attempt to use the airplane for the object of its gain, benefit, 

or advantage.

In this respect, the district court found that although Barone 

testified Big Blue needed to lease the airplane 200 hours per 

year to break even, it came nowhere close to doing so. Instead, 

the undisputed evidence was that Big Blue had leased the airplane for a total of 237.69 hours from May 2011 to December 

2013, well below the annual threshold necessary to recoup the 

costs associated with owning the airplane and turning a profit. 

The district court characterized Big Blue’s billing and collection practices with respect to the airplane leases as “disinterested,” noting it often waited a substantial amount of time to 

send and collect on invoices and it never collected interest on 

late payments, even though it had the contractual authority to 

do so. The court also emphasized that Big Blue received substantial cash infusions from its parent company CVE, despite 

the fact that CVE never used the airplane. It reasoned that 

these factors suggested Big Blue’s purpose in buying the airplane was not to engage in business, because business involved 

operation for a gain or benefit.

The district court recognized that a business need not be 

profitable, but reasoned that § 77-2701.07 required an entity 

purporting to be engaged in a business to “at least try.” Noting 

4 See § 77-2701.34.

5 See Neb. Rev. Stat. § 77-2701.07 (Reissue 2018).

6 See, Pi In The Sky, L.L.C. v. Testa, 2018 Ohio 4812, 56 Ohio St. 3d 113, 

119 N.E.3d 417 (2018); Devonair Enter. v. Dep’t of Treasury, 297 Mich. 

App. 90, 823 N.W.2d 328 (2012).
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that Big Blue admittedly made no effort to market the airplane 

beyond Schneider’s “word-of-mouth advertising,” the court 

reasoned “[t]he fact that Big Blue’s marketing was dictated by 

Schneider’s other business pursuits also suggests that Big Blue 

bought the airplane not to realize some benefit for itself, but 

rather to accommodate Schneider.” It concluded:

In sum, the Court finds that Big Blue did not purchase 

the airplane with the object of gain, benefit, or advantage under § 77-2701.07. Nor, under § 77-2701.34, was 

renting the airplane to others at market rates the “sole 

purpose” of buying it. The predominant purpose appears 

to have been to convenience Schneider (who personally 

accounted for more than half the flight hours) and his 

other business pursuits.

The district court further rejected Big Blue’s argument that 

it was entitled to a credit for certain sales tax paid on the 

leases under the doctrine of equitable recoupment. In doing 

so, it noted that the Tax Commissioner had rejected Big Blue’s 

similar argument based on § 77-2709, and Big Blue had not 

appealed on that issue. The district court questioned whether it 

could address the new equitable recoupment argument, noting 

the general rule that a court reviewing an agency decision 

under the APA cannot consider an issue not presented to the 

agency. 7 It also questioned whether the argument for equitable 

recoupment could ever be valid, as it was unclear whether the 

Department was authorized to issue equitable credit. The court 

ultimately concluded that Big Blue’s equitable recoupment 

argument was meritless in any event, because it would not be 

Big Blue that was entitled to seek a credit for sales taxes paid, 

but, rather, the lessees who actually paid those taxes. 8

Big Blue filed this timely appeal, and the Department 

cross-appealed. We moved the appeals to our docket on our 

own motion.

7 See § 84-917(5).

8 See, generally, Neb. Rev. Stat. § 77-2703 (Reissue 2018).
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BIG BLUE EXPRESS v. NEBRASKA DEPT. OF REV.

Cite as 309 Neb. 838

II. ASSIGNMENTS OF ERROR

Big Blue assigns, restated and summarized, that the district 

court erred in concluding Big Blue did not prove its purchase 

and subsequent use of the airplane was a nontaxable sale for 

resale. Alternatively, Big Blue argues that if there was no sale 

for resale, then it is entitled to a credit for Nebraska sales tax 

paid by certain lessees of the airplane under the doctrine of 

equitable recoupment.

On cross-appeal, the Department assigns the district court 

erred in failing to find that Big Blue was required to pay 

use tax on the purchase of the airplane under § 77-2704.28, 

because Big Blue leased the airplane to a related entity and that 

entity did not qualify for any sales and use tax exemptions on 

the leased property.

III. STANDARD OF REVIEW

[1,2] A judgment or final order rendered by a district court 

in a judicial review pursuant to the APA may be reversed, 

vacated, or modified by an appellate court for errors appearing on the record. 9 When reviewing an order of a district court 

under the APA for errors appearing on the record, the inquiry 

is whether the decision conforms to the law, is supported by 

competent evidence, and is neither arbitrary, capricious, nor 

unreasonable. 10

[3] Whether a decision conforms to law is by definition 

a question of law, in connection with which an appellate 

court reaches a conclusion independent of that reached by the 

lower court. 11

[4] An appellate court, in reviewing a district court judgment for errors appearing on the record, will not substitute its 

factual findings for those of the district court where competent 

evidence supports those findings. 12

9 Prokop v. Lower Loup NRD, 302 Neb. 10, 921 N.W.2d 375 (2019).

10 Id.

11 Id.

12 Id.
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BIG BLUE EXPRESS v. NEBRASKA DEPT. OF REV.

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IV. ANALYSIS

1. Relevant Statutes

[5] Generally speaking, and as discussed in greater detail 

below, Nebraska imposes a tax on each item of tangible 

personal property in this state at some point in the chain of 

commerce, unless the item is specifically excluded from taxation. 13 If the item is purchased in Nebraska, the sales tax 

applies. 14 If the item is purchased outside Nebraska, the use tax 

applies. 15 Nebraska’s sales and use taxes are thus interrelated, 

and together, they provide a uniform tax upon the sale, lease, 

rental, use, storage, distribution, or other consumption of all 

tangible personal property. 16

(a) Sales Tax

Sales and use taxes are both imposed by § 77-2703. Section 

77-2703(1) imposes a sales tax “upon the gross receipts from 

all sales of tangible personal property sold at retail in this 

state.” “Gross receipts” is defined as the “total amount of the 

sale or lease or rental price, as the case may be, of the retail 

sales of retailers.” 17 “[S]ale at retail” is defined as “any sale, 

lease, or rental for any purpose other than for resale, sublease, 

or subrent.” 18

“Sale for resale” is defined as a “sale of property . . . to any 

purchaser who is purchasing such property . . . for the purpose 

of reselling it in the normal course of his or her business.” 19

It includes a “sale of property to a purchaser for the sole 

13 See Intralot, Inc. v. Nebraska Dept. of Rev., 276 Neb. 708, 757 N.W.2d 

182 (2008). See, also, Neb. Rev. Stat. § 77-2701 et seq. (Reissue 2018 & 

Cum. Supp. 2020).

14 Id.

15 Id.

16 Id.

17 § 77-2701.16.

18 § 77-2701.31.

19 § 77-2701.34.
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purpose of that purchaser renting or leasing such property to 

another person, with rent or lease payments set at a fair market 

value.” 20 “Lease or rental” is defined as “any transfer of possession or control of tangible personal property for a fixed or 

indeterminate term for consideration.” 21 And “[b]usiness” is 

defined as “any activity engaged in by any person or caused to 

be engaged in by him or her with the object of gain, benefit, or 

advantage, either direct or indirect.” 22

(b) Use Tax

Section 77-2703(2) imposes a use tax on the “storage, use, 

or other consumption in this state of property purchased . . . 

from any retailer and on any transaction the gross receipts of 

which are subject to tax under subsection (1).” “Retailer” is 

defined as “any seller,” 23 and “[s]eller” includes “every person 

engaged in the business of selling, leasing, or renting property 

of a kind the gross receipts from the retail sale, lease, or rental 

of which are required to be included in the measure of the sales 

tax.” 24 Essentially, § 77-2703(2) provides that use tax is owed 

if the purchase, had it occurred in Nebraska, would have been 

subject to sales tax under § 77-2703(1). 25

(c) Exemptions

The sales and use tax statutes also contain a number of 

statutory exemptions, codified primarily at §§ 77-2704.02 to 

77-2704.30. One such exemption is § 77-2704.28, which relates 

to leases between related companies, and provides:

A lease of property from a subsidiary to the parent 

company, from a parent company to a subsidiary, from 

20 Id.

21 § 77-2701.18.

22 § 77-2701.07.

23 § 77-2701.32(1).

24 § 77-2701.36.

25 See Lackawanna Leather Co. v. Nebraska Dept. of Rev., 259 Neb. 100, 

608 N.W.2d 177 (2000).
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one subsidiary to another subsidiary of the same parent company, or between brother-sister companies shall 

not be subject to the sales and use tax imposed by the 

Nebraska Revenue Act of 1967 if such property was either 

originally acquired prior to June 1, 1967, or if acquired 

thereafter, the seller or transferor directly or indirectly 

has previously paid a sales or use tax thereon. Such lessor 

company shall have the same sales and use tax liability on 

the purchase of property to be leased to the lessee company as the lessee company would have paid if the lessee 

company had purchased the property directly.

[6] We have also described a “sale for resale,” as that term 

is defined in § 77-2701.34, as an exemption from sales and 

use taxes. 26 Big Blue’s primary argument on appeal is that its 

purchase and use of the airplane meets the definition of a sale 

for resale, and thus was nontaxable.

We note the parties’ briefing debates whether the sale for 

resale provisions in the Nebraska Revenue Act of 1967 are 

properly characterized as an exception in a statute imposing 

a tax or as an exemption from taxation. Generally speaking, statutes imposing a tax are strictly construed against 

the government and in favor of the taxpayer, 27 while exemptions from taxation are to be strictly construed in favor of 

the government and not extended by judicial construction. 28

Arguably, there is some tension in our case law as to whether 

a sale for resale is properly considered an exception or an 

26 See, generally, Intralot, supra note 13; May Broadcasting Co. v. Boehm, 

241 Neb. 660, 490 N.W.2d 203 (1992); Interstate Printing Co. v. 

Department of Revenue, 236 Neb. 110, 459 N.W.2d 519 (1990); Nucor 

Steel v. Leuenberger, 233 Neb. 863, 448 N.W.2d 909 (1989).

27 See New York Ins. Co. v. Edwards, 271 U.S. 109, 46 S. Ct. 436, 70 L. Ed. 

859 (1926). See, generally, 71 Am. Jur. 2d State and Local Taxation § 7 

(2012).

28 See, Ash Grove Cement Co. v. Nebraska Dept. of Rev., 306 Neb. 947, 947 

N.W.2d 731 (2020); Woodmen of the World v. Nebraska Dept. of Rev., 299 

Neb. 43, 907 N.W.2d 1 (2018).
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exemption, 29 but we see no need to resolve that tension in 

this case.

[7] Under Nebraska law, it is presumed that the airplane 

purchase was subject to use tax, and Big Blue had the burden 

of proving to the contrary. 30 As such, it was Big Blue’s burden 

to prove that its purchase and use of the airplane was a nontaxable sale for resale. 31 And as we explain next, regardless of 

whether the relevant statutes are construed broadly or strictly, 

Big Blue failed to meet its burden on this key issue.

2. Not Sale for Resale

Big Blue argues that to prove the purchase and use of the 

airplane was a sale for resale, it was required to prove (1) it 

purchased the airplane to lease it; (2) it leased the airplane 

to another; (3) the lease payments were set at fair market 

value; and (4) the leasing was done in the normal course of its 

business. 32 The Department does not vigorously contest this 

framework, but argues that Big Blue failed to prove the lease 

payments were set at fair market value and further failed 

to show the leasing was done in the normal course of Big 

Blue’s business.

(a) Cases From Other Jurisdictions

The parties direct us to no Nebraska case in which we have 

addressed a sale for resale involving leased property. But at 

29 Compare Intralot, supra note 13 (referring to sale for resale as both 

exemption from taxation and as not subject to sales and use taxes); May 

Broadcasting Co., supra note 26 (referring to sale for resale as exemption);

Interstate Printing Co., supra note 26 (same); Nucor Steel, supra note 26 

(same).

30 See § 77-2703(2)(e) (“it shall be presumed that property sold, leased, or 

rented by any person for delivery in this state is sold, leased, or rented for 

storage, use, or consumption in this state until the contrary is established. 

The burden of proving the contrary is upon the person who purchases, 

leases, or rents the property”).

31 See Intralot, supra note 13 (burden of establishing that purchase was sale 

for resale is on party claiming exemption).

32 See § 77-2701.34.
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least two other jurisdictions have applied similar statutory 

language to facts which are much the same as those presented here.

In Devonair Enter., L.L.C. v. Dep’t of Treasury,

 33 a Michigan 

taxpayer appealed from an order of the tax tribunal affirming 

the assessment of a use tax on its purchase of an airplane. 

The relevant statutes and regulations provided that a “person 

engaged in the business of renting or leasing tangible personal 

property to others” 34 could either pay tax at the time the property was purchased or pay tax on rental receipts. “Business” 

was defined as “activities engaged in by a person or caused to 

be engaged in by a person with the object of gain, benefit, or 

advantage, either direct or indirect.” 35

The evidence showed the taxpayer, a corporation, purchased 

the airplane in 2007 for approximately $3.6 million and entered 

into two lease agreements the same day. One was with the sole 

member of the taxpayer corporation, and the other was also 

with a related entity. The lease agreements were for $200 per 

flight hour and $680 per flight hour, respectively. In 2007, the 

airplane had 74.4 flight hours; in 2008, it had 179 flight hours; 

and in 2009, it had 136.5 flight hours. An aviation expert testified that a charter service would generally charge about $1,300 

per flight hour for a similar airplane and that 479 flight hours 

per year is a typical usage. The expert further testified that 

the costs of owning the airplane were about $1,580 per flight 

hour. Evidence showed the taxpayer did not advertise itself as 

a lessor with the public and pursued no lease agreements with 

unrelated entities.

The tax tribunal and the district court in Devonair Enter.

both found the evidence was insufficient to show the taxpayer 

corporation was engaged in the business of leasing the airplane to others. In doing so, they generally reasoned: (1) The 

33 Devonair Enter., supra note 6.

34 Mich. Admin. Code § 205.132 (1979).

35 Mich. Comp. Laws § 205.92(h) (2021).
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hourly rate charged was not sufficient to cover the costs of 

leasing the airplane; (2) the taxpayer did not advertise itself 

to the public as a lessor and pursued no leasing agreements 

with unrelated companies; and (3) the taxpayer’s very limited 

rental receipts resulted in it paying minimal use tax, compared 

to the substantial sales tax that would have been paid at the 

time of purchase. The tax tribunal and the district court found 

this evidence showed the taxpayer was not engaged in business 

because it had no reasonable expectation of gain, benefit, or 

advantage to itself.

A similar situation was addressed by the Ohio Supreme Court 

in Pi In The Sky, L.L.C. v. Testa.

 36 There, a single-member, limited liability company purchased an airplane without paying 

sales or use tax on it and then leased it to its sole corporate 

member. The applicable law provided that a “‘[r]etail sale’” 

did not occur and thus no sales and use taxes were owed when 

“the purpose of the consumer is to resell the thing transferred 

. . . by a person engaging in business, in the form in which the 

same is, or is to be, received by the person.” 37 “‘Business’” 

was defined as engagement in an activity “with the object of 

gain, benefit, or advantage, either direct or indirect.” 38

The Ohio Supreme Court focused its analysis on whether 

the taxpayer’s use of the airplane constituted “engaging in 

business” so that it could meet the sale for resale exception. In 

doing so, it found the taxpayer leased the airplane exclusively 

to its only member for $80 per flight hour. It also found the 

taxpayer had no business location aside from the residence of 

its sole member, that the airplane was never used by a thirdparty lessee, and that there was no evidence the taxpayer ever 

marketed the airplane for lease. Based on this evidence, it 

found significant support for the tax tribunal’s conclusion that 

the airplane was not purchased for the purpose of leasing it to 

others as part of a business enterprise.

36 Pi In The Sky, L.L.C., supra note 6.

37 See Ohio Rev. Code Annot. § 5739.01(E) (West 2020).

38 See § 5739.01(F).
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We agree with the Department that the statutory language 

analyzed by the courts in Devonair Enter. and Pi In The Sky, 

L.L.C., is similar to the relevant language of our statutes governing leases in the normal course of business. Because of this 

similarity, we find those cases instructive and we consider the 

factors discussed by those courts to be appropriate when analyzing whether Big Blue has shown the airplane was leased in 

the normal course of its business.

[8] As such, when determining whether property is being 

leased in the normal course of a taxpayer’s business within the 

meaning of § 77-2701.34, a court may consider factors including, but not limited to, whether the leases are entered into with 

consumers who are related to or associated with the taxpayer, 

whether the terms of the leases and the parties’ subsequent conduct reflect an arm’s-length business transaction, whether the 

leases produced reasonable revenue for the taxpayer’s business 

in relation to operating expenses, and whether the taxpayer 

held itself out to the public as being in the business of leasing 

the property. 39 Applying those factors here, we agree that Big 

Blue has not met its burden of proving that the purchase and 

use of the airplane was a sale for resale.

(b) No Business Activity With Object 

of Gain, Benefit, or Advantage

Pursuant to § 77-2701.07, Big Blue had to show it purchased 

the airplane to lease it in the normal course of its business. 

“Business” in this respect is an “activity engaged in by any 

person or caused to be engaged in by him or her with the object 

of gain, benefit, or advantage, either direct or indirect.” 40

We find substantial support in the record for the district 

court’s factual findings and conclusion that Big Blue’s purchase and leasing of the airplane was not pursued with the 

“object of [its] gain, benefit, or advantage.” 41 In this respect, 

39 See, Pi In The Sky, L.L.C., supra note 6; Devonair Enter., supra note 6.

40 § 77-2701.07.

41 See id.
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the vast majority of the leases entered into by Big Blue 

were either with Schneider personally or with related entities. 

Although several leases were with nonrelated entities, including those with Meyer and Buchanan, the record shows that 

Schneider personally paid invoices related to those leases. And 

over half of the airplane’s flight hours were invoiced directly 

to Schneider.

The terms of the leases and the parties’ subsequent conduct 

with respect to invoices also demonstrate that Big Blue was 

not engaged in business activity with the object of Big Blue’s 

gain, benefit, or advantage. Approximately 20 percent of the 

leases were for an hourly rate under what Big Blue considered 

to be fair market value. The use agreements required the lessees to pay for pilot services, and while the flight logs show 

Schneider was often the pilot, he testified that no lessee had 

ever paid him for his pilot services. Big Blue issued invoices 

for flight hours for the years 2011 and 2012, but those invoices 

remained outstanding and Big Blue made no effort to collect 

on them prior to the time it was contacted by the Department 

about the airplane in July 2013. This delay resulted in some of 

the invoices being paid as late as 500 days after issuance, and 

even then, Big Blue charged no interest, despite the terms of 

the lease agreement. After being contacted by the Department, 

Big Blue generally increased its leasing of the airplane and 

began promptly collecting on invoices.

While not dispositive on its own, it is plainly evident from 

the record that the revenue Big Blue generated from leasing 

the airplane was substantially less than the costs it incurred 

in owning the airplane. It is undisputed that Big Blue’s only 

source of ordinary income was revenue from leasing the airplane. It only leased the airplane for a total of 237.69 hours 

from May 2011 to December 2013, and as such, it generated an 

average of approximately $9,000 in revenue each month, while 

its operating expenses averaged approximately $20,000 per 

month. Big Blue argues its profit-and-loss statements show a 

small net profit in 2012 and 2013, but the evidence is that this 
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was largely the result of substantial capital infusions made by 

CVE to Big Blue, even though CVE never leased the airplane. 

Indeed, the record suggests the cash infusions were needed to 

keep Big Blue afloat precisely because it was not leasing the 

airplane for its gain, benefit, or advantage.

And, finally, the record shows Big Blue made almost no 

effort to hold itself out to consumers or the public as the lessor 

of the airplane, the very business activity in which it claims to 

have been engaged. Schneider admitted that other than talking to one person, he made no effort to market the airplane to 

potential lessees other than those with whom he was affiliated 

or personally acquainted. And it is telling that when insuring 

the airplane, Big Blue purchased coverage for “PLEASURE 

AND BUSINESS” use, which expressly excluded “any operation for hire or reward.”

On this record, there is substantial, competent evidence to 

support the district court’s conclusion that Big Blue failed 

to meet its burden of showing that it purchased the airplane 

to lease it in the normal course of engaging in an activity 

designed to result in “gain, benefit, or advantage” to Big Blue. 

We therefore agree that the airplane purchase was not a nontaxable sale for resale, and we affirm the district court’s finding 

that the Department’s tax deficiency assessment of $161,373.31 

was proper.

3. § 77-2704.28 and Leases 

With Sister Company

As noted, the Tax Commissioner affirmed the Department’s 

deficiency assessment on two bases. It found the assessment 

was proper because the airplane purchase was not a sale for 

resale, and it also found the assessment was proper, pursuant to § 77-2704.28, because Big Blue leased the airplane to 

its sister company, PowerPay, on at least one occasion. The 

district court disagreed that § 77-2704.28 applied, but agreed 

that use tax was owed because Big Blue had not proved the 

sale for resale exemption applied. In its cross-appeal, the 
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Department contends the district court erred in its analysis of 

§ 77-2704.28.

[9] We do not reach the merits of the cross-appeal; having 

determined the airplane purchase was not a nontaxable sale for 

resale and having affirmed the tax deficiency assessment of 

$161,373.31 on that basis, it is unnecessary to address whether 

an alternative statutory basis also exists for affirming the deficiency. An appellate court is not obligated to engage in analysis 

that is not necessary to adjudicate the case and controversy 

before it. 42 Nevertheless, so that the Legislature is generally 

apprised of the perceived tension in the statutory language, 

we expound on the competing constructions of § 77-2704.28 

advanced by the parties in this case.

Section 77-2704.28 is codified in that portion of Nebraska’s 

sales and use tax statutes that set out specific exemptions 

to the sales and use taxes imposed by § 77-2703. 43 Section 

77-2704.28 is entitled “Leases between related companies; 

exemption,” and it provides:

A lease of property from a subsidiary to the parent 

company, from a parent company to a subsidiary, from 

one subsidiary to another subsidiary of the same parent company, or between brother-sister companies shall 

not be subject to the sales and use tax imposed by the 

Nebraska Revenue Act of 1967 if . . . the seller or transferor directly or indirectly has previously paid a sales or 

use tax thereon. Such lessor company shall have the same 

sales and use tax liability on the purchase of property to 

be leased to the lessee company as the lessee company 

would have paid if the lessee company had purchased the 

property directly.

Generally stated, the Department contends the first sentence of § 77-2704.28 exempts a lessee company from paying 

42 See, George Clift Enters. v. Oshkosh Feedyard Corp., 306 Neb. 775, 947 

N.W.2d 510 (2020); Woodmen of the World, supra note 28.

43 See §§ 77-2704.02 to 77-2704.30.
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sales tax when it leases property from a related company and 

the lessor company has previously paid sales or use tax on the 

property. And the Department contends the second sentence 

of § 77-2704.28 imposes sales or use tax on a lessor company 

when that company purchases property to be leased and subsequently leases that property to a sufficiently related company. 

According to the Department, when such a lease occurs, the 

lessor company’s sales and use tax liability on the purchase is 

calculated based on the sales and use tax liability the related 

lessee company would have incurred if it had purchased the 

property directly. Moreover, the Department contends the second sentence of § 77-2704.28 imposes this tax on the lessor 

even if the purchase would otherwise qualify as a sale for 

resale. In other words, the Department interprets the first sentence of § 77-2704.28 to exempt certain lessees from sales tax 

when the lease is between related companies and interprets the 

second sentence of § 77-2704.28 to impose use tax on certain 

lessors when the lease is between related companies.

Big Blue characterizes the Department’s interpretation of the 

second sentence of § 77-2704.28 as “nonsensical.” 44 It argues 

the Department’s interpretation exposes a lessor to a use tax if 

its purchase of property to be leased otherwise qualified as a 

sale for resale, but it leases the property to a sufficiently related 

entity just one time, perhaps even years after the original purchase. Big Blue contends such a construction is improper, particularly when § 77-2704.28 is codified as an exemption and 

does not purport to impose a new tax.

Big Blue suggests a completely different interpretation of 

§ 77-2704.28, under which the first sentence of § 77-2704.28 

gives a lessor wanting to lease property to a related company 

two options. First, it can choose, at the time of the lease, to 

pay sales and use taxes on the purchase of the property; if it 

does, then the lessee is exempt from paying sales tax on the 

lease. Second, it can choose, again at the time of the lease, to 

44 Brief for cross-appellees on cross-appeal at 1.
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not pay sales and use taxes on the purchase of the property, but 

instead to have the lessee pay sales tax on the lease. Big Blue 

does not explain how this construction of § 77-2704.28 can 

be reconciled with the “previously paid” language of the first 

sentence. As to the second sentence of the statute, Big Blue 

contends “[s]uch lessor” necessarily refers to a company which 

has elected the first option, and describes how that lessor’s 

sales and use taxes are to be assessed.

In its order, the district court recognized that neither party’s 

interpretation of § 77-2704.28 was “without its complications,” 

in that neither construction perfectly accounts for or reconciles 

all of the statutory language. We agree the statutory language is 

vexing, and we are not persuaded that either party’s proposed 

interpretation is consistent with settled principles of statutory construction.

The correct interpretation and application of § 77-2704.28 

will need to wait for a case where it is dispositive. In the meantime, we leave to the Legislature consideration of whether its 

intended policy is adequately set forth in the statutory language 

of § 77-2704.28.

4. Equitable Recoupment

Big Blue makes another argument related to § 77-2704.28. 

It argues that because some of the airplane lessees—specifically CVE, PowerPay, and CR Services—are its subsidiaries 

or brother-sister companies, then under its interpretation of the 

first sentence of § 77-2704.28, those entities did not have to 

pay sales tax on the leases if Big Blue had to pay tax on the 

airplane purchase. 45 Big Blue contends the tax amount it owes 

on the deficiency assessment should thus be offset by the sales 

tax payments made by these three related entities under the 

doctrine of equitable recoupment.

45 See 316 Neb. Admin Code, ch. 1, § 018.08A (2017) (recognizing 

exemption in § 77-2704.28 applies to corporations that have at least 50 

percent common ownership and other entities that would be considered 

parent, subsidiary, or brother-sister if they were corporations).
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As it has been described by another court:

The ancient doctrine of equitable recoupment, which 

developed concurrently at common law and in equity, 

was judicially created to preclude unjust enrichment of 

a party to a lawsuit and to avoid wasteful multiplicity of 

litigation. . . . The doctrine has been applied in Federal 

tax matters since the Supreme Court’s decision in Bull 

v. United States, 295 U.S. 247 (1935), to allow the bar 

of the expired statutory limitation period to be overcome 

in limited circumstances in order to prevent inequitable 

windfalls to either taxpayers or the Government that 

would otherwise result from inconsistent tax treatment 

of a single transaction, item, or event affecting the same 

taxpayer or a sufficiently related taxpayer. . . . The doctrine of equitable recoupment may be applied to relieve 

inequities caused when a transaction is treated inconsistently under different taxes, such as the income tax and 

the estate tax. . . . However, the party asserting equitable 

recoupment may not affirmatively collect the time-barred 

underpayment or overpayment of tax. Equitable recoupment “operates only to reduce a taxpayer’s timely claim 

for a refund or to reduce the government’s timely claim 

of deficiency.” 46

As a general matter, to establish equitable recoupment, a party 

must prove:

(1) The overpayment or deficiency for which recoupment 

is sought by way of offset is barred by an expired period 

of limitation; (2) the time-barred overpayment or deficiency arose out of the same transaction, item, or taxable 

event as the overpayment or deficiency before the Court; 

(3) the transaction, item, or taxable event has been inconsistently subjected to two taxes; and (4) if the transaction, 

item, or taxable event involves two or more taxpayers, 

46 Estate of Mueller v. C.I.R., 101 T.C. 551, 551 (1993), disapproved on 

other grounds 153 F.3d 302 (6th Cir. 1998), superseded by statute, Estate 

of Jorgensen v. C.I.R., 97 T.C.M. (CCH) 1328 (2009).
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there is sufficient identity of interest between the taxpayers subject to the two taxes that the taxpayers should be 

treated as one. 47

Some states have declined to adopt the doctrine of equitable 

recoupment, reasoning their statutory tax scheme is the sole 

means of recovering any overpayment. 48 Similarly, Nebraska 

has a statute, § 77-2709, that specifically addresses how credits 

against tax deficiencies are to be determined.

Section 77-2709(1) provides in pertinent part that in making a deficiency determination for sales and use taxes, the 

“Tax Commissioner may offset overpayments for a period or 

periods, together with interest on the overpayments, against 

underpayments for other period or periods, against penalties, 

and against the interest on the underpayments.”

Here, Big Blue argued to the Tax Commissioner that it was 

entitled to credit under § 77-2709. In doing so, it made substantially the same argument it now attempts to make under the 

theory of equitable recoupment. Specifically, Big Blue argued 

to the Tax Commissioner that it should be given a setoff or 

credit under § 77-2709 because, under § 77-2704.28, if it has 

to pay use tax on the airplane purchase, then its related lessees—CVE, PowerPay, and CR Services—should have been 

exempt from paying sales tax on their airplane leases. Big Blue 

makes this argument despite the fact that our record shows 

that CVE and CR Services never used the airplane after entering into the lease agreement. Regardless of the evidentiary 

weakness in Big Blue’s claim, the Tax Commissioner denied 

credit under § 77-2709 because it expressly rejected Big Blue’s 

interpretation of § 77-2704.28. Instead, the Tax Commissioner 

found that § 77-2704.28 exempted the related company lessees 

47 Menard, Inc. v. C.I.R., 130 T.C. 54, 62-63 (2008).

48 See, Gen. Motors Corp. v. Limbach, 67 Ohio St. 3d 90, 616 N.E.2d 204 

(1993); Anderson v. Dept. of Rev., 313 Or. 1, 828 P.2d 1001 (1992) (reasoning tax statute waives sovereign immunity and thus sovereign immunity still applies to equitable claims); Dairyland Harvestore v. Wisconsin 

Dept. of Revenue, 151 Wis. 2d 799, 447 N.W.2d 56 (Wis. App. 1989).
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from paying sales tax on the leases only if Big Blue had “previously paid” tax on the airplane purchase, which it had not 

done at the time the lessees paid the sales tax.

In its APA proceeding before the district court, Big Blue did 

not challenge the Tax Commissioner’s refusal to issue a credit 

under § 77-2709 or its related interpretation of § 77-2704.28. 

Instead, before the district court, and now before this court, 

Big Blue relies on an interpretation of § 77-2704.28 that was 

rejected by the Tax Commissioner, as support for its argument 

that it is entitled to credit based on the theory of equitable 

recoupment. Because the Tax Commissioner explicitly rejected 

the legal argument Big Blue now attempts to assert via an equitable doctrine, and because Big Blue did not appeal that issue 

to the district court, we find the argument has not been preserved for appellate review, 49 and we decline to address it.

V. CONCLUSION

The district court’s finding that Big Blue’s purchase of the 

airplane did not qualify as a nontaxable sale for resale is supported by sufficient competent evidence and is not contrary to 

law, and we affirm the deficiency assessment under § 77-2703. 

We do not reach the merits of Big Blue’s assignment of error 

related to equitable recoupment because it has not been preserved for appellate review. And we decline to reach the 

Department’s cross-appeal, as it is not necessary to resolve the 

appeal. The judgment of the district court is therefore affirmed.

Affirmed.

Miller-Lerman, J., participating on briefs.

49 See Orchard Hill Neighborhood v. Orchard Hill Mercantile, 274 Neb. 154, 

738 N.W.2d 820 (2007) (in APA appeal, district court cannot commit error 

in resolving issue never presented to it).