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NACG Leasing v. Dep't of Treasury

Supreme Court of Michigan

February 6, 2014

NACG LEASING f/k/a CELTIC LEASING, LLC, Petitioner-Appellee,
v.
DEPARTMENT OF TREASURY, Respondent-Appellant

Argued November 7, 2013

For NACG LEASING, Plaintiff-Appellant: THOMAS S NOWINSKI, DETROIT, MI.

For DEPARTMENT OF TREASURY, Respondent-Appellee: JACK M PANITCH, LANSING, MI.

Chief Justice: Robert P. Young, Jr. Justices: Michael F. Cavanagh, Stephen J. Markman, Mary Beth Kelly, Brian K. Zahra, Bridget M. McCormack, David F. Viviano.

OPINION

[495 Mich. 27] BEFORE THE ENTIRE BENCH

Viviano, J.

The issue in this case is whether the execution of a lease of tangible personal property in Michigan constitutes " use" for purposes of the Use Tax Act (UTA).[1] Petitioner, a Michigan corporation, purchased an aircraft from one company and immediately executed a five-year lease to another company that already had possession of the aircraft. The Department of Treasury assessed a use tax against petitioner based on the lease transaction, and the Michigan Tax Tribunal ultimately upheld the assessment. The Court of Appeals reversed, holding that petitioner did not " use" the aircraft because it ceded total control of the aircraft to the lessee by virtue of the lease and the lessee had uninterrupted

Page 892

possession of the aircraft before and during the lease.[2] We granted leave, directing the [495 Mich. 28] parties to " address the applicability of the use tax to a transaction where tangible personal property is purchased by one party and leased to another party when the purchaser/lessor does not obtain actual possession of the property." [3] We reverse and remand.

This case requires us to interpret and apply the pertinent statutory provisions of the UTA. When interpreting a statute, this Court's primary goal " is to give effect to the Legislature's intent, focusing first on the statute's plain language." [4] When the words of a statute are unambiguous, we must enforce them as written and no further judicial construction is permitted.[5]

Under the UTA, a 6% tax is levied " for the privilege of using, storing, or consuming tangible personal property in this state . . . ." [6] The UTA defines " use," in pertinent part, as:

[T]he exercise of a right or power over tangible personal property incident to the ownership of that property including transfer of the property in a transaction where possession is given.[7]

In light of this statutory definition, we must determine whether petitioner exercised a right or power incident to ownership in Michigan when it executed a lease of the aircraft in question.

It is a basic precept of property law that a property owner has the right to the use and enjoyment of his or [495 Mich. 29] her personalty.[8] A corollary to this right is the property owner's right to allow others to use his or her property in exchange for consideration.[9] One way in which a property owner exercises this right is by executing a lease.[10] Therefore, because the right to allow others to use one's personal property is a right incident to ownership, and a lease is an instrument by which an owner exercises that right, it follows that the execution of a lease is an " exercise of a right or power over tangible personal property incident to the ownership of that

Page 893

property . . . ." [11]

In arriving at the opposite conclusion, the Court of Appeals relied on WPGP1, Inc v Dep't of Treasury,[12] and Czars, Inc v Dep't of Treasury,[13] two cases that distinguished between partial and total relinquishment of control of an aircraft for purposes of assessing the use [495 Mich. 30] tax.[14] According to those cases, when an out-of-state owner allows another person to use his or her aircraft, and that person uses the aircraft in Michigan, the owner is subject to Michigan use tax unless the owner can show that he or she previously relinquished total control.[15] However, we find those cases factually distinguishable because, unlike the present case, neither involved the execution of a lease in Michigan. In applying Czars and WPGP1 to the facts of this case, the Court of Appeals failed to recognize that the act of ceding control of an aircraft can, itself, be an exercise of a right incident to ownership.[16] In this case, petitioner relinquished control of its property by executing a lease in Michigan. As previously discussed, that act, alone, is sufficient to constitute " use" under the UTA.

The Court of Appeals also maintained that " a transfer of property unaccompanied by a transfer of possession is simply not 'use' that is subject to the tax." [17] The basis for this conclusion was the emphasized portion of the statutory definition of " use" :

[T]he exercise of a right or power over tangible personal property incident to the ownership of that property including transfer of the property in a transaction where possession is given.[18]

[495 Mich. 31] The statutory language on which the Court of Appeals relied is introduced by the term " including." As we have stated previously, " including" is a term of enlargement, not limitation.[19] Thus, a transaction in which possession is transferred is but one way to satisfy " use" under the UTA; it is not the only way, as the Court of Appeals erroneously held.[20]

Page 894

The execution of a lease in Michigan is the exercise of a right incident to property ownership and, therefore, falls squarely within the statutory definition of " use." We hold that petitioner " used" the aircraft in question for purposes of the UTA when it executed a lease of the aircraft in Michigan, regardless of whether it ever had actual possession of the aircraft. We reverse the judgment of the Court of Appeals and remand the case to that Court to consider petitioner's alternative claim challenging the[495 Mich. 32] calculation of the assessment amount.[21]David F. Viviano


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