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JM Aviation

June 02, 2003


Appeal from the Circuit Court of Cook County No. 01 L 50537 Honorable John A. Ward, Judge Presiding.

The opinion of the court was delivered by: Justice Smith


This is an action for administrative review of the Illinois Department of Revenue's (the Department) determination that plaintiff JM Aviation, Inc. (JM Aviation), owed state use tax on its purchase of a used airplane. The circuit court affirmed the Department. On appeal, JM Aviation contends that is does not owe any use tax, alleging that the purchase was an isolated or occasional sale and, thus, constituted an exception to the Retailers' Occupation Tax Act (35 ILCS 120/1 et seq. (West 1996)) (hereinafter ROTA) and Use Tax Act (35 ILCS 105/1 et seq. (West 1996)) (hereinafter UTA). Specifically, JM Aviation argues that it purchased the airplane from an entity that neither held itself out as a seller of aircraft nor habitually engaged in the selling of aircraft. No issues are raised on the pleadings. For the reasons that follow, we affirm.


In Weber-Stephen Products, Inc. v. Department of Revenue, 324 Ill. App. 3d 893 (2001), this court previously described the statutory framework of what is commonly known as the Illinois sales tax, which consists of two separate, complementary taxes, i.e., the retailers' occupation tax and the use tax.

"The ROTA imposes an occupational tax upon retailers, persons engaged in the business of selling at retail tangible personal property. [Citations.] Under ROTA, Illinois retailers are required to remit to the State a percentage of the gross receipts of every retail sale. [Citation.] The use tax is assessed the same way and on the same transactions, but the UTA imposes a tax on the purchaser-user of property for the privilege of using this property in Illinois, regardless of where the sale occurred. [Citations.] The State therefore benefits by taxing in-state retailers and purchases and also out-of-state purchases by consumers for use in Illinois which could not be reached by the ROTA.

When a single purchase occurs, Illinois retailers collect both forms of sales tax from the consumer. However, if the retailer pays the ROTA tax to the State, he or she does not have to pay, and may keep, the use tax. [Citations.] If the retailer is outside Illinois and therefore has no ROTA or UTA obligations, the purchaser-user in Illinois must pay the use tax directly to the State. [Citations.]

The UTA does not apply to out-of-state transactions that would be exempt under the ROTA if the sale occurred in Illinois. [Citations.] If a seller of personal property is excluded from paying the ROTA tax, despite all elements of the sale occurring in Illinois, then the user of that property is also excluded from the imposition of use tax. [Citations.] ROTA provides an exception:

'The isolated or occasional sale of tangible personal property at retail by a person who does not hold himself out as being engaged (or who does not habitually engage) in selling such tangible personal property at retail *** does not constitute engaging in a business of selling such tangible personal property at retail within the meaning of the Act ***.' [Citation.]

A nonretailer who makes an occasional or isolated sale does not incur ROTA liability and therefore the purchaser-user does not incur UTA taxes. 86 Ill. Adm. Code §§150.101(d), 130.110(a) (1985).

*** [A] 'sale at retail' under both the ROTA and the UTA is defined as 'any transfer of the ownership of or title to tangible personal property to a purchaser, for the purpose of use *** for a valuable consideration.' [Citation.] Illinois courts historically have focused on the transfer of title as indicative that a 'sale at retail' has taken place." Weber- Stephen Products, Inc., 324 Ill. App. 3d at 898-99.

JM Aviation is an Illinois corporation and was established by its owner, John Melk, to hold title to aircraft. In 1992, JM Aviation purchased a Westwind II airplane (Westwind) from Southern Aircraft Services, Inc. (SAS), a Florida corporation that owns, manages and maintains various aircraft which it then leases to various companies affiliated with SAS.

JM Aviation decided to replace its Westwind with a Gulfstream GII aircraft (Gulfstream) owned by Montgomery Ward & Company (Ward) and, in July 1995, entered into an agreement with Ward to purchase the Gulfstream for $3.2 million. Because JM Aviation had not yet found a buyer for its Westwind, JM Aviation structured the disposition of the Westwind in a manner that permitted JM Aviation to defer, for federal income tax purposes, the recognition of the gain that would be realized by selling the Westwind. Such a transaction, commonly referred to as a like-kind exchange, required the use of an intermediary titleholder for the Gulfstream until a buyer for the Westwind was found. SAS was used as the intermediary to facilitate the exchange.

In July 1995, JM Aviation and SAS entered into a contract whereby JM Aviation assigned its right to purchase Ward's Gulfstream to SAS; JM Aviation acquired an option to purchase the Gulfstream from SAS; and JM Aviation agreed to sell its Westwind to SAS in partial payment for the Gulfstream. Because SAS did not intend to acquire the Gulfstream for its own use, JM Aviation agreed to lease the Gulfstream from SAS until JM Aviation purchased it. Moreover, JM Aviation agreed not to exercise its option to purchase the Gulfstream until a buyer was found to purchase the Westwind from SAS. JM Aviation agreed to make a $1.7 million lease deposit with SAS and loan SAS $1.5 million (the expected sale price of the Westwind).

In September 1995, SAS used the $3.2 million it received from JM Aviation to purchase the Gulfstream, which it then leased to JM Aviation. In March 1996, a buyer purchased the Westwind from SAS, and JM Aviation exercised its option to acquire the Gulfstream from SAS in exchange for title to the Westwind and a $1.7 million credit for the lease deposit. JM Aviation did not pay Illinois use tax on its acquisition of the Gulfstream. In 1999, ...

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