Kal-Aero v. Dep't of Treasury

In Kal-Aero v. Dep't of Treasury, 123 Mich App 46; 333 NW2d 171 (1983), the plaintiff was in the business of selling and servicing aircraft, and also provided aircraft for rent or charter and offered flight instruction and pilot services. At the time the plaintiff bought aircraft for use in its rental and charter operations, it elected not to pay sales tax, but rather to pay use tax on rental receipts attributable to aircraft it owned. The plaintiff excluded from the rental receipts it reported for use tax purposes the income it earned from pilot services and instructional services. Kal-Aero, supra at 49-50. The Court concluded that the revenues the plaintiff received from flight instruction and pilot services were not subject to the use tax: Use tax is defined in 3 of the Use Tax Act, MCL 205.93; MSA 7.555(3), as "a specific tax for the privilege of using, storing or consuming tangible personal property in this state, which tax shall be equal to 4% of the price of such property". We agree with plaintiff that, under the particular facts present in this case, income attributable to instructional and pilot services rendered was not part of the "price" of the aircraft to which the use tax applies. "Price" is defined in 2 of the Use Tax Act, MCL 205.92(f); MSA 7.555(2)(f). "(f) 'Price' means the aggregate value in money of any thing, or things, paid or delivered, or promised to be paid or delivered by a consumer to a seller in the consummation and complete performance of the transaction by which tangible personal property or services shall have been purchased or rented for storage, use or other consumption in this state, without any deduction therefrom on account of the cost of the property sold; cost of materials used, labor or service cost, interest or discount paid, or any other expense whatsoever." Pilot and instructional services were not always part of the "complete performance of the transaction" by which plaintiff rented aircraft to its customers. These services were neither necessary nor incidental to complete performance of the taxable transaction, i.e., the rental of the aircraft. Customers were free to and did rent aircraft without purchasing these services; services could be and were purchased by customers who did not rent aircraft from plaintiff. Charges for pilot services and instructional services were calculated using a separate hourly rate and were stipulated to be reasonable. Each case must, of course, turn on its own facts. On the particular facts of this case, we conclude that the distinct and identifiable service transactions, which may or may not occur contemporaneously with the taxable aircraft rental transaction, are clearly severable from the latter and thus not subject to the use tax. Kal-Aero, supra at 51-52. In Kal-Aero, the plaintiff's pilot and instructional services were available to those who did not rent the plaintiff's aircraft. Further, the plaintiff charged a separate hourly rate for its pilot and instructional services. Kal-Aero, supra at 52.