200608814H



HEARING NO.  46,180 

RE: **************
TAXPAYER NO.: **************
AUDIT OFFICE: **************
AUDIT PERIOD: JANUARY 1, 2000 THROUGH MARCH 31, 2000

SALES AND USE TAX/RFD

BEFORE THE COMPTROLLER 
OF PUBLIC ACCOUNTS 
OF THE STATE OF TEXAS

ELEANOR H. KIM
Chief Administrative Law Judge

BOB WOOD
Representing Tax Division

**************
Representing Claimant

COMPTROLLER'S DECISION

PRELIMINARY DISCUSSION:

An oral hearing was held on June 6, 2006.  Assistant General Counsel Bob Wood 
represented the Tax Division and presented the testimony of Mike Knowles, an 
auditor with the Comptroller’s office.  ************** appeared on behalf of 
Claimant and called no witnesses.

Official notice has been taken of all records of the Comptroller's office that 
pertain to Claimant and the issues involved in the case.  Unless otherwise 
indicated, all Section references are to Title 2 of Texas Tax Code and all 
references to Rules are to sections of Title 34, Texas Administrative Code. 

CLAIMANT’S CONTENTION:

Claimant contends that it is entitled to a refund of tax paid on the purchase 
of an aircraft because the purchase was exempt as an occasional sale.

FINDINGS OF FACT:

1. Claimant is a Texas corporation and does not hold a Texas sales and use tax 
permit. 

2. In January 2000, Claimant purchased a 1978 Beachcraft King-Air 200, 
************** (“aircraft”) and paid sales tax to ************** (“COMPANY A”) 
on the purchase.  COMPANY A remitted the collected sales tax to the 
Comptroller’s office.

3. Claimant filed a claim for refund on April 20, 2004 seeking the recovery of 
sales tax that it paid on the aircraft purchase.  Because Claimant paid the tax 
to COMPANY A, Claimant obtained a refund assignment from COMPANY A and 
submitted it with its refund claim.  The Comptroller’s Audit Division denied 
the claim on February 9, 2005 on the basis that tax was properly paid on the 
aircraft purchase.  Claimant appealed the denial by requesting a refund 
hearing, which resulted in the docketing of the above-captioned hearing.

4. The aircraft was the subject of two purchase agreements, both of which were 
signed on January 3, 2000.  The first purchase agreement was executed by 
************** (“COMPANY B”), a California corporation, and COMPANY A.  The 
selling price of the aircraft was $**************.  The second purchase 
agreement was executed by COMPANY A and Claimant, and the selling price of the 
aircraft was $************** plus sales tax of $************** for a total 
amount of $**************.  

5. Both purchase agreements contain identical terms.  Each agreement provides 
that it is the entire agreement of the parties and “all prior representations 
and understandings have been merged” into the agreement.  Each agreement 
provides that it becomes a binding contract when it is signed by both parties 
and that the Purchaser and Seller agree that “title to the aircraft shall pass 
to Purchaser when the full purchase price is paid to the Seller” and that the 
Seller will collect all required sales, excise and similar taxes unless the 
Purchaser issues an exemption certificate.  The addendum to each purchase 
agreement provides that the Seller warrants that it is authorized to sell and 
holds good title to the aircraft products, the Seller will deliver the aircraft 
to CITY A, Texas, or at a location mutually agreed upon by the parties.  Each 
agreements requires the conveyance of title by execution of Federal Aviation 
Administration (“FAA”) Bill of Sales, accompanied by appropriate releases of 
any liens or encumbrances, if any, that exist against the aircraft, until 
delivery, Seller shall keep the aircraft products fully insured and bear the 
risk of loss.

6. On January 4, 2000, the aircraft was flown into CITY B, Texas.

7. ************** (“COMPANY C”) handled the escrow for all parties.  On January 
3, 2000, COMPANY C faxed a copy of a bill of sale to an attorney who 
represented INDIVIDUAL A, Claimant’s President, and that bill of sale 
identified COMPANY B as the seller and Claimant as the purchaser.  Few days 
later, on January 7, 2000, COMPANY C sent the attorney “revised Bills of Sale”, 
and the revision shows two bills of sale, one reflecting a sale from COMPANY B 
to COMPANY A and another sale from COMPANY A to Claimant.  

8. On January, 6, 2000, both COMPANY A and Claimant signed a letter notifying 
COMPANY C that they accepted delivery of the aircraft and authorizing the funds 
transfer of the agreed upon funds for the completion of sale by COMPANY B.

9. On January 3, 2000, COMPANY A advised COMPANY C that a total of 
$************** should be received and that $************** should be disbursed 
to COMPANY B, $************** should be disbursed to INDIVIDUAL B, and 
$************** should be disbursed to COMPANY A.  On January 6, 2000, COMPANY 
A notified COMPANY C that COMPANY B  agreed to reduce the sales price by 
$************** due to problems found during inspection and that COMPANY B was 
to receive $************** and that the sales price reduction would reduce the 
amount of sales tax to be paid by Claimant.  

10. On January 10, 2000, COMPANY C sent a closing statement to COMPANY A 
indicating that it received $************** in total from Claimant’s officers 
and/or shareholders (INDIVIDUAL A, INDIVIDUAL B, and INDIVIDUAL C).  After 
retaining the escrow fee of $**************, COMPANY C disbursed 
$************** to COMPANY B, $************** to COMPANY D, and $************** 
to COMPANY A.  

11. On January 7, 2000, COMPANY C sent a letter to COMPANY B and COMPANY A 
stating effective that date, “escrow was closed for the sale/purchase of the 
[aircraft and that] funds have been released/wire transferred and original 
documents have been filed with FAA Aircraft registry in accordance with written 
escrow instruction received.” 

12. On January 7, 2000, COMPANY C sent a letter to Claimant, Claimant’s 
attorney, and COMPANY A stating effective that date “escrow was closed for the 
sale/purchase of the [aircraft and that] funds have been released/wire 
transferred and original documents have been filed with FAA Aircraft registry 
in accordance with written escrow instruction received.” 

13. Based on FAA records, the aircraft was purchased by COMPANY B in October 
1997 and then sold to COMPANY A on January 7, 2000.  COMPANY A then sold the 
aircraft to Claimant on that same day. 

14. On January 19, 2000, COMPANY B requested its insurance company to delete 
the aviation policy on the aircraft, effective January 6, 2000.  Claimant 
obtained insurance on the aircraft, effective January 6, 2000.

15. Claimant submitted an affidavit from COMPANY B stating that the sale of the 
aircraft “consists of the entire operating assts of a separate division, 
branch, or identifiable segment of a business whose attributable income and 
expenses can be separately established from the books of account or records of 
the business.”  Another affidavit was submitted stating that “each aircraft 
used in our charter operations is a separate and identifiable segment of our 
business … [and] that the income and expenses related to each of our charter 
aircraft … can be separately identified and ascertained from the books and 
records of COMPANY B.”

16. Claimant obtained maintenance/service invoices for the aircraft from 
COMPANY B for April 23, 1999, September 30, 1999, October 29, 1999, November 
23, 1999, and December 30, 1999.  Two invoices dated after the sale in January 
2000 were also submitted, but they do not reference the aircraft.

17. Claimant obtained charter invoices from COMPANY B that were issued from 
December 11, 1998 to August 24, 1999.  The aircraft log reflects entries 
covering the period of January 6, 1998 through January 4, 2000.  With the 
exception of a couple months, the log shows that the aircraft was chartered 
several times each month.  It identifies the corresponding invoices, but all 
invoices were not submitted.

18. COMPANY B’s website on the Internet states that it is a “Sales and Service 
company.”  It sells aircrafts (both new and used) and parts and provides 
maintenance and avionics services, line services, and charter and management 
services.

CONCLUSIONS OF LAW AND DISCUSSION:

Claimant’s contention should be denied.

Claimant purchased an aircraft and seeks the recovery of sales tax paid to 
COMPANY A on that purchase.  Claimant has two hurdles that it must overcome to 
prove its eligibility to the claimed refund.  Claimant must first prove that it 
purchased the aircraft directly from COMPANY B, and not from COMPANY A.  And 
if, and only if, that hurdle is satisfied, then Claimant must establish that 
the aircraft purchase qualified for the occasional sale exemption.  The Tax 
Division contends that Claimant fails both hurdles.  

The Tax Division points to the documentary evidence that includes two purchase 
agreements, and two aircraft bills of sale.  According to the Tax Division, the 
legal documents clearly demonstrate two separate sales, with Claimant’s 
purchase being made directly from COMPANY A, a permitted seller, making 
Claimant ineligible for the refund.  Moreover, the Tax Division contends that 
even if Claimant could establish the aircraft was purchased directly from 
COMPANY B, Claimant has provided insufficient evidence to prove the 
applicability of the occasional sale exemption.

The Comptroller may grant a refund of taxes paid only where it is determined 
that tax has been unlawfully or erroneously collected.  SECTION 111.104(a).  
Claimant has the burden of proof.  Rule 1.40(2)(B).  Claimant must prove that 
it purchased the aircraft directly from COMPANY B by a preponderance of the 
evidence.  

The legal documents overwhelmingly counter Claimant’s contention that it 
purchased the aircraft directly from COMPANY B.  The purchase agreement 
executed by Claimant clearly shows that Claimant purchased the aircraft from 
COMPANY A.  Another purchase agreement proves that COMPANY A purchased the 
aircraft from COMPANY B.  The two purchase agreements establish two separate 
transactions.  The existence of two separate transactions is further 
corroborated by two bills of sales, one of which demonstrates Claimant 
purchased the aircraft from COMPANY A.  Claimant acknowledges the existence of 
these documents, but contends that they are wrong and should be disregarded.  
According to Claimant, COMPANY A was merely the broker, who brought Claimant 
and COMPANY B together as the purchaser and the seller.

A broker is a person who brings other people together to bargain for the sale 
or purchase of taxable items.  Rule 3.311(a)(3).  Claimant admits that there is 
no written brokerage agreement between itself and COMPANY A.  When a written 
brokerage contract does not exist, Rule 3.311(a)(3) enumerates three criteria 
that are considered: (i) a broker does not have possession of the property, 
(ii) cannot cause title of the property to be transferred to a purchaser 
without further action on the part of the owner, and (iii) has disclosed to the 
other party the identity of the broker’s principal.  Claimant argues that 
COMPANY A never took possession of the aircraft and never obtained insurance as 
required by the addendum of the purchase agreement.  One significant fact that 
undermines Claimant’s contention is that COMPANY A accepted title to the 
aircraft and in turn transferred title to Claimant, which is inconsistent with 
a broker’s role.

Claimant contends that it is common practice for brokers to take title to an 
aircraft and cites to Comptroller’s Decision Nos. 14,042 (1985), and 28,891 
(1995).  However, neither of those decisions provides support for Claimant.  In 
Comptroller’s Decision No. 14,042, the seller of an aircraft was assessed tax 
and argued that it acted as a broker.  The taxpayer’s sole argument that it was 
the broker was based on the fact that the taxpayer never held title to the 
aircraft.  However, the taxpayer’s admission to the auditor was used to 
establish that the taxpayer did not register all aircrafts that it purchased 
and instead registered title only when the aircrafts were sold, which had the 
effect of incorrectly showing a sale from the taxpayer’s seller to the 
taxpayer’s purchaser.  Because the title history was incorrect because of the 
taxpayer’s dubious practice, the Comptroller looked to other documentary 
evidence to determine whether the taxpayer was the seller or the broker.  The 
contention that the taxpayer was merely the broker was denied because the 
purchase order established the taxpayer as the seller.  In Claimant’s case, 
purchase agreements were executed by the three parties involved, and they 
establish COMPANY A as the purchaser of the aircraft in the first transaction 
and the seller of the aircraft to Claimant.  Even if the bills of sale filed 
with the FAA are ignored, the purchase agreements, under the holding of 
Comptroller’s Decision No. 14,042, would still establish COMPANY A as the 
seller, not the broker.

Comptroller’s Decision No. 28,891 involved the purchase of a boat, and the 
taxpayer, similar to Claimant’s claim, contended that he had purchased the boat 
from a person other than the boat dealer whose name was reflected in the 
certificate of title as the seller.  The Tax Division in that hearing argued 
that tax was due because the certificate of title on its face demonstrated that 
the boat dealer was the seller, precluding the taxpayer’s ability to claim the 
occasional sale exemption.  The Comptroller held that “a certificate of title 
is no conclusive proof of ownership but, rather, only creates a rebuttable 
presumption of ownership in the party whose name is shown on the title which 
can be overcome by evidence showing that ownership really resides elsewhere 
[citation omitted].”  The Comptroller concluded that the taxpayer had overcome 
the presumption by clear and convincing evidence.  Claimant argues that it has 
likewise provided sufficient evidence to rebut the presumption.  But, the 
evidence of record does not prove that the presumption has been rebutted. 

In Comptroller’s Decision 28,891, the certificate of title may have been in the 
name of the dealer, but the actual purchase agreement was between the taxpayer 
and an individual in Florida, and the agreement specifically mentioned the 
dealer to be the broker.  See, Finding of Fact 6(a) of Comptroller’s Decision 
No. 28,891.  The ambiguity created by the different seller identification in 
the purchase agreement and the certificate of title was clarified by the 
testimony of fact witnesses.  The Comptroller accepted the purchase agreement 
in determining the seller and concluded that the certificate of title to have 
been rebutted.  In contrast, in Claimant’s case, all legal documentary evidence 
points to COMPANY A as the seller.  No ambiguity exists among the legal 
documents.  Claimant’s representative attempts to use his own reading of the 
closing statement and other documents surrounding closing to change the term of 
those legal documents, but his characterization of the documents carries no 
weight in face of the express term in the two purchase agreements that the 
contracts became binding upon execution of the parties and that the agreements 
have incorporated all prior representation and understanding of parties.  See, 
Finding of Fact No. 5.  The purchase agreements clearly evince two separate 
transactions.  

Moreover, the escrow agent originally drafted the bill of sale to reflect a 
sale between COMPANY B and Claimant, but after communicating with Claimant’s 
attorney, the escrow agent sent a revised bill of sale to reflect a sale 
between COMPANY A and Claimant.  The parties made efforts to make the bills of 
sale correspond to the two purchase agreements, indicating the parties’ 
understanding that Claimant was purchasing the aircraft from COMPANY A.  
Consistent with that view, COMPANY A acted as the seller by collecting sales 
tax.  The Comptroller has held that if the parties deliberately structure the 
transfer of an airplane as multiple separate sales transactions rather than one 
transaction with brokerage agreements, the transactions will be viewed as 
separate sales transactions.  See, Comptroller’s Decision No. 36,323 (1997).  
That is, the Comptroller will accept the structure and legal documents 
evidencing the transactions for what they are unless there is ambiguity that 
allows for the rebuttal of the titled ownership as was done in Comptroller’s 
Decision No. 28,891.  Claimant has not rebutted the presumption of ownership; 
thus, the holding of Comptroller’s Decision No. 36,323 is controlling.  The 
conclusion that can be reached from the documentary evidence is that COMPANY A 
purchased the aircraft from COMPANY B and resold the aircraft to Claimant.  

Claimant contends that there was no sale between itself and CITY A Aviation 
because the transaction was not supported by consideration and cites to 
Comptroller’s Decision No. 29,578 (1994).  In that hearing, the taxpayer was 
assessed tax for seven aircrafts based on the bills of sale filed with the FAA 
that showed that the taxpayer purchased the aircrafts.  Because a tax 
assessment was involved, the Tax Division in that hearing had the burden to 
prove that a taxable sale or purchase had occurred.  “Sale” or “purchase” means 
the transfer of title or possession of tangible personal property when done for 
consideration.  SECTION 151.005(1).  That burden was not met because there was 
no evidence that the taxpayer had given consideration to the transferor.  The 
Comptroller concluded that no sale or purchase had occurred under Section 
151.005 and dismissed the assessment.  

Claimant’s reliance on Comptroller’s Decision No. 29,578 is misplaced because 
the case at hand involves a refund case, and the burden is on Claimant to prove 
that no consideration was given.  Claimant relies on the closing statement 
showing that Claimant paid money that was disbursed to COMPANY B, COMPANY D, 
and COMPANY A.  Because COMPANY A only received $**************, Claimant 
contends that COMPANY A did not receive consideration, but rather, received a 
fee as a broker.  However, as concluded above, Claimant has not provided 
evidence to prove that COMPANY A acted as a broker.  The legal documentary 
evidence establishes two separate transactions.  In such context, the closing 
statement can be read another way.  Instead of having two separate closings 
whereby in one closing COMPANY A would pay COMPANY B the agreed-to selling 
price and in another closing COMPANY A would collect its agreed-to selling 
price from Claimant, the two transactions were funded at the same time.  It 
allowed the escrow agent to net the amount due to each party for efficiency.  
And the end result is that the money received by COMPANY A at the time of 
escrow represents its profit, after netting the purchase price from the selling 
price, plus sales tax collected from Claimant.  The evidence submitted by 
Claimant is inadequate to prove Claimant’s contention that no consideration was 
given to COMPANY A.

In summary, Claimant’s contention that it purchased the aircraft directly from 
COMPANY B is contrary to evidence.  Because Claimant purchased the aircraft 
from COMPANY A, a permitted retailer of aircrafts, Claimant’s purchase does not 
qualify for the occasional exemption provided by Sections 151.304(a) and 
(b)(2). 

Even if Claimant had prevailed on the seller issue, no refund would be due.  
There is insufficient evidence to prove that COMPANY B’s sale of the aircraft 
constituted the sale of an identifiable segment of a business.  Claimant 
submitted some maintenance/service invoices and some charter invoices obtained 
from COMPANY B, but such invoices are inadequate to establish that they 
represent all income and expenses.  The charter invoices represents a portion 
of the charter flights indicated by the aircraft log.  Furthermore, “expenses” 
means “operating expenses incurred by the enterprise in providing the product 
or services that are directly traceable to that enterprise.”  Rule 3.316(d)(3). 
 The submitted maintenance/services invoices appear to represent a portion of 
total expenses.  Exemptions are subject to strict scrutiny because exemptions 
place a greater burden on other taxpayers and taxpayers claiming the exemption 
must prove it by clear and convincing evidence.  See North Alamo Water Supply 
Corp. v. Willacy County Appraisal Dist., 804 S.W.2d 894, 899 (Tex. 1991).  
Claimant is therefore required to show, by clear and convincing evidence, that 
the sale of the aircraft was the sale of an identifiable segment of a business 
and that before the sale, the income and expenses attributed to the separate 
segment could be separately ascertained from the books of account or record as 
required by Section 151.304.  The mere submission of invoices falls short of 
that requirement.

RECOMMENDATION:

Based upon the foregoing findings of fact, conclusions, and discussion, the 
denial of the refund claim should be upheld.

Signed August 4, 2006.


ELEANOR H. KIM
Chief Administrative Law Judge

HEARING NO. 46,180

ORDER OF THE COMPTROLLER

The above decision of the Administrative Law Judge is approved and adopted in 
all respects.  This decision becomes final twenty-three (23) days from the date 
of this Order.

If a rehearing is desired, a Motion for Rehearing must be filed with the 
Administrative Law Judge no later than twenty-three (23) days after the date of 
this Order, and must state the grounds upon which the motion is based.

RENDERED and ISSUED on August 4, 2006.


CAROLE KEETON STRAYHORN
Texas Comptroller




ACCESSION NUMBER: 200608814H
SUPERSEDED: N
DOCUMENT TYPE: H
DATE: 08/04/2006
TAX TYPE: SALES