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JI Aviation, Inc. v. Department of Revenue

Case Date: 11/14/2002
Court: 1st District Appellate
Docket No: 1-01-2123 Rel

FOURTH DIVISION
November 14, 2002


No. 1-01-2123

 

JI AVIATION, INC., 

                      Plaintiff-Appellee,

v.

THE DEPARTMENT OF REVENUE
and KENNETH E. ZEHNDER, Director of
the Department of Revenue,

                      Defendants-Appellants.

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) 		Appeal from the
Circuit Court of
Cook County.

No. 99 L 51105

Honorable
Joanne L. Lanigan,
Judge Presiding.


JUSTICE GREIMAN delivered the opinion of the court:

This is an action for administrative review of the Illinois Department of Revenue's (theDepartment) determination that plaintiff JI Aviation, Inc. (JI Aviation), owed state use tax on itspurchase of a corporate jet. The circuit court reversed the Department and subsequently deniedreconsideration. The Department now appeals, and no issues are raised on the pleadings. For thereasons that follow, we affirm.

The following undisputed facts have been set forth in the fully stipulated factual record.

On May 25, 1994, JI Aviation and Richland Development Corp. entered into an "Aircraft AcquisitionAgreement" (Agreement) regarding a Gulfstream G-II aircraft. Richland is a subsidiary of the PennzoilCompany, which manages Pennzoil's real estate holdings and provides staff support to Pennzoil and itsaffiliates. In the Agreement, Richland made a representation to JI Aviation that it was a nonretailer, thatits sale of the Gulfstream G-II was an isolated or occasional sale, and that it was not engaged in thebusiness of selling airplanes at retail. JI Aviation agreed to pay Richland $3.9 million for the airplaneby depositing this sum in an escrow account controlled by Richland. As a deposit on the airplane, JIAviation transferred $50,000 of the purchase price to the escrow account. Disbursal of funds from theescrow account, transfer of title to JI Aviation, and other actions necessary to close the sale were alsocontrolled by Richland.

Richland agreed to deliver possession of the Aircraft to JI Aviation in Manchester, NewHampshire. JI Aviation agreed to reimburse Richland for certain closing costs, including the expense offlying the airplane from Savannah, Georgia, to Manchester, New Hampshire. According to theAgreement, upon Richland's physical delivery of the airplane to JI Aviation, title to the airplane wouldpass "from Richland to JI Aviation free and clear."

However, another provision in the Agreement permitted Richland to receive the purchase priceand transfer title through the Nationsbanc Leasing Corporation of North Carolina as an accommodationto Richland. Unlike Richland, Nationsbanc is a retailer of aircraft. The entire purpose of that provisionwas to effectuate a like-kind exchange pursuant to section 1031 of the Internal Revenue Code (theCode) (I.R.C.