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Use Of Intermediary Precludes Set-off Of Trade-In Value For Calculation Of Missouri Use Tax

In a recent use tax ruling, the Missouri Supreme Court addressed the circumstances that would entitle a buyer to use an offset for trade-in value in calculating the use tax due on an aircraft purchase.  In Loren Cook Co. v. Director of Revenue, the taxpayer bought one aircraft in 2005, then sold a different aircraft two years later to a different entity.  In order to qualify the transactions for like-kind exchange treatment under Section 1031 of the Internal Revenue Code, the taxpayer assigned its rights and obligations under both of these contracts to a dealer-intermediary.  The Missouri Supreme Court acknowledged that this arrangement was respected as a like-kind exchange for federal income tax purposes but held that the taxpayer could not avail itself of the offset theory under Missouri’s use tax statute in these circumstances.

Under the Missouri use tax statute, a taxpayer can reduce the use tax due on a purchase of tangible personal property (like an airplane) by the value of similar property traded to the seller in connection with the purchase.  In Loren Cook Co., the Missouri Supreme Court held that the offsetting purchase and trade-in must occur between the taxpayer and a single real party in interest; the Missouri use tax statute contains no analog to the qualified intermediary rules under Section 1031 of the Internal Revenue Code.  Since the intermediary merely took transitory title to the two aircraft, but the real seller in 2005 and buyer in 2007 were unrelated entities, the taxpayer was not allowed to offset the “trade-in” against the taxable purchase.