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Mississippi Dep't of Revenue v. Johnny Reb Aviation, LLC

Court of Appeals of Mississippi

October 14, 2014

MISSISSIPPI DEPARTMENT OF REVENUE F/K/A MISSISSIPPI STATE TAX COMMISSION, APPELLANT
v.
JOHNNY REB AVIATION, LLC, APPELLEE

Page 1267

COURT FROM WHICH APPEALED: TATE COUNTY CHANCERY COURT. DATE OF JUDGMENT: 08/20/2013. TRIAL JUDGE: HON. PERCY L. LYNCHARD JR. TRIAL COURT DISPOSITION: VACATED ASSESSMENT OF USE TAX AND ORDERED REFUND OF ASSESSMENT PLUS STATUTORY INTEREST.

FOR APPELLANT: ABIGAIL MARSHALL MARBURY, GARY WOOD STRINGER.

FOR APPELLEE: JOHN THOMAS LAMAR III, JOHN THOMAS LAMAR JR.

BEFORE GRIFFIS, P.J., MAXWELL AND FAIR, JJ. IRVING AND GRIFFIS, P.JJ., BARNES, ISHEE, ROBERTS, FAIR AND JAMES, JJ., CONCUR. CARLTON, J., DISSENTS WITHOUT SEPARATE WRITTEN OPINION. LEE, C.J., NOT PARTICIPATING.

OPINION

Page 1268

NATURE OF THE CASE: CIVIL - STATE BOARDS AND AGENCIES

MAXWELL, J.

[¶1] The Mississippi Department of Revenue (MDOR) determined Johnny Reb Aviation LLC (Johnny Reb), an airplane dealership, was also chartering the airplanes it was offering for sale, which meant it had to pay a use tax. Johnny Reb disagreed and appealed to the chancery court.

[¶2] The only question before the chancellor was whether MDOR's decision to assess a use tax was arbitrary and capricious or unsupported by substantial evidence. And in this case, the chancellor confirmed that substantial documentary evidence--including Johnny Reb's operating agreement, federal tax returns, invoices, and general ledger--supported MDOR's conclusion that Johnny Reb had been using for charters the airplanes it was trying to sell. Yet the chancellor still vacated the assessment. The chancellor accepted an alternative explanation and made his own determination that, contrary to the company's records and documentary evidence, Johnny Reb had not been using the planes for charters.

[¶3] After review, we find, according to the Mississippi Supreme Court's recent decision in Equifax, Inc. v. Mississippi Department of Revenue,[1] this determination was outside the chancery court's appellate purview, which was limited to deciding if MDOR's decision was supported by substantial evidence or was arbitrary and capricious. Because substantial evidence supported MDOR's decision, it was clear error for the chancellor to vacate MDOR's decision. We thus reverse and render, reinstating MDOR's assessment.

Background

I. Audit and Decision by MDOR

[¶4] Michael Massey owns Tate Air LLC, and John Roebuck owns JR-MS Aviation. Their two entities partnered in March 2005 to form Johnny Reb. Johnny Reb holds a license to buy and sell airplanes. And between 2005 and 2008, Johnny Reb bought three airplanes, selling the first two and losing the third in a fire.

[¶5] MDOR decided to conduct a sales-tax audit for Johnny Reb's first three years in business. But once the auditor began investigating Johnny Reb's records, she quickly realized a ...


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