WPC+ # VUNa % 0 Nb 0  w@ , m. 4E 0DY 0J 0T 0^;   0h. 0r 0| 0 0  1u 0d B{U>B) D3DC2 AMu 0@U*0,\P^cD!v~#v$ AOV** 0Dk+ D/+ B+HP LaserJet 4Si/4SiMX PS 600dpiPSCRIPT0 '"  Z 6Times New Roman Regular(&y$   - -((2$ y!     XX   `   0   DDVDU_eӀUD ;A',(#$  0  2 0Indent123  2" 0Indent20 23  2, 0Indent30 0 23  3|xHutton v. Commissioner of Revenue - Dissent 5 ' IB011C20IB011C2 .   26 0Indent40 0 0 23  2@ 0Indent50 0 0 0 23  2J 0Indent60 0 0 0 0 23  2T 0Indent70 0 0 0 0 0 23  2^ 0Indent80 0 0 0 0 0 0 23   ?AGMSYaioIndent0I.A.1.a.(1)(a)i)a) P 8Mac DefaultMac Default ` X d<  9p`(&Times New Roman% Line 7 d$$$$'dxd))))7Border 1dd-+C << G("$    <  9p`(Arial & !  #d#((   ..   YYY FILED.XNovember8,1996CecilW.CrowsonAppellateCourtClerk    !#d#((   $    (X         Foritspart,Bellagreedtouse$512,913.48topayofftheloansecuredbythepropdrivenaircraftandtoholdtheremaining$629,086.52atinteresttobeappliedtowardthepurchaseofthejetaircraft.Forthepurposesofthistransaction,thepartiesagreedthatthe"equitypropertyvalue"ofthepropdrivenaircraftwasequaltothenetproceedsofthesaleavailabletobeappliedtowardthepurchaseofthejetaircraft,thatis$629,086.52.  !#d#((   $    (X         SeeExchangeAgreementSECOND(B).Inanotherportionoftheagreement,Bellagreedtouseitsbesteffortsto acquireanyreplacementaircraftidentifiedbyMr.Hutton.SeeExchangeAgreementFOURTH(B).However,theexchangeagreementalsoprovidedthatBellhadnoobligationto locate,negotiatefororacquireareplacementaircraft.SeeExchangeAgreementFIFTH(A). F !#d#((   $    (X         TheexchangeagreementdidnotrequireBelltoactuallyconveythereplacementaircrafttoMr.Hutton.ItdefinedBells conveyancetoinclude adirectconveyancefromthethirdpartysellerto...[Mr.Hutton],atthedirectionof,andinsatisfactionoftheobligationsofBell.SeeExchangeAgreementTHIRD(B).  !#d#((   $    (X         ݛSeeExchangeAgreementFOURTH(C)(3).Inordertoobtainanexemptionfromfederaltaxation,I.R.C.1031(a)(3)requiresthepropertytobeidentifiedandtheexchangecompletedwithin180days.  !#d#((   $    (X         ݛThereisnoevidenceintherecordthatthedepositforthereplacementaircraftcamefromtheproceedsofthesaleofMr.HuttonspropdrivenaircrafttoBell. T !#d#((   $    (X         SectionIV(7)provided,inpart: ThisAgreement,includingtherightsofPurchaser[Mr.Hutton]hereunder,maynotbeassignedbyPurchaserexcepttoawhollyownedsubsidiaryorsuccessorininterestbynamechangeorotherwiseandthenonlyuponthepriorwrittenconsentofSeller[Cessna]....SeeUsedAircraftPurchaseAgreementIV(7). : !#d#((   $    (X         ݛMr.HuttonactuallytookpossessionoftheCessnaCitationonJanuary20,1994.PtPt HH@Rd(hh @d' Styl{WP}01  HH  2$HH  Geneva  <Px443!#4$*$$*$ KK  Geneva  Geneva .,6 Geneva   BA Op Geneva  BA Op Geneva -C<< CLevel 1Level 2Level 3Level 4Level 5($$   1  ' dxdP Pd ! . ((       \RA'\ћ7_add7    ќ(ԛ@ INTHECOURTOFAPPEALSOFTENNESSEE@ MIDDLESECTIONATNASHVILLE (DAVIDHUTTON,   )      ) Plaintiff/Appellee,  )      ) GilesChancery      ) No.8901VS.      )      ) AppealNo.      ) 01A019601CH00023ٜL,/+;+'h|<?`  `LߛRUTHE.JOHNSON,Commissioner )ofRevenue,StateofTennessee, )      ) Defendant/Appellant  )(@ DISSENTINGOPINION ( ThemajorityhasdecidedthatTenn.CodeAnn.676510(1994)permitsthepurchaserofausedjetaircrafttoreducehisstatetaxliabilitybydeductingthevalueofapreviouslyownedpropdrivenaircraftfromthepurchasepriceofthejetaircraft.IdonotagreethatTenn.CodeAnn.676510appliestothepurchaseofthejetbecausethetransactiondoesnotinvolveatradeorseriesoftrades.@ I.  DavidHuttondecidedtoreplacehispropdrivenaircraftwithajetaircraft.Sincehehadnotidentifiedtheparticularaircrafthewishedtopurchase,heenteredintoan exchangeagreementinJune1993withBellAviation,Inc.thatembodiedaseriesoftransactionsstructuredasadeferredexchangeof likekindbusinesspropertyunderI.R.C.1031(1988).Inthefirsttransaction,Mr.HuttonagreedtosellhispropdrivenaircrafttoBellfor$1,142,000. 0   ׀Inthesecondtransaction,Mr.Huttonagreedto contractfortheacquisitionofareplacementaircraftandtoassignthiscontracttoBell. 1   ׀Inthethirdtransaction,Mr.HuttonagreedtoassignhisinterestinthecontracttopurchasethereplacementaircrafttoBell,andBellagreedto conveythereplacementaircraftbacktoMr.Hutton 2   ׀andtoapplythe$629,086.52tothepurchasepriceofthereplacementaircraft.IfMr.Huttondidnotpurchaseareplacementaircraftwithin180daysaftersellinghispropdrivenaircrafttoBell,theexchangeagreementrequiredtheescrowagenttopaythe$629,086.52overtoMr.Hutton. 3   ף Thetransactionoccurredpreciselyasthepartiesenvisioned.Mr.HuttonconveyedhispropdrivenaircrafttoBellinJune1993.Bellused$512,913.48topayofftheloanonthepropdrivenaircraftanddepositedtheremaining$629,086.52withthedesignatedescrowagent.ThenMr.Hutton,ratherthanBell,undertooktolocateareplacementaircraft.InDecember1993,heenteredintoausedaircraftpurchaseagreementwithCessnaAircraftCompanyinwhichheagreedtopurchasea1985CitationS/IIjetfor$2,250,000.TheagreementreflectedMr.Huttons$112,500deposit 4   ׀butalsoreflectedthatthepurchasepricewasnotbeingreducedbya tradeallowance.TheagreementalsospecificallystatedthatitwasnotassignableexceptonpriorwrittenconsentofCessna. 5    OnDecember17,1993,Mr.Huttonexecutedan assignmentofhisinterestinthecontractwithCessnatoBell.Onthesamedate,BelldirectedtheescrowagenttopayovertheproceedsofthesaleofthepropdrivenaircrafttoCessnaandalso,byletter, directedCessnatoconveytheCitationtoMr.Hutton.TheclosingforthesaleoftheCessnaCitationoccurredonDecember20,1993. 6   ׀TherecordcontainsnoevidencethatCessnaeverreceivedBells directionorthatiteveragreedinwritingtoMr.Huttons assignmentofthecontracttoBell.TheassignmentwasnotanecessaryingredientfortheclosingbetweenCessnaandMr.Hutton. Mr.HuttondidnotpayTennesseeusetaxontheCessnaCitation.OnSeptember2,1994,theTennesseeDepartmentofRevenuesentMr.Huttonanoticeofdelinquencystatingthatheowed$178,866intax,penalty,andinterest.TheamountofthetaxwascalculatedontheCessnaCitations$2,250,000purchaseprice.Mr.Huttonimmediatelypaid$71,403,althoughheinsistedthatheshouldnotberequiredtopayadditionaltaxbecauseTenn.CodeAnn.676510permittedhimtodeductthevalueofthepropdrivenaircraft($1,142,000)fromthepurchasepriceoftheCessnaCitation($2,250,000).Whenthedepartmentdisagreed,Mr.Huttonpaidtheremainderofthedisputedtax,penalty,andinterestandfiledsuitintheChanceryCourtforGilesCountyseekingarefund.Althoughtheydisagreewithregardtoamountofthetradeincredit,boththetrialcourtandamajorityofthispanelagreethatMr.HuttonisentitledtoatradeincreditunderTenn.CodeAnn.676510.IdonotagreethatMr.Huttonisentitledtoatradeincreditunderthefactsofthiscase.@ II.  Itisaxiomaticthatstatutesimposingtaxliabilityareconstruedagainstthetaxingauthorityand,conversely,thatstatutesprovidingexemptionsfromtaxationareconstruedagainstthetaxpayer.AFGIndus.,Inc.v.Cardwell,835S.W.2d583,58485(Tenn.1992);CovingtonPikeToyota,Inc.v.ϢCardwell,829S.W.2d132,135(Tenn.1992).Eventhoughthesestatutesareconstruedstrictly,thecourtsmuststillgiveeffecttotheirclearlyexpressedpurpose,Strattonv.Jackson,707S.W.2d865,866(Tenn.1986),andmustconstruethewordsofthestatuteusingtheirordinarysense,withoutanyforcedorsubtleconstruction.NashvilleGolf&AthleticClubv.Huddleston,837S.W.2d49,53(Tenn.1992);JerseyMiniereZincCo.v.Jackson,774ϢS.W.2d928,930(Tenn.1989). Taxpayershavetheburdenofdemonstratingthattheyareentitledtoataxexemption.TibbalsFlooringCo.v.Huddleston,891S.W.2d196,198(Tenn.1994);AmericanCyanamidCo.v.Huddleston,908S.W.2d396,400(Tenn.Ct.App.1995).Thisburdenhasbeencharacterizedas heavyandexacting.PanAmWorldServs.,Inc.v.Jackson,754S.W.2d53,55(Tenn.1988);RogersGroup,Inc.v.Huddleston,900S.W.2d34,36(Tenn.Ct.App.1995).Thus,inorderforMr.HuttontobeentitledtoanexemptionfromtheusetaxunderTenn.CodeAnn.676510,hemustdemonstratethathispurchaseoftheCessnaCitationinvolveda tradeor seriesoftradesinwhich usedarticlesaretaken...asacreditorpartpaymentonthesaleofneworusedarticles. Tenn.CodeAnn.676510appliestotradeinallowancesthatisthevalueofpropertytakeninlieuofmoneyasfullorpartpaymentforthepurchaseofothergoodsorproperty.Thestatutesuseofthephrase seriesoftradesindicatesthatitshouldnotbelimitedtoonesteptransactions.However,eachtransactionmuststillbea tradeifTenn.CodeAnn.676510istoapply.A tradeconnotestheexchangeofgoodsformoney.Seeglev.StateDep'tofInsts.,198So.2d154,158(La.Ct.App.1967). Icanfindno tradeor seriesoftradesinthiscase.Mr.HuttonssaleofhispropdrivenaircrafttoBelldidnotinvolveatrade.Itwassimplythesaleofanaircraftfor$1,142,000.Similarly,Mr.HuttonspurchaseoftheCessnaCitation,bytheverytermsofthesalesagreement,didnotinvolveatrade.Finally,Mr.HuttonsattemptedassignmentofhiscontractwithCessna,whethereffectiveorineffective,didnotinvolveatrade. Likewise,Idonotbelievethatthe steptransactiondoctrineshouldbeusedtotransformthesetransactionsintooneinvolvinga tradeor seriesoftrades.The steptransactiondoctrineisamoreprecisewaytoapplytheestablishedconceptthatsubstanceshouldprevailoverform.McDonaldsRestaurantsofIll.,Inc.v.Commissioner,688F.2d520,524(7thCir.1982);Kochv.CommissionerofRevenue,605N.E.2d301,306(Mass.App.Ct.1992).Itpermitsthecourtstodisregardinterveningmeaninglesstransactionsundertakensolelytoobtainmorefavorabletaxtreatment.Pennerv.CountyofSantaBarbara,44Cal.Rptr.2d606,610(Ct.App.1995).Itdoesnotpermitthecourtstomanufacturefactsthatneveroccurred.Greenev.UnitedStates,13F.3d577,583(2dCir.1994). Mr.HuttonsassignmentofhisinterestinhiscontractwithCessnatoBellandBellsreturnassignmenttoMr.Huttonarewithoutquestionmeaninglesstransactionsundertakensolelytoobtainmorefavorabletaxtreatment.Asamatteroflaw,theseassignmentshadnoeffectoneitherpartysrightsandobligationsunderMr.HuttonscontractwithCessnabecausetheywerenotthetypepermittedbythecontract.Moreimportantly,therecordcontainsnoevidencethatCessnaeveragreedto,orevenknewabout,theassignment.Whentheseassignmentsaredisregarded,allthatremainsaretwoseparatecontractsthecontractbetweenMr.HuttonandBellandthecontractbetweenMr.HuttonandCessna. ThefirstcontractcouldnothavecontemplatedthesecondcontractbecauseMr.Huttonhadnotfoundareplacementaircraftwhenthefirstcontractwassigned.Similarly,thecontractswerenotinterdependentbecauselegalrelationshipscreatedbythefirstcontractdidnotdependonthecompletionoftheseriesoftransactions.ThefirstcontractdidnotrequireBelltofindoracquireareplacementaircraft.HadMr.Huttonnotpurchasedareplacementaircraftwithin180days,theescrowagentwouldsimplyhavepaidovertohimtheproceedsofhiscontractwithBell. Accordingly,IwouldreversethetrialcourtbecauseMr.HuttonhasnotmethisburdenofprovingthatheisentitledtoanexemptionunderTenn.CodeAnn.676510forthevalueofthepropdrivenaircrafthesoldtoBell.Forthepurposesofthisparticulartransaction,hisusetaxshouldhavebeencalculatedonthefull$2,250,000priceoftheCessnaCitation.      ____________________________      WILLIAMC.KOCH,JR.,JUDGE