CAO Holdings, Inc. v. Trost

IN THE SUPREME COURT OF TENNESSEE
AT NASHVILLE
June 4, 2010 Session

CAO HOLDINGS, INC. v. CHARLES A. TROST, COMMISSIONER OF
REVENUE

Appeal by Permission from the Court of Appeals, Middle Section
Chancery Court for Davidson County
No. 06-719-II Carol L. McCoy, Chancellor

No. M2008-01679-SC-R11-CV - Filed December 15, 2010

This appeal involves a corporation’s liability for the payment of use tax following its
purchase of a business jet. After it received an assessment from the Tennessee Department
of Revenue for over $700,000, the corporation paid the tax and filed suit in the Chancery
Court for Davidson County seeking a refund on the ground that it qualified for the sale for
resale exemption under Tenn. Code Ann. § 67-6-102(a) (28)(A) (Supp. 2004) because it had
leased the aircraft to another corporation. Both the corporation and the Department filed
motions for summary judgment. The trial court granted the corporation’s motion for
summary judgment, and the Department appealed. A divided Court of Appeals panel
affirmed the trial court. CAO Holdings, Inc. v. Chumley, No. M2008-01679-COA-R3-CV,
2009 WL 1492230 (Tenn. Ct. App. May 27, 2009). We granted the Department’s application
for permission to appeal. We have now determined that neither party is entitled to a
summary judgment because material disputes exist regarding the factual inferences or
conclusions that can be drawn from the facts.

Tenn. R. App. P. 11 Appeal by Permission; Judgment of the Court of Appeals
Reversed and Remanded

W ILLIAM C. K OCH, J R., J., delivered the opinion of the Court, in which C ORNELIA A. C LARK,
C.J., JANICE M. H OLDER, J., and D AVID H. W ELLES, S P. J., joined.

Robert E. Cooper, Jr., Attorney General and Reporter; Michael E. Moore, Solicitor General;
and Brad H. Buchanan, Assistant Attorney General, Nashville, Tennessee, for the appellant,
Charles A. Trost,1 Commissioner of Revenue, State of Tennessee.

1
In accordance with Tenn. R. App. P. 19(c), Charles A. Trost, the current Commissioner of Revenue,
has been substituted for his predecessors, Loren L. Chumley and Reagan Farr.
Brett R. Carter, Christopher A. Wilson, and G. Michael Yopp, Nashville, Tennessee, for the
appellee, CAO Holdings, Inc.

OPINION

I.

James L. Clayton is a successful business executive who lives in Knoxville. He is also
an accomplished pilot and owns or has owned various aircraft personally and in connection
with his many businesses. Prior to the events that gave rise to this litigation, Mr. Clayton
owned a Cessna Citation V Ultra business jet and a Bell 407 corporate helicopter. In 2002
or 2003, after deciding that he wanted a larger, quieter, and more comfortable aircraft, Mr.
Clayton ordered a Cessna Citation Excel 560-XLS business jet. He later explained that the
new aircraft would permit passengers to “walk up the stairs into the airplane much like you’d
see the President of the United States walking into Air Force One” and that he could “even
get a wheelchair in it, if necessary.”

The purchase price of the aircraft was $10,022,800. Mr. Clayton realized that this was
a “very high price” for someone like him who planned to use the aircraft approximately 150
hours per year. He understood that the aircraft would need to be flown at least three times
more often than he planned to fly it in order for its operating costs to be less than the cost of
chartering or owning a timeshare in an aircraft. Accordingly, Mr. Clayton decided that “in
order to justify that airplane, I had to have other people paying for part of it.”

While waiting on the delivery of his new airplane, Mr. Clayton obtained the assistance
of Advocate Consulting Legal Group, PLLC (“Advocate Consulting”), a firm specializing
in structuring transactions involving aircraft.2 On December 27, 2004, acting on advice from
Advocate Consulting, Mr. Clayton incorporated two corporations – CAO Holdings, Inc.
(“CAO Holdings”) and CAM Management, Inc. (“CAM Management”). Mr. Clayton was
the sole shareholder and president of both corporations. The principal place of business of
CAO Holdings and CAM Management was Mr. Clayton’s personal residence, where he
maintained an office.

CAO Holdings was created to insulate Mr. Clayton from personal liability for the
operation of the new aircraft. Its role was to complete the transaction with Cessna and to
hold title to the aircraft. The purpose of CAM Management was to arrange for the time
sharing agreements for the use of the aircraft by third parties. CAM Management hired Peter

2
Mr. Clayton described Advocate Consulting as “legal and accounting consultants . . . specializing
in aircraft.”

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Breazeale as its sole employee.3 Mr. Breazeale’s responsibilities included piloting the
aircraft, managing the aircraft’s maintenance, and paying the company’s bills.

On February 14, 2005, and in anticipation of the completion of the purchase of the
aircraft, CAO Holdings filed registrations for sales and use tax and for franchise and excise
tax with the Tennessee Department of Revenue (“Department”). The effective date of the
sales and use tax registration was March 1, 2005; while the effective date of the franchise and
excise tax registration was March 16, 2005.

On February 25, 2005, CAO Holdings took delivery of the new aircraft at Cessna’s
factory in Wichita, Kansas and finalized the sale of the aircraft using funds provided by Mr.
Clayton personally. CAO Holdings did not pay Kansas sales tax when it purchased the
aircraft based on its promise to provide Cessna with a blanket certificate for resale as soon
as the Department issued it.4 After the transaction was completed, Mr. Breazeale flew the
aircraft back to Tennessee. Mr. Clayton was co-pilot for part of this trip.

On February 25, 2005, the same day it purchased the aircraft, CAO Holdings entered
into a “non-exclusive aircraft lease agreement” with CAM Management. Under the terms
of this agreement, CAM Management agreed to lease the aircraft from CAO Holdings at a
“dry lease” rate of $550 per flight hour with an initial $5,000 deposit due on March 31, 2005.
CAM Management also agreed to be responsible for all operating costs of the aircraft. In
addition, the agreement provided that CAM Management would pay the rent due to CAO
Holdings on October 31 of each year. For its part, CAO Holdings agreed to calculate the
sales tax due and to remit the tax to the Department.

CAO Holdings believed that its February 25, 2005 lease agreement with CAM
Management was a valid exempt “resale” under Tenn. Code Ann. § 67-6-102(a)(28)(A)
(Supp. 2004). Accordingly, CAO Holdings did not remit use tax to the State of Tennessee
when it purchased the aircraft.

According to its flight logs, the aircraft was flown fairly regularly beginning in March
2005. Mr. Clayton used the aircraft to visit his banks in Tennessee and to visit his banks’
customers in Colorado, Arizona, and Florida. These flight logs list “CAO,” not CAM
Management, as the “operator” of the aircraft and state that Mr. Clayton himself was either
the pilot or co-pilot on a substantial number of the flights.

3
Mr. Breazeale is a pilot and was already employed by Mr. Clayton. Other persons employed by Mr.
Clayton also provided accounting services to CAM Management.
4
After CAO Holdings received its blanket certificate for resale from the Department with an effective
date of March 1, 2005, it provided a copy of the certificate to Cessna.

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 In order to have others pay for part of the aircraft’s operations, Mr. Clayton “lined up”
several other entities who “felt they’d use the plane 25 to 100 hours a year.” However, it was
not until April 27, 2005, two months after taking delivery of the aircraft, that CAM
Management began to enter into time sharing agreements with other entities.5 By this time,
the aircraft had made eighteen separate flights, and Mr. Clayton had been the pilot or co-pilot
on seventeen of them.

On June 8, 2005, after receiving information from the Federal Aircraft Administration
regarding CAO Holdings’s purchase of the aircraft, the State of Tennessee sent a letter to
CAO Holdings requesting the information needed to determine whether the required sales
or use tax had been paid on the aircraft. While the record does not clearly show that CAO
Holdings responded directly to this letter, the company filed a tax return on July 11, 2005,
stating that no tax was due.6 CAO Holdings later filed an amended return and remitted a
$430 tax payment based on the $5,000 payment it had received from CAM Management on
March 31, 2005. On August 5, 2005, the Department issued a notice of assessment seeking
the payment of $703,232 for failure to pay use tax in Tennessee based on the estimated
purchase price of the aircraft. CAO Holdings requested an informal taxpayer conference
with the Department shortly after receiving the assessment.

It was at this time that Mr. Clayton began to experience buyer’s remorse. In addition
to receiving the Department’s substantial tax assessment, Mr. Clayton was disappointed that
those who had promised to use the aircraft were not using it as much as he had anticipated
they would. Accordingly, on August 18, 2005, CAO Holdings stopped permitting CAM
Management to use the aircraft and, with the assistance of Advocate Consulting, put the
aircraft up for sale. A business in Argentina purchased the aircraft on September 6, 2005.
On October 7, 2005, CAO Holdings filed its September 2005 tax return along with a $1,694
use tax payment.7

In late December 2005, the Department provided CAO Holdings with a written
response to the informal taxpayer conference. The Department upheld its tax assessment
based on the following findings: (1) CAM Management was not registered with either the

5
On April 27, 2005, CAM Management signed time sharing agreements with six companies –
Clayton Bancorp, Inc., Clayton Homes, Inc., Clayton Motors, Inc., Clayton Used Cars, Inc., Clayton Volvo,
Inc., and 21st Mortgage Company. Mr. Clayton entered into his own time sharing agreement with CAM
Management on May 5, 2005. The record contains an additional undated time sharing agreement with
American City Bank.
6
CAO Holdings apparently reported that no tax was due because it had not yet received its first lease
payment from CAM Management.
7
The tax was calculated on the $23,050 in lease payments CAO Holdings had received from CAM
Management.

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Department or the Secretary of State; (2) CAO Holdings had failed to comply with the
reporting requirements in Tenn. Code Ann. § 42-1-113 (2000) regarding aircraft transactions;
(3) CAO Holdings had failed to comply with the regulations regarding sales for resale by
failing to properly register with the Department; and (4) the lease between CAO Holdings
and CAM Management was not genuine because Mr. Clayton had signed on behalf of both
the lessor and lessee, the legal existence of the lessee (CAM Management) could not be
verified, and CAO Holdings had failed to pay any tax until contacted by the Department.

On March 22, 2006, CAO Holdings filed suit in the Chancery Court for Davidson
County seeking a declaratory judgment that the Department’s assessment was invalid because
its lease of the aircraft to CAM Management qualified as a sale under Tenn. Code Ann. § 67-
6-102(a)(34)(A) (Supp. 2004). On April 28, 2006, the Department issued a revised
assessment in the amount of $779,521.57 based on the correct purchase price of the aircraft
appearing in CAO Holdings’s complaint. On May 18, 2006, CAO Holdings paid the
assessed tax and filed an amended complaint converting the proceeding to a suit for a refund.
The Department thereafter filed its answer.

Both CAO Holdings and the Department filed motions for summary judgment on
February 19, 2008. In its motion and supporting documents and during the June 6, 2008
hearing before the trial court, CAO Holdings argued (1) that its lease with CAM
Management was valid, (2) that it had met all the requirements for the sale for resale
exemption from the requirement to pay sales tax, and (3) that, unlike federal tax law,
Tennessee law did not favor disregarding the form of a transaction and focusing on its
substance.

For its part, the Department argued: (1) that CAO Holdings and CAM Management
failed to satisfy the requirements for the sale for resale exemption, (2) that the lease between
CAO Holdings and CAM Management was a sham because it conferred no real authority
over the use of the aircraft to CAM Management, (3) that the lease between CAO Holdings
and CAM Management was a sham because all of CAM Management’s time sharing
agreements were with entities related to Mr. Clayton, and (4) that Mr. Clayton’s extensive
personal use of the aircraft – evidenced by the flight logs listing him as either the pilot or co-
pilot on nearly every flight – precluded the application of the sale for resale exemption.

At the outset of the hearing on June 6, 2008, the trial court requested the parties to
stipulate that none of the facts material to the case were in dispute.8 Counsel for CAO

8
It is not uncommon for tax cases to be tried on stipulated facts. See, e.g., Illinois Cent. Gulf R.R.
v. State, 805 S.W.2d 746, 746 (Tenn. 1991); Health & Educ. Facilities Bd. of Shelby Cnty. v. King, 678
S.W.2d 14, 15 (Tenn. 1984); Woods v. TRW, Inc., 557 S.W.2d 274, 274 (Tenn. 1977). Accordingly, it was
entirely appropriate for the trial court to encourage the parties to stipulate that the material facts were not in
(continued...)

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Holdings stipulated that there were no facts in dispute. Counsel for the Department likewise
stipulated that no facts were disputed but pointed out that the Department disagreed with
CAO Holdings’s “legal characterizations or gloss on the facts.”

At the conclusion of the hearing, the trial court, departing from its custom of taking
tax cases under advisement, extemporaneously granted CAO Holdings’s motion for summary
judgment. The court concluded that the lease of the aircraft between CAO Holdings and
CAM Management was a sale for resale and, therefore, that CAO Holdings was not liable
for the payment of use tax. The trial court stated that it would decline to “ignore the proper
structure of the two corporations [CAO Holdings and CAM Management]” and observed that
“arguing that an individual has [benefitted] by virtue of basically his wealth, that he is not
entitled to use all of what the law provides for legal transactions is not compelling.”
Reflecting its decision from the bench, the trial court’s memorandum and final order entered
on June 27, 2008 stated:

Looking at the transaction as it has been set up, the steps
that have been taken, and the primary use that the corporations
at issue were set up for, the Court finds no compelling reason to
disregard the corporate existences of either CAO Holdings or
CAM Management. Rather, the Court finds that both entities
were formed for a valid business reason and, therefore, must be
respected. The Court further finds that a valid lease existed
between CAO Holdings and CAM Management. Accordingly,
the Court holds that the motion for summary judgment filed on
behalf of the Plaintiff should be granted.

In addition, the trial court found that CAO Holdings was the prevailing party for the purpose
of Tenn. Code Ann. § 67-1-1803(d) (Supp. 2007) and determined that it was entitled to
recover its reasonable attorney’s fees and costs. However, the court reserved awarding
attorney’s fees and costs and, in accordance with Tenn. R. Civ. P. 54.02, certified its order
as a final and appealable judgment.

The Department perfected a timely appeal to the Court of Appeals. The court
affirmed the trial court’s grant of a summary judgment to CAO Holdings in a divided
decision. The majority concluded that CAM Management was the primary user of the
aircraft because it had paid CAO Holdings for all the flight hours and CAO Holdings had
remitted the appropriate amount of sales tax to the Department based on these payments.
CAO Holdings, Inc. v. Chumley, No. M2008-01679-COA-R3-CV, 2009 WL 1492230, at *5
(Tenn. Ct. App. May 27, 2009). The majority also rejected the Department’s argument that

8
(...continued)
dispute.

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Mr. Clayton created CAO Holdings and CAM Management for the purpose of tax avoidance
by holding that these corporate entities had been “properly formed” and had observed “all
corporate formalities” and that there was no evidence that either the corporations or the
contract between them “were mere shells or shams such that the corporate entities should be
disregarded.” CAO Holdings, Inc. v. Chumley, 2009 WL 1492230, at *6.

In dissent, Judge Clement pointed out that CAO Holdings ultimately had the burden
of proving that it was entitled to take advantage of the sale for resale exemption from the
payment of use tax. He found that CAO Holdings had not carried its burden because the
non-exclusive nature of the lease between CAO Holdings and CAM Management, combined
with the flight logs listing CAO Holdings as the operator of the aircraft, suggested that the
primary purpose for purchasing the aircraft was not simply leasing it to CAM Management.
CAO Holdings, Inc. v. Chumley, 2009 WL 1492230 at *8 (Clement, J., dissenting).

On July 24, 2009, the Department filed a timely application for permission to appeal.
We granted the Department’s application to address the requirements of the sale for resale
exemption and the application of this exemption to the facts in this record.

II.

Summary judgments are appropriate in virtually any civil case that can be resolved on
the basis of legal issues alone. B & B Enters. of Wilson Cnty., LLC v. City of Lebanon, 318
S.W.3d 839, 844 (Tenn. 2010); Fruge v. Doe, 952 S.W.2d 408, 410 (Tenn. 1997). Because
legal disputes involving the payment of taxes are frequently based on stipulated facts, they
generally lend themselves to disposition by summary judgment as issues of law. However,
the well-understood principles generally governing the review of summary judgments are
equally applicable to summary judgments in proceedings involving tax disputes. See
BellSouth Adver. & Publ’g Co. v. Johnson, 100 S.W.3d 202, 205 (Tenn. 2003).

Summary judgment proceedings were never envisioned as substitutes for trials of
disputed factual issues. Martin v. Norfolk S. Ry., 271 S.W.3d 76, 89 (Tenn. 2008) (Koch, J.,
concurring in part); Fruge v. Doe, 952 S.W.2d at 410. Accordingly, a summary judgment
should not be granted when the material facts are disputed, Green v. Green, 293 S.W.3d 493,
513-14 (Tenn. 2009), or when more than one conclusion or inference can reasonably be
drawn from the facts, see Brown v. Birman Managed Care, Inc., 42 S.W.3d 62, 66 (Tenn.
2001); Luther v. Compton, 5 S.W.3d 635, 639 (Tenn. 1999); Byrd v. Hall, 847 S.W.2d 208,
211 (Tenn. 1993).

Because orders granting a summary judgment are not presumed to be correct, the
appellate courts must satisfy themselves independently that all the requirements of Tenn. R.
Civ. P. 56 have been satisfied. Eskin v. Bartee, 262 S.W.3d 727, 732 (Tenn. 2008); Eadie
v. Complete Co., 142 S.W.3d 288, 291 (Tenn. 2004). In conducting their review, the

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appellate courts must consider the evidence in the light most favorable to the non-moving
party and must resolve all reasonable inferences in the non-moving party’s favor. B & B
Enters. of Wilson Cnty., LLC v. City of Lebanon, 318 S.W.3d at 845; Mills v. CSX Transp.,
Inc., 300 S.W.3d 627, 631-32 (Tenn. 2009).

A summary judgment should not be granted when a case’s determinative facts 9 are
disputed. A genuine factual dispute arises when reasonable minds can justifiably reach
different conclusions based on the evidence at hand. Martin v. Norfolk Southern Ry., 271
S.W.3d at 84. A summary judgment motion should be denied if there is any reasonable doubt
regarding whether a genuine issue of material fact exists. Green v. Green, 293 S.W.3d at
514; Doe I ex rel. Doe I v. Roman Catholic Diocese of Nashville, 154 S.W.3d 22, 41 (Tenn.
2005). However, granting a summary judgment is appropriate whenever the evidence and
the inferences reasonably drawn from the evidence permit reasonable persons to reach only
one conclusion – that the moving party is entitled to a judgment as a matter of law. Kinsler
v. Berkline, LLC, 320 S.W.3d 796, 801 (Tenn. 2010); Giggers v. Memphis Hous. Auth., 277
S.W.3d 359, 364 (Tenn. 2009).

Tenn. R. Civ. P. 56 permits any party to move for summary judgment regardless of
whether that party is the plaintiff or the defendant. Accordingly, the courts are sometimes
confronted with cross-motions for summary judgment. Although many cases with competing
motions for summary judgment can be disposed of based on these motions, it does not
necessarily follow that a summary judgment must be granted to one side or the other simply
because both parties have moved for a summary judgment. LewRon Television, Inc. v. D. H.
Overmyer Leasing Co., 401 F.2d 689, 692 (4th Cir. 1968). The fact that both parties are
arguing simultaneously that there is no genuine issue of material fact does not establish that
a trial is unnecessary. Taft Broad. Co. v. United States, 929 F.2d 240, 248 (6th Cir. 1991);
10A Charles A. Wright et al., Federal Practice and Procedure § 2720, at 327-28 (3d ed.
1998) (“Federal Practice and Procedure”).

Cross-motions for summary judgment are no more than claims by each side that it
alone is entitled to a summary judgment. Rains v. Cascade Indus., Inc., 402 F.2d 241, 245
(3d Cir. 1968). The court must rule on each party’s motion on an individual and separate
basis. See Rossignol v. Voorhaar, 316 F.3d 516, 523 (4th Cir. 2003); Morales v. Quintel
Entm’t, Inc., 249 F.3d 115, 121 (2d Cir. 2001); Philip Morris, Inc. v. Harshbarger, 122 F.3d
58, 62 n.4 (1st Cir. 1997); see also 10A Federal Practice and Procedure § 2720, at 335-36.
With regard to each motion, the court must determine (1) whether genuine disputes of
material fact with regard to that motion exist and (2) whether the party seeking the summary

9
Not all factual disputes require the denial of a summary judgment motion. Accordingly, only
genuine disputes involving material facts require the denial of a motion for summary judgment. In order to
be considered material, a fact must be germane to the claim or defense on which the summary judgment is
based. Green v. Green, 293 S.W.3d at 514.

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judgment has satisfied Tenn. R. Civ. P. 56's standards for a judgment as a matter of law.
Eskin v. Bartee, 262 S.W.3d at 732. Therefore, in practice, a cross-motion for summary
judgment operates exactly like a single summary judgment motion. 11 James Wm. Moore
et al., Moore’s Federal Practice § 56.10[6], at 56-85 to -86 (3d ed. 2009) (“Moore’s Federal
Practice”).

When considering individual competing cross-motions for summary judgment, the
court must take care to resolve all factual disputes and any competing rational inferences in
the light most favorable to the party opposing each motion. Wightman v. Springfield
Terminal Ry., 100 F.3d 228, 230 (1st Cir. 1996); Schwabenbauer v. Bd. of Educ., 667 F.2d
305, 314 (2d Cir. 1981). The denial of one motion does not necessarily imply that the other
party’s motion should be granted. 11 Moore’s Federal Practice § 56.10[6], at 56-83. Both
summary judgment motions should be denied if the court finds that there is a genuine dispute
regarding a material issue of fact with regard to both motions, Heublein, Inc. v. United States,
996 F.2d 1455, 1461 (2d Cir. 1993); Taft Broad. Co. v. United States, 929 F.2d at 248; 10A
Federal Practice and Procedure § 2720, at 336, or if the parties disagree as to the inferences
or conclusions to be drawn from the facts material to both motions, American Fid. & Cas.
Co. v. London & Edinburgh Ins. Co., 354 F.2d 214, 216 (4th Cir. 1965); Admiral Ins. Co. v.
G4S Youth Servs., 634 F.Supp.2d 605, 611 (E.D. Va. 2009).

Here, both CAO Holdings and the Department filed motions for summary judgment.
The lower courts granted CAO Holdings’s motion and denied the Department’s. On appeal,
the Department insists that the trial court erred both by granting CAO Holdings’s motion and
by denying its motion. Even if the lower courts erred by granting CAO Holdings’s summary
judgment motion, it does not necessarily follow that the Department was entitled to a
summary judgment. Accordingly, we must first determine whether the trial court erred by
granting CAO Holdings’s motion for summary judgment. If we determine that the lower
courts erred, then we must determine whether the Department demonstrated that it was
independently entitled to a summary judgment.

III.

Tennessee imposes a tax on the sale of tangible personal property by retailers located
within the State. Tenn. Code Ann. § 67-6-202 (Supp. 2004). This tax is collected by the
retailer and remitted to the Department because it is a tax on the privilege to “[e]ngage[] in
the business of selling tangible personal property at retail in this state.” Tenn. Code Ann. §
67-6-201(1) (Supp. 2004).

In order to protect Tennessee’s retailers and to discourage Tennessee residents from
avoiding the payment of sales tax by purchasing tangible personal property in other states,
Tennessee also imposes a use tax, as a complement to the sales tax, on tangible personal
property that “is not sold but is used, consumed, distributed, or stored for use or consumption

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in this state.” Tenn. Code Ann. § 67-6-203(a) (Supp. 2004). To avoid duplicate taxation of
out-of-state purchases, Tenn. Code Ann. § 67-6-507(a) (2003) provides a credit for like taxes
paid to other states on the purchase of tangible personal property. In other words, the amount
of use tax liability is equal to the amount of sales tax liability less the sales tax paid in the
state where the tangible personal property was purchased.

Tennessee’s tax policy also seeks to place the ultimate burden for the payment of sales
and use tax on the end user of the tangible personal property. Accordingly, intermediary
dealers are relieved of the burden of collecting and remitting sales or use tax when they are
not an end user. For purposes relevant to this appeal, a “dealer” is defined in Tenn. Code
Ann. § 67-6-102(a)(8)(B) (Supp. 2004) as “every person . . . who . . . [i]mports, or causes to
be imported, tangible personal property from any state . . . for sale at retail, for use,
consumption, distribution, or for storage to be used or consumed in this state.” Thus, persons
or entities falling within the statutory definition of “dealer” are permitted certain exemptions
from the payment of sales or use tax.

One significant exemption, commonly referred to as the “sale for resale” exemption,
is found in Tenn. Code Ann. § 67-6-102(a)(28)(A) which defines “retail sales” or “sale at
retail” as “a taxable sale of tangible personal property or specifically taxable services to a
consumer or to any person for any purpose other than for resale.” The courts have construed
the phrase “for any purpose other than for resale” as creating an exemption that excludes
sales for resale from taxation. Eusco, Inc. v. Huddleston, 835 S.W.2d 576, 582 (Tenn. 1992)
(citing Nasco, Inc. v. Jackson, 748 S.W.2d 193, 194 (Tenn. 1988)).

A “sale,” and therefore a resale, includes “any transfer of title or possession, or both,
exchange, barter, lease or rental, conditional, or otherwise, in any manner or by any means
whatsoever of tangible personal property for a consideration.” Tenn. Code Ann. § 67-6-
102(a)(30)(A) (Supp. 2004); see also Cape Fear Paging Co. v. Huddleston, 937 S.W.2d 787,
788 (Tenn. 1996). A lease or rental is “the leasing or renting of tangible personal property
and the possession or use thereof by the lessee or renter for a consideration, without transfer
of the title of such property.” Tenn. Code Ann. § 67-6-102(a)(21) (Supp. 2004).

A sale must satisfy two criteria in order to qualify as a sale for resale. First, the sale
must have been made for the purpose of resale. Tenn. Code Ann. § 67-6-102(a)(28)(A).
Second, the sale must be “in strict compliance with rules and regulations promulgated by the
[C]ommissioner.” Tenn. Code Ann. § 67-6-102(a)(28)(A). Any dealer who makes a sale for
resale that is not in strict compliance with the rules and regulations promulgated by the
Commissioner of Revenue “shall be personally liable for and pay the tax.” Tenn. Code Ann.
§ 67-6-102(a)(28)(A).10

10
The Department argued in the trial court that CAO Holdings had failed to comply with the
(continued...)

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 IV.

The transaction at issue in this case is CAO Holdings’s lease of the aircraft to CAM
Management. In addition to the principles generally applicable to the sale for resale
exemption, there are additional rules and regulations specifically applicable to leases. In
order for a lease of tangible personal property to qualify as an exempt sale for resale, the
tangible personal property must “be used exclusively for renting or leasing.” Tenn. Comp.
R. & Regs. 1320-5-1-.32(3) (1987); see also Tenn. Comp. R. & Regs. 1320-5-1-.68(3) (1987)
(“[c]ertificates of resale may not be used to obtain tangible personal property or taxable
services to be used by the purchaser, and not for resale.”).

It appears that the parties’ and the lower courts’ attention may have been diverted
from this “exclusive use” requirement by the Department’s assertion that the availability of
the sale for resale exemption depended on the “primary use” to which the aircraft was put.
This argument was based on an opinion of the Attorney General and Reporter stating that
“[i]f the plane is acquired to be . . . rented, then the transaction qualifies as a ‘sale for resale’”
but that “[i]f the plane is put to several uses, its primary use should govern its taxability.”
Op. Tenn. Att’y Gen. 84-213, 1984 Tenn. AG Lexis 134, at *5 (July 3, 1984).

The Attorney General’s opinion is not an adjudication, City of Memphis v. Shelby
Cnty. Election Comm’n, 146 S.W.3d 531, 538 n.6 (Tenn. 2004), and is not binding on the
courts. Scott v. Ashland Healthcare Ctr., Inc., 49 S.W.3d 281, 287 (Tenn. 2001) (quoting
State v. Black, 897 S.W.2d 680, 683 (Tenn. 1995)). In addition, the factual circumstances
addressed by the Attorney General differ substantively from the facts of this case. The
circumstances presented to the Attorney General involved an aircraft that was put to multiple
uses – some taxable and some not taxable. The Attorney General invoked the doctrine of
primary use to address the fact that the aircraft was put to multiple uses. The doctrine has
no application here because there is no dispute that CAO Holdings’s only business purpose
for purchasing the aircraft was to lease it to CAM Management. Therefore, two of the
central issues in this case are whether CAO Holdings used the aircraft exclusively for leasing
to CAM Management and whether Mr. Clayton’s extensive personal use of the aircraft is
inconsistent with the exclusive use requirement.

Neither the Department’s regulations nor the applicable statutes governing sales and
use taxes specifically define the phrase “used exclusively for renting or leasing” as it appears

10
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applicable rules and regulations because it failed to notify the Department of its acquisition of the aircraft
as required by Tenn. Code Ann. § 42-1-113 (2000) and because CAM Management failed to register with
either the Department or the Secretary of State. However, the Department has not renewed these arguments
in the proceedings before us. Accordingly, we need not address in this opinion whether the transaction
between CAO Holdings and CAM Management strictly complied with these requirements.

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in Tenn. Comp. R. & Regs. 1320-5-1-.32(3). The principles used to ascertain the meaning
of revenue regulations are essentially the same as those that govern the construction of
revenue statutes. Houghten v. Aramark Educ. Res., Inc., 90 S.W.3d 676, 679 (Tenn. 2002)
(citing Consumer Advocate Div. v. Greer, 967 S.W.2d 759, 762 (Tenn. 1998)).

Statutes that impose a tax must be construed liberally in favor of the taxpayer and
strictly against the taxing authority; while statutes providing for exemptions from taxation
are to be strictly construed against the taxpayer. Eastman Chem. Co. v. Johnson, 151 S.W.3d
503, 507 (Tenn. 2004); AFG Indus., Inc. v. Cardwell, 835 S.W.2d 583, 584-85 (Tenn. 1992).
However, statutes imposing a tax must be given a fair construction. United Inter-Mountain
Tel. Co. v. Moyers, 221 Tenn. 246, 255, 426 S.W.2d 177, 181 (1968). Accordingly, the court
must give effect to the language of the statute and must not use the strict construction rule
to thwart the intent to impose a tax. Int’l Harvester Co. v. Carr, 225 Tenn. 244, 259-60, 466
S.W.2d 207, 214 (1971).

Unless the text of a revenue statute requires otherwise, the courts should give the
words in the statute their natural and ordinary meaning. Eastman Chem. Co. v. Johnson, 151
S.W.3d at 507; Nashville Golf & Athletic Club v. Huddleston, 837 S.W.2d 49, 53 (Tenn.
1992). When these words clearly reflect the purpose of the statute, they should be enforced
as written. Stratton v. Jackson, 707 S.W.2d 865, 866 (Tenn. 1986).

A statute’s meaning is derived, not from considering the separate meaning of each
individual word in a statute, but from considering the entire statute as a whole in light of its
general purpose. See State v. Flemming, 19 S.W.3d 195, 197 (Tenn. 2000); First Nat’l Bank
of Memphis v. McCanless, 186 Tenn. 1, 8, 207 S.W.2d 1007, 1009 (1948). Thus, rather than
“‘mak[ing] a fortress out of the dictionary,’” Crown Enters., Inc. v. Woods, 557 S.W.2d 491,
493 (Tenn. 1977) (quoting Cabell v. Markham, 148 F.2d 737, 739 (2d Cir. 1945)); cf.
Western Pipe Line Constructors, Inc. v. Dickinson, 203 Tenn. 248, 257, 310 S.W.2d 455,
459-60 (1958), the courts’ role is to ascertain and give the fullest possible effect to the
General Assembly’s intent and purpose without unduly restricting the statute’s application
or to expand its application beyond its intended scope. In re Estate of Davis, 308 S.W.3d
832, 837 (Tenn. 2010); Seals v. H & F, Inc., 301 S.W.3d 237, 242 (Tenn. 2010).

The meaning of the phrase “used exclusively for renting or leasing” is clear and
requires no construction. The word “exclusive” and its derivatives connote “with no
exceptions” or “[e]xcluding all but what is specified.” See Bryan A. Garner, A Dictionary
of Modern Legal Usage 336 (2d ed. 1995); 5 The Oxford English Dictionary 510 (2d ed.
1989). Accordingly, tangible personal property that is “used exclusively for renting or

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leasing” consists of tangible personal property that is used solely for renting or leasing to the
exclusion of any other use to which the property could be put.11

V.

The parties disagree about the proper conclusion to be drawn on the exclusive use
question, but each party insists that the undisputed facts support only its position. Not
surprisingly, CAO Holdings asserts that the undisputed facts demonstrate as a matter of law
that the aircraft was used exclusively for renting or leasing. The Department takes the
contrary position by insisting that the only conclusion that can be drawn from the undisputed
facts is that CAO Holdings did not use the aircraft exclusively for renting or leasing.

CAO Holdings contends that the only use to which it put the aircraft was to lease it
to CAM Management. It points out that on February 25, 2005, the same day it purchased the
aircraft, it entered into a non-exclusive aircraft lease agreement with CAM Management. It
also points out that it eventually entered into valid time sharing agreements on April 27,
2005. Finally it emphasizes that a pilot employed by CAM Management was the pilot or co-
pilot of the aircraft on “practically every flight,” that CAM Management paid it $550 per
flight hour, and that it paid use taxes based on these payments.

The Department counters that the evidence demonstrates that CAO Holdings used the
aircraft for purposes other than renting or leasing. It points to the undisputed evidence that
the aircraft’s flight logs list CAO Holdings rather than CAM Management as the “operator”
of the aircraft and that Mr. Clayton is listed as either pilot or co-pilot on flights that amounted
to approximately seventy-five percent of the total flight hours. The Department also points
to Mr. Clayton’s testimony that several of the aircraft’s initial flights “relate[d] to business
activities” and that several of the trips were for his own purposes.12 It also emphasizes that
it is undisputed that the aircraft had been flown on a significant number of flight hours before
the time sharing agreements were signed.

CAO Holdings has offered rebuttals to the Department’s arguments. While it
concedes that it is listed as the aircraft’s operator, it insists that the listing is a technicality
required by federal regulations and that CAM Management was the operator of the aircraft

11
The Department concedes, and we believe rightly so, that any use of tangible personal property by
its owner that is incidental to the act of leasing or renting the property would not run afoul of the “exclusive
use” requirement in Tenn. Comp. R. & Regs. 1320-5-1-.32(3). For example, the Department notes that “a
dealer might use the property to clean it, repair it, advertise it, demonstrate it, or any number of activities that
increase its commercial value in the course of reselling [or leasing] it.”
12
When asked if “some of these trips were for your own purposes,” Mr. Clayton answered “Yes, sir.”
Mr. Clayton’s personal use of the plane was also reflected in his testimony regarding his desire to have a
nicer and more comfortable aircraft that the business jet he already owned.

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for all practical purposes. It also insists that the timing of the execution of the time sharing
agreements was a mere formality, that CAM Management became the operator of the aircraft
on February 25, 2005, and that CAM Management was flying its own customers, including
Mr. Clayton, prior to the time the agreements were actually signed.

These questions and issues cannot be decided as a matter of law in light of the current
posture of this case. Despite the parties’ respective assertions that they have no disputes
regarding the material facts, it is plain that they disagree about the inferences and conclusions
to be drawn from the facts. Summary judgment proceedings have never been envisioned as
substitutes for trials of disputed factual issues. Fruge v. Doe, 952 S.W.2d at 410; Layhew
v. Dixon, 527 S.W.2d 739, 742 (Tenn. 1975). Because this Court is ill-equipped to weigh
the evidence or to substitute its judgment for that of the trier of fact, Martin v. Norfolk S. Ry.,
271 S.W.3d at 87, we must hold that the existence of genuine disputes involving the
inferences to be drawn from the material facts should have prevented the trial court from
granting a summary judgment to either party.

VI.

The Department advances two other arguments to support its claim that CAO
Holdings was not entitled to the sale for resale exemption. First, it asserts that the lease
between CAO Holdings and CAM Management was illusory and, therefore, cannot qualify
as a sale for resale. Second, it argues that we should ignore the separate corporate identities
of both CAO Holdings and CAM Management in determining whether CAM Management
used its aircraft exclusively for renting or leasing. Because neither party is entitled to
summary judgment on the exclusive use issue, we next address the Department’s contention
that it is entitled to summary judgment because the lease was illusory and the lease was a
sham transaction.

A.

The Department argues that the lease between CAO Holdings and CAM Management
should be considered illusory because CAO Holding retains the upper hand with regard to
the management and control of the aircraft. That which is “illusory” is something “based on
a false impression.” See Black’s Law Dictionary 763 (8th ed. 2004). An illusory transfer is
“one which takes back all that it gives.” In re Marriage of Frederick, 578 N.E.2d 612, 615
(Ill. App. Ct. 1991). Thus, the Tennessee Court of Appeals has held that an illusory transfer
of an interest in property means “that the transferor retained such elements of ownership and
control over the property as renders the purported transfer deceptive, incomplete, and
misleading – a pretended transfer rather than a real transfer.” Warren v. Compton, 626
S.W.2d 12, 19 (Tenn. Ct. App. 1981).

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 The transaction between CAO Holdings and CAM Management, at least on the
surface, qualifies as a lease as defined in Tenn. Code Ann. § 67-6-102(a)(21). While the
lease agreement in the record contains terms that are very favorable to CAO Holdings, the
record before us does not establish as a matter of law that the lease was illusory.
Accordingly, based on this record, the Department has not carried its burden of
demonstrating that it was entitled to a judgment as a matter of law that CAO Holdings must
pay use tax on the purchase of the aircraft on the ground that its lease with CAM
Management was illusory. The Department will bear the burden of presenting evidence to
substantiate this claim on remand.

B.

The Department also insists that the undisputed facts require the courts to conclude
that the lease transaction between CAO Holdings and CAM Management was a “sham”
because both CAO Holdings and CAM Management are “nothing but corporate vessels for
[Mr.] Clayton.” Accordingly, the Department asserts that the facts require the courts to
disregard the separate legal status of these two corporations – to pierce the corporate veil –
on the ground that these corporations exist “only to frustrate the clear legislative purpose of
the sales tax.”

There is no question that the courts may, in appropriate circumstances, pierce the
corporate veil and attribute the actions of a corporation to its shareholders. See generally
Cambio Health Solutions, LLC v. Reardon, 213 S.W.3d 785, 790 (Tenn. 2006); Oceanics
Sch., Inc. v. Barbour, 112 S.W.3d 135, 140-42 (Tenn. Ct. App. 2003). To pierce the
corporate veil, a court must be convinced that the separate corporate entity “is a sham or a
dummy” or that disregarding the separate corporate entity is “necessary to accomplish
justice.” Oceanics Sch., Inc. v. Barbour, 112 S.W.3d at 140 (quoting Schlater v. Haynie, 833
S.W.2d 919, 925 (Tenn. Ct. App. 1991). Tennessee’s courts have consistently used the
factors identified in FDIC v. Allen, 584 F. Supp. 386, 397 (E.D. Tenn. 1984) to determine
whether a corporation’s separate legal identity should be ignored.13 See, e.g., Pamperin v.

13
In FDIC v. Allen, the United States District Court stated:

Factors to be considered in determining whether to disregard the corporate
veil include not only whether the entity has been used to work a fraud or
injustice in contravention of public policy, but also: (1) whether there was
a failure to collect paid in capital; (2) whether the corporation was grossly
undercapitalized; (3) the nonissuance of stock certificates; (4) the sole
ownership of stock by one individual; (5) the use of the same office or
business location; (6) the employment of the same employees or attorneys;
(7) the use of the corporation as an instrumentality or business conduit for
an individual or another corporation; (8) the diversion of corporate assets
(continued...)

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Streamline Mfg., Inc., 276 S.W.3d 428, 438 (Tenn. Ct. App. 2008); Altice v. NATS, Inc., No.
M2007-00212-COA-R3-CV, 2008 WL 1744571, at *2-3 (Tenn. Ct. App. Apr. 15, 2008) (No
Tenn. R. App. P. 11 application filed). In this analysis, it is not necessary that all factors
weigh in favor of piercing the corporate veil. It is necessary, however, that the equities
substantially favor the party requesting the court to disregard the corporate status. Oceanics
Sch., Inc. v. Barbour, 112 S.W.3d at 140-41.

When the Department requests the courts to pierce the corporate veil in order to
collect taxes, the courts’ review of the facts must be tempered by two principles. First, the
courts should keep in mind that the “[f]orm and structure are quite significant in business and
commercial transactions, and frequently the form or structure used has controlling
significance for taxes and other purposes.” Standard Adver. Agency, Inc. v. Jackson, 735
S.W.2d 441, 443 (Tenn. 1987). Second, the courts should heed Judge Learned Hand’s
observation that “[a]ny one may so arrange his affairs that his taxes shall be as low as
possible; he is not bound to choose that pattern which will best pay the Treasury; there is not
even a patriotic duty to increase one’s taxes.” Helvering v. Gregory, 69 F.2d 809, 810 (2d
Cir. 1934). Thus, as noted by the United States Supreme Court:

While corporate entities may be disregarded where they are
made the implement for avoiding a clear legislative purpose,
they will not be disregarded where those in control have
deliberately adopted the corporate form in order to secure its
advantages and where no violence to the legislative purpose is
done by treating the corporate entity as a separate legal person.

Schenley Distillers Corp. v. United States, 326 U.S. 432, 437 (1946); see also Standard
Adver. Agency, Inc. v. Jackson, 735 S.W.2d at 443.

Issues relating to the piercing of the corporate veil are not ordinarily appropriate for
resolution by summary judgment. Mike v. Po Grp., Inc., 937 S.W.2d 790, 795 (Tenn. 1996);
see also Electric Power Bd. of Chattanooga v. St. Joseph Valley Structural Steel Corp., 691
S.W.2d 522, 526 (Tenn. 1985) (“Moreover, a determination of whether or not a corporation
is a mere instrumentality of an individual or a parent corporation is ordinarily a question of

13
(...continued)
by or to a stockholder or other entity to the detriment of creditors, or the
manipulation of assets and liabilities in another; (9) the use of the
corporation as a subterfuge in illegal transactions; (10) the formation and
use of the corporation to transfer to it the existing liability of another
person or entity; and (11) the failure to maintain arms length relationships
among related entities.

FDIC v. Allen, 584 F. Supp. at 397.

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fact for the jury.”). Based on our review of the record, we conclude that the Department has
not carried its burden of demonstrating that it is entitled to a judgment as a matter of law by
showing that the only reasonable conclusion to be drawn from the facts is that the separate
legal status of CAO Holdings and CAM Management should be disregarded. While this may
eventually be an appropriate conclusion following a trial on the merits, the Department has
the burden of demonstrating to the trial court’s satisfaction that the separate legal status of
both CAO Holdings and CAM Management should be ignored for the purpose of
determining whether CAO Holdings is liable for the payment of use tax on its purchase of
the aircraft.

VII.

Based on the current state of this record, we hold that neither CAO Holdings nor the
State of Tennessee are entitled to a judgment as a matter of law. Accordingly, we reverse the
decision of the Court of Appeals and vacate the summary judgment granted to CAO Holdings
and remand the case to the trial court for further proceedings consistent with this opinion.
We tax the costs of this appeal in equal proportions to the State of Tennessee and CAO
Holdings for which execution, if necessary, may issue.

______________________________
WILLIAM C. KOCH, JR., JUSTICE

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