Our firm successfully petitioned the Superior Court in Kennebec County for a de novo review of a State Tax Assessor’s reconsideration decision. We filed a Complaint pursuant to M.R.Civ. P 80C and 36 M.R.S.A. § 151, asking the Court to reverse a tax assessment of $4,170.08 made against our client, Welch Oil Company, LLC, by the State of Maine Revenue Service.
In this particular case, James Welch had purchased a 2008 Peterbilt 336 oil delivery truck under the name “James Welch, d/b/a Welch Oil” and used it for approximately fifteen months to make heating oil deliveries. He then created a limited liability company - Welch Oil Company, LLC. In the LLC's operating agreement, James and his wife Janet were listed as owning 51% of the stock as joint tenants, and their son Jeffrey the remaining 49% of the stock solely.
James then transferred the ownership of the truck to the LLC and the LLC did not pay any Maine Sales or Use Tax on the transfer because James claimed he owed 51% of the LLC. Pursuant to 36 M.R.S.A.§ 1764, a tax must be imposed on all casual sales/transfers of motor vehicles except when the seller or transferor is also the majority owner of company receiving the vehicle.
The Maine Revenue Service did not believe that James was a majority owner of the LLC, and accordingly assessed a tax against Welch Oil Company, LLC.
Clark & Howell successfully reversed the State Tax Assessor’s ruling by (1) proving James & Janet Welch were joint tenants with a majority 51% ownership, and (2) arguing James Welch could individually qualify as majority owner for purposes of § 1764.
The State argued there was no intent to form a joint tenancy though the operating agreement, and it further argued that prior written statements made by James and Janet Welch suggested that they owned less than a majority in the LLC. The State specifically referenced a letter written by James to Governor LePage, in which James stated “[a]t this time we set up the LLC with my son, owning 49%, my wife 25% and myself 26. Therefore I have control of 51% with my wife”. In effect, the State argued that James and Janet Welch did not intend to create a joint tenancy, and it additionally argued that only one person could be majority owner of an LLC.
The Court agreed with our argument that James and Janet Welch had satisfied the common law rule of joint tenancy. “….each tenant must have received the same interest, at the same time, conveyed by the same instrument giving each owner the right to full possession of the property.” The Court relied on the LLC’s operating agreement to discern the Welch’s intent, and also found the four unities of time, title, interest and possession did coincide through the operating agreement. The Court additionally agreed with attorney Howell’s argument that there exists a significant difference between what someone believes to be true, and what is in fact legally true. It was deemed irrelevant that Mr. or Mrs. Welch may have believed that they individually owned less than 51% of the LLC. What was important was the fact that by operation of the law, Mr. and Mrs. Welch had properly formed an LLC which jointly designated them as the rightful and legal owners of 51% of the LLC. The Court noted, “it is a basic principle of joint tenancy law that ‘joint tenants own equal undivided shares even though their initial contributions may have been unequal’”. The Court also stated, “…James did not attempt to convey or alienate the 51% interest in the LLC; he merely made a transfer of jointly held property into the LLC.” The Court ruled in favor of James and Janet Welch and found the transfer of the vehicle to the LLC fell under the tax exemption of § 1764. The tax assessment was accordingly reversed. Read the Court Ruling.