Etter v. Dept. of Rev.

18 January 8, 2015 No. 3

IN THE OREGON TAX COURT

REGULAR DIVISION

Stuart ETTER,

Plaintiff,

v.

DEPARTMENT OF REVENUE,

Defendant.

(TC 5027)

Plaintiff (taxpayer) appealed from a Magistrate Division decision denying

him the benefit of federal legislation limiting state taxation of airline employees.

Granting the department’s motion for summary judgment, the court ruled that

taxpayer, who is not a member of a flight crew with scheduled flights throughout

a year, but rather makes limited and episodic flights, was not afforded the benefit

of the federal statute.

Oral argument on parties’ motions for summary judg-

ment was held May 28, 2013, in the courtroom of the Oregon

Tax Court, Salem.

Gregory P. Bessert, Attorney at Law, Battle Ground, filed

the motion and argued the cause for Plaintiff (taxpayer).

James C. Wallace, Senior Assistant Attorney General,

Department of Justice, Salem, filed the motion argued

the cause for Defendant Department of Revenue (the

department).

Decision for Defendant rendered January 8, 2015.

HENRY C. BREITHAUPT, Judge.

I. INTRODUCTION

In this case the issue is whether Plaintiff (taxpayer)

may benefit from the provisions of a federal law that limits

the extent to which states may impose taxation on the wage

income of certain employees of air carriers.1 The statute in

question is 49 USC section 40116(f) (the federal statute),

that provides, in relevant part:

1

There has been some question as to which years are at issue in this case.

That matter will be resolved, if necessary, in the form of judgment entered. The

applicable law has not varied among the years.

Cite as 22 OTR 18 (2015) 19

“(1) In this subsection—

“(A) ‘pay’ means money received by an employee for

services.

“(B) ‘State’ means a State of the United States, the

District of Columbia, and a territory or possession of the

United States.

“(C) an employee is deemed to have earned 50 percent

of the employee’s pay in a State or political subdivision of

a State in which the scheduled flight time of the employee

in the State or subdivision is more than 50 percent of the

total scheduled flight time of the employee when employed

during the calendar year.

“(2) The pay of an employee of an air carrier having

regularly assigned duties on aircraft in at least 2 States is

subject to the income tax laws of only the following:

“(A) the State or political subdivision of the State that

is the residence of the employee.

“(B) the State or political subdivision of the State in

which the employee earns more than 50 percent of the pay

received by the employee from the carrier.

“(3) Compensation paid by an air carrier to an employee

described in subsection (a) in connection with such employ-

ee’s authorized leave or other authorized absence from

regular duties on the carrier’s aircraft in order to perform

services on behalf of the employee’s airline union shall be

subject to the income tax laws of only the following:

“(A) The State or political subdivision of the State that

is the residence of the employee.

“(B) The State or political subdivision of the State in

which the employee’s scheduled flight time would have been

more than 50 percent of the employee’s total scheduled

flight time for the calendar year had the employee been

engaged full time in the performance of regularly assigned

duties on the carrier’s aircraft.”

Defendant Department of Revenue (the department)

asserts that taxpayer does not qualify for the benefits of the

federal statute. Taxpayer argues that he qualifies for the

benefits of the federal statute. Initially taxpayer asserted

that the department bore the burden of proof in this matter.

Taxpayer has withdrawn that argument, an act consistent

20 Etter v. Dept. of Rev.

with the provisions of ORS 305.427 (burden of proof in the

Tax Court to be borne by party seeking affirmative relief).

II. FACTS

The following facts are the subject of a stipulation of

the parties.

(1) Taxpayer was a resident of the State of

Washington during the year at issue.

(2) Horizon Air Industries, Inc. (Horizon Air), a

Washington corporation, employed taxpayer as an aircraft

dispatcher during the year at issue.

(3) At all times during the year at issue, Horizon

Air was in the business of providing air transportation of

passengers or property by aircraft as a common carrier for

compensation between a place in a state, territory, or pos-

session of the United States and a place in the District of

Columbia or another state, territory, or possession of the

United States.

(4) At all times during the year at issue, Horizon

Air was authorized by the US Department of Transportation,

Federal Aviation Administration under Air Carrier Certifi-

cate QXEA002A, effective as of August 31, 1981, to conduct

business as an interstate air carrier under the authority of

the Federal Aviation Act of 1958, as amended, and the rules,

regulations, and standards prescribed thereunder.

(5) During the year at issue, the terms of taxpayer’s

employment included fulfillment of all duties set forth for

aircraft dispatchers in the Horizon Air Dispatch Standards

Manual. The terms of taxpayer’s employment as an aircraft

dispatcher for Horizon Air also included terms and condi-

tions of employment in addition to the duties expressed and

set forth for aircraft dispatchers in the Horizon Air Dispatch

Standards Manual. Those additional terms and conditions

are set forth in the Horizon Air Employee Policy Manual

and the collective bargaining agreement between Horizon

Air and the Transport Workers Union of America, AFL-CIO.

Failure to fulfill duties set forth for aircraft dispatchers in the

Horizon Air Dispatch Standards Manual or satisfy the terms

Cite as 22 OTR 18 (2015) 21

and conditions of the Horizon Air Employee Policy Manual

or the collective bargaining agreement between Horizon Air

and the Transport Workers Union of America, AFL-CIO

constituted grounds for termination of employment.

(6)    During the year at issue, taxpayer earned

income in Oregon as an aircraft dispatcher for Horizon Air

at its Portland, Oregon, operations center.

(7)    As a dispatcher, taxpayer’s primary and reg-

ular duties were to plan and monitor flights from Horizon

Air’s Portland operations center.

(8)    Horizon Air required that all of its dispatchers

be qualified in accordance with Federal Aviation Regulation

(FAR) 121.463.

(9)    The required time spent observing operations

could be satisfied either on board the aircraft or in a flight

simulator.

(10) Horizon Air did not have a flight simulator.

(11) Taxpayer monitored aircraft from two (2) air-

craft groups.

(12) Taxpayer fulfilled the FAR qualification

requirement that he observe flight deck operations of the

aircraft that he monitored by flying on Horizon Air aircraft

during the year at issue for each of the two groups of air-

craft taxpayer monitored, which resulted in no more than

taking one flight during one day in each of the two types of

aircraft taxpayer monitored.

(13) Taxpayer’s labor contract provided that “[a]n

employee who is required to complete jump seat observa-

tion training may elect to accomplish the requirement on

a flight of his or her own choosing,” and, consequently, tax-

payer could have chosen flights for his training purposes

that occurred 100 percent over Oregon.

(14) Taxpayer’s Oregon source pay for the year at

issue was greater than 50 percent of taxpayer’s total pay.

For purposes of this paragraph, the term “pay” shall have

the meaning set forth in 49 USC § 40116(f)(2).

22 Etter v. Dept. of Rev.

III. ISSUE

For purposes of these cross-motions for summary

judgment the parties, in hearings supplemental to the fil-

ing of briefs, have agreed that the issues before the court

at this point are limited to: (1) assuming that taxpayer had

“assigned duties,” were they regularly assigned? And (2) is

the benefit of the federal law only available to crew mem-

bers of planes of air carriers? Because the resolution of the

second question is dispositive, the court will not address the

first of these questions.

IV. ANALYSIS

In construing the federal statute, the court follows

the methods used by federal courts. Butler v. Dept. of Rev., 14

OTR 195, 199 (1997) (citations omitted). This court under-

stands this method to include consideration of the text, con-

text and legislative history of the federal statute.2 See, e.g.,

Lamie v. United States Trustee, 540 US 526, 534-36, 539,

124 S Ct 1023, 157 L Ed 2d 1024 (2004) (consideration of text

and context, and legislative history if plain meaning of text

is ambiguous or history bolsters plain meaning).

In accordance with these methods, the court observes

that the language of the federal statute does not explicitly

limit its coverage to members of plane crews. However, the

federal statute purports to apply to all employees of an air

carrier. Rather, the coverage of the federal statute is stated

as applying to employees of an air carrier “who have regu-

larly assigned duties on aircraft in at least 2 states.”

Importantly, however, the federal statute contains

other provisions that provide an important context. The first

of these is found in paragraph (1)(C). The second is found in

paragraph (3)(B).

2

Taxpayer has made an argument that recent case law from the United

States Supreme Court has changed the approach to construction of federal

statutes limiting the power of states to impose taxes. The court does not find

that argument persuasive. The issue remains as always the intent of Congress.

However, the court must proceed carefully when asked to recognize an exemption

from state taxation that Congress has not clearly expressed. See Julian v Dept. of

Rev., 339 Or 232, 235-36, 118 P3d 798 (2005) (citing California Equalization Bd.

v. Sierra Summit, 490 US 844, 851-52, 109 S Ct 2228, 104 L Ed 2d 910 (1989)).

Cite as 22 OTR 18 (2015) 23

Both of these provisions contain the phrase “flight

time.” However, in neither case is that phrase qualified with

the phrase “regularly assigned.” Rather, the qualifier as to

“flight time” is “scheduled.” In the federal statute “duties”

are “regularly assigned.” In contrast, “flight time” is “sched-

uled.” Additionally, in both provisions, the measurement

period for flight time is a full calendar year.

Finally, paragraph (3)(B) calls for a calculation of a

hypothetical number based on an assumption that, rather

than performing union services, the employee had been

engaged in the performance of “regularly assigned duties.”

The premise of the federal statute is that the employee other-

wise covered by the statute would be scheduled to fly during

the entire year. Using that schedule for any period of union

service, one simply interpolates into the period of time of

union service the times and places the employee would have

flown but for the union service. The result is an expression

of the “full time” duties of the employee in question, on the

basis of which it will be determined in or over which state,

if any, the employee earned more than 50 percent of the pay

received by the employee from the carrier.

These provisions supply an important context for

interpreting or construing the operative provisions of para-

graph (2) of the federal statute. None of them apply at all

well with an employee, such as taxpayer, who is not a mem-

ber of a flight crew with scheduled flights throughout a year,

but rather makes limited and episodic flights.

As to the provisions of paragraph (3)(B), even if one

assumes that taxpayer is “assigned” to a flight for purposes

of obtaining qualifications that the employer finds import-

ant and that such flights are considered “duties,” it would be

illogical to combine a very limited number of episodic activ-

ities (in this case two days in a year) with the remainder

of taxpayer’s regular duties throughout the year in order

to express what taxpayer’s “full time” activities were for a

year. The special rule of paragraph (3)(B) was written to

allow an appropriate calculation for an employee whose reg-

ular flight schedule would interfere with the performance of

union duties. The special rule is a solid basis for a reading of

the federal statute as applying to flight crew members whose

24 Etter v. Dept. of Rev.

yearlong duties must be calculated by replacing ground duty

time with deemed flying.

The context provided by paragraph (3)(B) very

strongly, if not conclusively, suggests that the intent of

Congress in the federal statute was for its benefits to be

available to crew members but not to other employees of an

air carrier who may, from time to time and relatively rarely,

find themselves on an aircraft for some job-related reason.

Additionally, under the federal statute, calculations

are only done for flight time that is “scheduled.” The ordi-

nary meaning of the word “scheduled” is: “place[d] in a sched-

ule.” Webster’s Third New Int’l Dictionary 2028 (unabridged

ed 2002). Schedule, in turn, is defined, in relevant part, as

“a transportation timetable * * * requiring to be dealt with

usu. at a particular time or within an indicated period.” Id.

(Emphasis added.)

The federal statute contemplates a schedule of fly-

ing for a period, a year—one that can be referred to after the

fact for purposes of making the paragraph (3)(B) calculation

for that yearlong period. That is, paragraph (3)(B) calls for

a calculation made on the assumption that union activity

time could be assigned to what had otherwise been a set of

scheduled flights over particular states.

Stated differently, the federal statute, read as a

whole, equates “regularly assigned duties” to duties that

are “scheduled” to occur throughout a calendar year. That

equation can be applied to members of flight crews without

difficulty. To the extent that taxpayer has a schedule that

applies to his work, it is a schedule that has him located

on the ground in Portland, Oregon. Application to taxpayer

of the statutory equation of “regularly assigned duties” and

“scheduled flight time” cannot be sensibly applied.

It is beyond question that the calculation of “regu-

lar” duties of an employee must consider what the employee

does over the course of a calendar year. That is what para-

graph (3)(B) contemplates in its required calculation. There

can be no question that, over the period of the calendar year

in question, the regular duties of taxpayer were to perform

Cite as 22 OTR 18 (2015) 25

dispatching functions from a location on the ground in

Portland, Oregon.

The legislative history of the federal statute and

related federal legislation supports the foregoing conclu-

sions regarding congressional intent.3

In hearings leading up to the adoption of the federal

statute the House of Representatives issued a report that

stated:

“ ‘A multiplicity of laws and regulations for the administra-

tion and enforcement of State tax laws and regulations can

obviously cause unnecessary friction and confusion within

the framework of interstate commerce, impede the free flow

of trade between the several States, and constitute a seri-

ous burden on interstate commerce. For illustrations of the

multiplicity of State laws see the appendix of their report.

A good example of the lengths to which this multiplicity of

administration and enforcement could lead is illustrated

by the schedules of operations in the air transportation

industry. It is possible for a crew to have monthly schedules

requiring flights between New York, Pittsburgh, Chicago,

Omaha, Denver, Salt Lake City, and San Francisco. At

the end of the month, that crew would have flown over

or through most of the States. Obviously, for each carrier

to have to prorate that crew’s withholding, giving each

State flown over a certain percentage, could create a seri-

ous burden on interstate commerce.’ H.R. Rpt. 91-1195

at 3 (June 15, 1970) (Comm. on Interstate and Foreign

Commerce, State Income Tax Withholding for Interstate

Transportation Employees, Washington D.C. Government

Printing Office, 1970).”

Although this report deals with the difficulties related to

employer withholding obligations in states, taxpayer recog-

nizes in his briefing that the concerns apply equally to the

issue of the tax liability of the employee.

3

In briefing, taxpayer alludes to Congressional intent as to legislation

adopted after the decision of the United States Supreme Court in Northwestern

States Portland Cement Co. v. Minnesota, 358 US 450, 3 L Ed 2d 421, 79 S Ct 357

(1959). That case did not concern employees of interstate transportation com-

panies. Substantial time passed before Congress addressed the problems pre-

sented by state taxation of such transportation employees. Accordingly this court

looks to the legislative history of the particular Congressional action taken as

to such employees and not to the controversy and legislation surrounding the

Northwestern States case.

26 Etter v. Dept. of Rev.

In the Senate floor debate preceding the adoption

of the federal statute, Senators Humphrey and Stevens

engaged in an exchange, as follows:

“ ‘Mr. Humphrey: Mr. President, it seems certain states

are attempting to tax the earnings of members of aircrews

who are not residents of their States, to impose an income

tax on those persons even though they do not reside in the

State. They are attempting to levy this tax. As a matter

of fact, the situation has reached a point now that some

States are proposing to tax the earnings of aircrews in pro-

portion to the amount of time an airplane may have spent

in the airspace of that State, irrespective of whether or not

the member of the aircrew resides in that State.

“ ‘So we are reaching a pretty ridiculous situation.

“ ‘My amendment would amend the Federal Aviation Act

of 1958 such that States would be prohibited from taxing

income of members of aircrews unless they lived within the

boundaries of that State.

“ ‘* * * * *

“ ‘Mr. Stevens: I certainly would agree with the Senator’s

amendment if it is limited to compensation derived from

activity as an airline pilot. Some of the brethren if [sic] the

Senator’s profession have been very successful and own

some lodges and other things up my way. I think if they

earn income other than from flying they should pay some

State in which the income is derived. But if it is derived

from the occupation of an airline pilot, I would certainly

agree. Is the amendment so limited?

“ ‘Mr. Humphrey: Yes, as a matter of fact, the language

states: ‘No part of the compensation paid by an air car-

rier to an employee who performs his regularly assigned

duties,’ et cetera.

“ ‘Mr. Cannon: Mr. President, I have discussed this

amendment with the Senator. We attempted to correct this

problem a few years ago and at that time in conference the

language was changed to make it none of the compensation

could be withheld or subjected to State withholding. But

it certainly was the intent of this body that they could not

be subject to taxation.’ 125 Cong. Rec. 9175 (1979) Aviation

Safety and Noise Abatement Act of 1979 Pub. L. No. 96-193,

Cite as 22 OTR 18 (2015) 27

94 Stat. 50 (1980); S. 413 96th Cong. Feb. 9, 1979 (Statement

by Sen. Humphrey Minnesota).”

(Emphases added.) This legislative history indicates that

the senators discussing the matter on the floor considered

both the problem and the statutory solution to be focused on

and limited to the compensation of crew members.

The text and context of the federal statute as well

as the legislative history of the provisions fully supports the

conclusion that the federal statute only applies to members

of an airplane crew of an air carrier who fly on a scheduled

basis.

V. CONCLUSION

For the foregoing reasons, the motion of the depart-

ment is granted and the motion of the taxpayer is denied.

Taxpayer does not qualify for the protections of the federal

statute. Now, therefore,

IT IS ORDERED that the motion of Plaintiff is

denied; and

IT IS FURTHER ORDERED that the motion of

Defendant is granted.