Petition — New York State Department of Taxation & Finance v. Air Transport Ass'n of America
Supreme Court brief1983
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In THE
Supreme Court of the United States
October Term, 1983
NEW YORK STATE DFTARTMENT OF TAXATION AND FI-
NANCE, NEW YORK STATE TAX COMMISSION, RODER-
ICK A. CHU, Commissioner of Taxation and Finance, FRANCIS
R. KOENIG, Commissioner of the New York State Tax Com-
mission, and MARK FRIEDLANDER, Commissioner of the New
York State Tax Commission,
Petitioners,
against
AIR TRANSPORT ASSOCIATION OF AMERICA,
Respondent.
Petition for a Writ of Certiorari to the New York State
Court of Appeals
Rosert ABRAMS
Attorney General of the State of New York
Attorney for Petitioners
The Capitol
Albany, NY 12224
(518) 474-8101
Peter H. SCHIFF
Acting Attorney in Chief
Appeals and Opinions
Francis V. Dow
Assistant Attorney General
Of Counsel
Dated: July 25, 1983
i.
Question Presented.
Whether States are preempted by the provision of sec-
tion 1113 of the Federal Aviation Act (49 USC § 1513)
from imposing on corporations principally engaged in
aviation a franchise tax that includes in the yardstick for
measuring the amount of tax liability gross earnings from
the sale of air transportation of persons and of both in-
terstate and intrastate freight transportation.
ii.
Table of Contents.
Page
ed ons pk h Visser nee. tees i
GL sl sakes cee ee ces sve vo ahh 2
ek in aia ev oe ewer es bees z
Statutory Provisions Involved.................6. 2
I GE cdc cocked eceadeavesets 7
Reasons for Granting the Writ.................4. 9
I. The decision below conflicts with the deci-
sion of the Supreme Court of Hawaii in cases
in which this Court has noted probable
Ni wld 6a ok eae AR RIE 9
II. State franchise, property and net income taxes
measured by gross receipts are not preempted
by Section 1113 of the Federal Aviation Act.. 10
A. It had been well settled when section 1113
of the Aviation Act was enacted in 1973
that including gross receipts as items that
could be used as a measure for franchise and
property taxes did not make them taxes on
ila dg o's sic 46 Kae E KA x ae 11
iii.
Page
B. The legislative history of section 111) of
the Federal Aviation Act shows #9 intent to
exclude States’ franchise or property taxes
using gross receipts as a measure from the
taxes expressly permitted under section 1113 15
1. An intent to preempt state taxes
must be clearly shown by Congress...... 15
2. The legislative history of section 1113 of
the Federal Aviation Act shows no intent
to preempt States from applying broad-
based franchise and property taxes to
Mo ete eck alran ae wb es Oakes 17
SS te a ene brecaniin ae 27
PN a ics pak each ns eee e nko eee ee ees Al
TABLE OF AUTHORITIES.
Page
CASES:
Aloha Airlines, Inc. v. Director of Taxation, State of
Pen TINO. Ba Os vib coke ccvcvcvcdvsses 2,9
iv.
Page
American Bank & Trust Co. v. Dallas County, ___
US ____, §1 USLW 5181 (dec July 5, 1983). 12,24
Cumberland & P.R. Co. v. State, 92 Md 668, 48 A2d
RRR a cies Oe a dn eaeat oe eke 10
Evansville-Vanderburgh Airport, 405 US 707 (1972). . 17
Great Northern Railway Co. v. Minnesota, 278 US
gts re. ce uabaa ska» ailale wares 11
Hawaiian Airlines, Inc. v. Director of Taxation of the
State of Hawaii (No. 82-586)............... pe
Home Insurance Company v. New York, 134 US 594
RL et a ihe gatas": yobs © briesp aa 14
People v. Home Insurance Company, 92 NY 328
(1883), affd 134 US 594 (1890).............. 13
Pullman v. Richardson, 261 US 330(1923).......... 11
Railway Express Agency v. Virginia, 358 US 434
Se ot ma sin dara e a kas TEM URE RO es ie 12
Ray v. Atlantic Richfield Co., 435 US 434 (1959)..... 15
Rice v. Santa Fe Elevator Corp., 331 US 218
She ar ns Rody cohen eas nae 15
Sullivan v. United States, 395 US 169 (1969)........ 16
United Airlines v. Porterfield, 276 NE2d 620 (1971),
app dsmd 401 US 917 (1972)............... 22
Page
Werner Machine Co. v. Director of Taxation, 350 US
a ea gy ce We -s wig doco 5 8 pat 12
Western Livestock v. Bureau of Revenue, 303 US 250
a ea a TURAGA Ee og te a ae ee 12
UNITED STATES STATUTES
Airport and Aviation Improvement Act of 1982,
Pub L No 97-248, 96 Stat 701, Tax Equity and
Fiscal Responsibility Act of 1982............ 2
Federal Aviation Act, § 1113 (49 USC, § 1513)...... 7
Federal Aviation Act, § 1113(a).............. 10, 15, 16
Federal Aviation Act, § 1113(b).............. 9, 10, 15
Soldiers’ and Sailors’ Civil Relief Act, §514........ 16
Ee iis sign Sb oo Koka eae £46 helene 15
area oh vans bs voted Ckweian os 12, 24
Se SR al ae a ae ER 2,7
NEW YORK STATE STATUTES
New York Tax Law, § 184, subd 1................ 3
ee ai barks Mae Cakes Mewes wel Kee 7
vi.
Page
MISCELLANEOUS
71 Am Jur 2d, State and Local Taxation, §19....... 19
Arizona Revised Statutes, § 42-1039............55.
Annotated Code of Maryland, Art 81, §§ 129, 130... 10
ge Me 2 > | eee 10
Parnell, Constitutional Considerations of Federal
Control Over the Sovereign Taxing Authority
of the States, 28 Cath UL Rev 227 (1979)..... 18
H Rep 157, 93rd Cong, Ist Sess 2-3, 10(1973)....... 18
H Rep 1279, 92nd Cong., 2d Sess 2, 4(1972)........ 18
tie eo a Sa a 17, 21
eae chp ay boar téewe es ee e.s 21
ein a nn eee 17, 21
SE AOE CRC th Pd ar a ee ea 17, 21
PTC ED, oases ccccesvveses 24
S. Rep. 12, 93rd Cong. | sess. (1973)........... 18,19
S. Rep. 1005, 92nd Cong., 2d sess. 20-25 (1972)...... 18
Vii.
Page
Tribe, Constitutional Law, p 365.........0000005. 1]
59 US Code Cong & Admin News, pp 2773-
RMR lest adts Vikan do's wes be node! oe 19, 25
Pe I IE SS ow ode Viewed Cd bn ecsoue bvdeee 17
118/Cong Rec 22599 (June 27, 1972)... .ccccvccees 18
118 Cong Rec 27815 (Aug 10, 1972)...........055. 18
ASO ee re ee 18
Se ES oce cb daassebesdevessae 18
SPN OE, o cu ccccdacs evs baecewssecen 18
136 Come Rec 20153 (Ame 15, 1972)... cccccccccccs 18
535 Come Rec 35116 Cct 11, 1972)... we cect ccnes 17
118 Cong Rec 35862 (October 13, 1972)............ 17
rains scab sae x06 > tala Gi Be 17
199 Come Bec Zid (Jan 4, 1973)... 2. cccsctcccces 18
119 Cong Rec 3928 (Feb 8, 1973)...........ceeeees 18
119 Cong Rec 13898 (May 2, 1973)...........00 ee. 18
rE RE WEN che ue ew ewes cnenaee 18
CL vac ei peavoeet sekhekes 600s 18
Se Ee sccacckvaevebsspesuspeues 18
No.
IN THE
SUPREME COURT OF THE UNITED STATES
OCTOBER TERM, 1983.
NEW YORK STATE DEPARTMENT OF TAXATION AND
FINANCE, NEW YORK STATE TAX COMMISSION,
RODERICK A. CHU,* Commissioner of Taxation and
Finance, FRANCIS R. KOENIG, Commissioner of the New
York State Tax Commission, and MARK FRIEDLANDER,
Commissioner of the New York State Tax Commission,
Petitioners,
against
AIR TRANSPORT ASSOCIATION OF AMERICA,,
Respondent.
Petition for a Writ of Certiorari to the New York State
Court of Appeals.
The petitioners respectfully pray that a writ of certiorari
issue to review the judgment and opinion of the New York
State Court of Appeals entered in this action on June 28,
1983. In addition, we request the case be argued together
*Roderick A. Chu succeeded James A. Tully, Jr., as Commissioner
of Taxation and Finance.
2
with Aloha Airlines, Inc. v. Director of Taxation, State of
Hawaii (No. 82-585) and Hawaiian Airlines, Inc. v. Direc-
tor of Taxation of the State of Hawaii (No. 82-586).
Opinions Below.
The opinion of the Court of Appeals, not yet reported,
appears in the Appendix hereto at p Al. The opinion of
the New York Supreme Court, Appellate Division, Third
Department reported at 91 AD2d150, 458 N.Y.S.2d 602,
and the opinions of the New York Supreme Court in
Albany County, which are not reported, also appear in the
Appendix hereto at pp A6-Al1; Al6-A22.
Jurisdiction,
The judgment of the New York State Court of Appeals
was entered on June 28, 1983. This petition for certiorari
is filed within 90 days from that date. This Court’s
jurisdiction is invoked under 28 USC § 1257(3).
Statutory Provisions Involved.
49 USC §1513, as amended by section 532 of the Air-
port and Airway Improvement Act of 1982,* (Pub L No.
97-248, 96 Stat 701) provides in pertinent part:
**(a) No State * * * shall levy or collect a tax, fee,
head charge, or other charge, directly or indirectly,
on persons traveling in air commerce or on the car-
riage of persons traveling in air commerce or on the
sale of air transportation or on the gross receipts
derived therefrom ***.
*This Act is Title V of the Tax Equity and Fiscal Responsibility
Act of 1982.
3
‘*(b) Nothing in this section shall prohibit a State
* * * from the levy or collection of taxes other than
those enumerated in subsection (a) of this section,
including property taxes, net income taxes, fran-
chise taxes, and sales or use taxes on the sale of
goods or services * * *.’’
Section 184 of the New York State Tax Law, as
amended by chapter 486 of the New York Laws of 1981
provides in pertinent part:
**$ 184. Additional franchise tax on transporta-
tion and transmission corporations and associa-
tions.
‘*l, Every corporation, joint-stock company or
association formed for or principally engaged in
the conduct of aviation, surface railroad, whether
Or not operated by steam, subway railroad,
elevated railroad, canal, steamboat, ferry (except a
ferry company operating between any of the
boroughs of the city of New York under a lease
granted by the city), express, navigation, pipe line,
transfer, baggage express, omnibus, trucking, taxi-
cab, telegraph, telephone, palace car or sleeping car
business, or formed for or principally engaged in
the conduct of two or more of such businesses and
every Other corporation, joint-stock company or
association formed for or principally engaged in
the conduct of a transportation or transmission
business not liable to taxation under section one
hundred eighty-six of this chapter, for the privilege
of exercising its corporate franchise, or of doing
business, or of employing capital, or of owning or
leasing property in this state in a corporate or
4
organized capacity or maintaining an office in this
state, shall pay a franchise tax which shall be equal
to three-quarters of one per centum upon its gross
earnings from all sources within this state;
‘*4, Allocation of gross earnings from transpor-
tation and transmission services. —(a) Generally. A
transportation or transmission corporation shall
determine its gross earnings from transportation
and transmission services within this state (except
as otherwise provided for in this subdivision) by
multiplying its gross earnings from transportation
and transmission within and without the state by a
fraction, the numerator of which is the taxpayer's
mileage within this state and the denominator of
which is the taxpayer’s mileage within and without
the state during the period covered by the report or
reports required by this chapter.
‘(b) Aviation corporations. An aviation cor-
poration shall determine its gross earnings from
transportation services within this state by
multiplying its gross earnings from transportation
services within and without this state by the
arithmetical average of three ratios based on ar-
rivals and departures, revenue tons handled and
Originating revenues during the period covered by
the report or reports required by this chapter:
‘(i) the ratio which the aircraft arrivals and
departures within this state by any such corpora-
tion during the preceding calendar year bear to the
total aircraft arrivals and departures within and
5
without this state during the same period; pro-
vided, however, arrivals and departures solely for
maintenance or repair, refueling (where no
debarkation or embarkation of traffic occurs), ar-
rivals and departures of ferry and personnel train-
ing flights or arrivals and departures in the event of
emergency situations shall not be included in such
arrival and departure ratio; provided, further, the
state tax commission may also exempt from such
ratio aircraft arrivals and departures of all non-
revenue flights including flights involving the
transportation of officers or employees receiving
air transportation to perform maintenance or
repair services or where such officers or employees
are transported in conjunction with an emergency
situation or the investigation of an air disaster
(other than on a scheduled flight); provided,
however, that arrivals and departures of flights
transporting officers and employees receiving air
transportation for purposes other than specified
above (without regard to remuneration) shall be in-
cluded in computing such arrival and departure
ratio;
**(ii) the ratio which the revenue tons handled by
such corporation at airports within the state during
the preceding calendar year bears to the total
revenue tons handled by it at airports within and
without this state during the same period; and
‘iii) the ratio which such corporation’s
Originating revenue within this state for the
preceding calendar year bears to its total
originating revenue within and without this state
for the same period. As used in this section the term
6
‘aircraft arrivals and departures’ means the number
of landings and takeoffs of the aircraft of an avia-
tion corporation, and the number of air pickups
and deliveries by the aircraft of such corporation;
the term ‘originating revenue’ means revenue to
any such corporation from the transportation of
revenue passengers and revenue property first
received by such corporation either as originating
or connecting traffic at airports and the term
‘revenue tons handled’ by any such corporation at
an airport means the weight in tons, of revenue
passengers (at two hundred pounds per passenger)
and revenue cargo first received either as
Originating or connecting traffic or finally
discharged by such corporation at such airport.
- = =
‘*(e) All other gross earnings, if any, shall be
allocated to this state in the manner prescribed by
rules and regulations promulgated by the tax com-
mission.
‘*(f) With respect to other types of transportation
and transmission corporations or where the tax
commission decides that with respect to a certain
corporation the method prescribed above does not
fairly and equitably reflect gross earnings from all
sources within this state, the tax commission shall
prescribe methods of allocation or apportionment
which fairly and equitably reflect gross earnings
from all sources within this state. Also, the tax
commission may, in order to properly reflect gross
earnings, determine the report period in which any
item of gross earnings shall be included without
-
regard to the method of accounting employed by a
corporation taxable hereunder.’’
Statement of the Case.
Since 1935 the provisions of section 184 of the Tax Law
have imposed a franchise tax measured by gross earnings
on transportation and transmission corporations, in-
cluding those principally engaged in aviation in New York.
The tax originally excluded earnings derived from business
of an interstate character. By chapter 486 of the Laws of
1981, the Legislature amended the section 184 franchise
tax to include in the measurement of the tax gross earnings
from all sources within New York. Gross earnings from
sources within New York are determined by an allocation
formula which was not challenged by the respondent. In
1973, Congress enacted section 1113 of the Federal Avia-
tion Act, 49 USC §1513 (‘‘section 1113’’) which prohibits
States from imposing some taxes, but not franchise taxes,
involving air commerce and air transportation.
The respondent, Air Transportation Association of
America, is an unincorporated association which includes
21 corporations principally engaged in aviation in various
States and New York and which are subject to the fran-
chise tax imposed by section 184 of the New York Tax
Law. Following the 1981 amendment of section 184 of the
New York Tax Law, the respondent challenged the New
York franchise tax in this proceeding as being violative of
the Supremacy Clause of the United States Constitution.
It asserts that section 184 violates the prohibitions of sec-
tion 1113 of the Federal Aviation Act, stating that: (a) it
imposes a tax On persons traveling in air commerce and on
the air carriers’ gross receipts derived therefrom; (b) it im-
poses a tax on the carriage of persons traveling in air com-
merce and on the air carriers’ gross receipts derived
8
therefrom; and (c) it imposes a tax on the sale of air
transportation and a tax on the air carriers’ gross receipts
derived therefrom.
On June 22, 1982, the New York Supreme Court in
Albany County on reconsideration vacated its judgment
dated May 1, 1982 and granted a judgment declaring:
‘*that Subdivision | of Section 184 of the New York
Tax Law, insofar as it imposes taxes on the gross
receipts of air carriers derived from air carriage
(other than on the gross receipts from freight serv-
ices performed entirely in New York State), is un-
consitutional by reason of Section 1113 of the
Federal Aviation Act, 49 U.S.C. § 1513, and the
Supremacy Clause of the United States Constitu-
tion.”’
The Appellate Division of the New York Supreme Court,
Third Department, by decision of January 20, 1983 and an
order dated January 27, 1983, affirmed the June 22, 1982
judgment. On June 28, 1983, the New York Court of Ap-
peals affirmed the order of the Appellate Division for the
reasons stated by Justice T. Paul Kane at the Appellate
Division (see pp A8-All of Appendix). The courts below
held that ‘‘the plain terms of section 1113 of the Federal
Aviation Act strike directly at the subject tax, and do not
allow for a construction which permits a tax either directly
or indirectly on gross receipts derived from air transporta-
tion’’ (Appendix, p A10).
9
Reasons for Granting the Writ.
I.
The decision below conflicts with the decision of the
Supreme Court of Hawaii in cases in which this Court has
noted probable jurisdiction,
The court below, in holding that New York's franchise tax
is preempted insofar as it applies to aviation corporations by
section 1113 of the Federal Aviation Act, is in direct conflict
with the decisions of the Hawaii Supreme Court in cases in
which this Court has noted probable jurisdiction. A/oha
Airlines, Inc, v. Director of Taxation, State of Hawaii, (No.
82-585) and Hawaiian Airlines, Inc, v. Director of Taxation
of the State of Hawaii (No, 82-586). Those cases, in which
New York has filed a brief aicus, are now awaiting argu-
ment, We request the Court to grant certiorari in this case
and combine the argument with that in the Hawaii cases,
The decision below is not only in direct conflict with the
cases arising from Hawaii, but it also brings an added
dimension, The New York tax is a longstanding franchise
tax on the privilege of doing business as a corporation. There
is no dispute that the tax is indeed a franchise tax. The
Hawaii tax has been treated as a property taa by the Hawaii
courts, although its characterization as such is being
challenged. Thus, this case clearly involves a tax specified in
section 1113(b) of the Federal Aviation Act.
Moreover, this case presents an important and recurring
issue, In addition to New York, Maryland imposes fran-
chise taxes measured by gross receipts from air commerce
which were in effect prior to the enactment of section
1113. Since 1920 Maryland has imposed a ‘‘franchise tax”’
10
measured by gross receipts on all utilities and transporta-
tion companies. (Md Ann Code Art 81, § 130; chapter
226, 1929 Md Laws 621; see Cumberland & P.R. Co. yv.
State, 92 Md 668, 48 A2d $03, $07 [1901] [tax is franchise
tax].) As far as we know, no airline has challenged the im-
position of this tax in Maryland. And, of course, the inter-
pretation of section 1113 of the Federal Aviation Act is of
importance to many other States as this Court is aware
from the amici briefs filed in the pending Hawaii cases.
The New York franchise tax, as well as the taxes of other
States measured by gross receipts on air commerce, repre-
sent a major revenue source,
State franchise, property and net income taxes
measured by gross receipts are not preempted by Section
1113 of the Federal Aviation Act.*
Simply reading subsections (a) and (b) of section 1113 of
the Federal Aviation Act demonstrates a superficial am-
biguity in the statute in that it permits States to levy prop-
erty, franchise and income taxes while barring direct or in-
direct taxes on the gross receipts. However, the statute was
not enacted in 1973 on a clean slate. It was written against
a background of decisional law and state tax statutes, a
background disregarded by the airlines and the Solicitor
General in his amicus curiae brief in Aloha Airlines, Inc,
v. Director of Taxation, State of Hawaii (No, 82-585) and
Hawaiian Airlines, Inc. v. Director of Taxation of the
State of Hawaii (No, 82-586), When the statute is ex-
amined in that historical context and its legislative history,
*Our reasons set forth here for believing that the court below
erred in its interpretation of section 1113 of the Federal Aviation Act
are essentially those discussed in our brief amicus in the cases arising
from Hawaii,
the congressional intent becomes clear. As we will show,
Congress did not intend to prohibit States from imposing
franchise taxes measured by gross receipts on airlines and
that conclusion is fully consistent with the statute's
language, properly construed.
A. It had been well-settled when section 1113 of the Aviation
Act was enacted in 1973 that including gross receipts as items that
could be used as a measure for franchise and property taxes did
not make them taxes on gross receipts,
At the time that section 1113 of the Federal Aviation
Act was enacted in 1973, it was well established that States
could use gross receipts as the measure of an otherwise
constitutional tax, even though a tax imposed directly or
indirectly on gross receipts might otherwise be invalid.
See, Tribe, Constitutional Law, p 36S.
Historically, franchise, as well as property, taxes based
on gross receipts have been viewed as taxes on a local
privilege or franchise or on property, the value of which is
measured by receipts. Thus, such property taxes have been
sustained, Great Northern Railway Co, v. Minnesota, 278
US $03 (1929). In Puliman v. Richardson, 261 US 330,
338, 339 (1923), the Court said;
‘*[A] State may elect and employ any appropriate
means of reaching its actual or full value as part of
a going concern,—such as treating the gross
receipts from its use in both intrastate and in-
terstate commerce as an index or measure of its
value,—and if the means do not involve any
discrimination against interstate commerce and the
tax amounts to no more than what would be
legitimate as an ordinary tax upon the property,
12
valued with reference to its use, the tax is not open
to attack as restraining or burdening such com-
merce,”’
Similarly, gross receipts or gross earnings have simply con-
stituted a ‘‘fair means of measuring a local privilege or
franchise’. Western Livestock v, Bureau of Revenue, 303
US 250, 256, 257 (1938); see, also, Railway Express
Agency v. Virginia, 358 US 434, (1959), The cases also
establish that a tax imposed on the privilege of exercising a
corporate franchise measured by gross earnings, income
or capital is neither a direct nor an indirect tax on gross
earnings, income or capital of a corporation. It follows
that a tax measured by gross income is not a direct or an
indirect tax on gross income,
A tax on gross receipts has long been viewed as distinct
from taxes measured by the gross earnings or receipts of a
corporation and is also not an indirect tax on gross
receipts included in the yardstick. See, e.g., Werner
Machine Co, v. Director of Taxation, 350 US 492 (1956;
American Bank & Trust Co. v. Dallas County, —. US
—.. 51 USLW $181 (decided July §, 1983), Werner in-
volved the validity of a New Jersey franchise tax measured
by a corporation's net worth, The taxpayer's net worth in-
cluded obligations of the Federal government which are
immune from state taxation under the provisions of 31
USC 742. The Federal statute provided at that time:
‘Except as otherwise provided by law, all stocks,
bonds, Treasury notes, and other obligations of the
United States, shall be exempt from taxation by or
under State or municipal or local authority."’
13
This Court pointed out that this rule embraced ‘‘indirect
taxation of such obligations through their inclusion in a
tax imposed on all property of a taxpayer.’’ But the Court
in holding the franchise tax valid, said (350 US at p 494):
‘*This Court has consistently upheld franchise
taxes measured by a yardstick which includes tax-
exempt income or property, even though a part of
the economic impact of the tax may be said to bear
indirectly upon such income or property. See, e.z.,
Society for Savings v. Coite, 6 Wall. 594; Provident
Institution v. Massachusetts, 6 Wall. 611;
Hamilton Co. v. Massachusetts, 6 Wall. 632;
Home Ins. Co. v. New York, supra; Educational
Films Corp. v. Ward, supra; Pacific Co. v.
Johnson, supra. We have only recently adhered to
this principle in another aspect of this field of taxa-
tion. See Society for Savings v. Bowers, supra, at
147-148. New Jersey Realty Title Ins. Co. v. Divi-
sion of Tax Appeals, 338 U. S. 665, on which ap-
pellant relies, is distinguishable, in that it did not
involve a franchise tax, but rather a tax whose legal
incidence this Court found to be upon the intangi-
ble assets of the corporation.
**Since as applied here this is a permissible tax on
the corporate franchise, the decision below must be
Affirmed.’
In People v. Home Insurance Company. 92 NY 328
(1883), affd 134 US 594 (1890), a franchise tax case, the
measurement of the tax included interest on United States
bonds and the amount invested in United States bonds was
upheld. The New York court stated the issue as follows
(id., at 338-339):
14
‘*It thus appears that the only question presented
for our consideration under this branch of the ap-
peal is whether the tax in question was in fact levied
upon the franchises of the defendant, which would
be undeniably lawful, or upon the property of the
corporation invested in the securities of the general
government, which would be unlawful. It is not
claimed that the law in terms assumes to authorize
the taxation of the exempted securities, but ir is
asserted that it effects this result indirectly, and,
therefore, amounts to the exercise of a prohibited
power.’’ (Emphasis supplied.)
In affirming the New York Court of Appeals, this Court
in Home Insurance Company vy. New York, 134 US $94,
600 (1890), said:
‘*By the term ‘corporate franchise or business,’
as here used, we understand is meant (not referring
to corporations sole, which are not usually created
for commercial business) the right or privilege
given by the State to two or more persons of being a
corporation, that is, of doing business in a cor-
porate capacity * * * The validity of the tax can in
no way be dependent upor the mode which the
State may deem fit to adopt in fixing the amount
for any year which it will exact for the franchise.
No constitutional objection lies in the way of a
legislative body prescribing any mode of measure-
ment to determine the amount it will charge for the
privileges it bestows * * *’’ (Emphasis supplied.)
15
B. The legislative history of section 1113 of the Federal Aviation Act
shows no intent to exclude States’ franchise or property taxes
using gross receipts as a measure from the taxes expressly per-
mitted under section 1113.
Contrary to the decisions below, there is absolutely no
basis for a conclusion that franchise, property and net in-
come taxes were not within the taxes expressly protected
by section 1113(b) of the Federal Aviation Act. As dis-
cussed above, it had long been held that using gross
receipts as a measure for taxes did not mean such a tax was
a tax on gross receipts, either directly or indirectly.
Nothing in the Aviation Act’s legislative history shows
that Congress intended to ignore such interpretations. Ac-
cordingly, the restriction on direct or indirect taxes on
gross receipts in section 1113(a) is simply not applicable to
franchise, property or net income taxes.
1, An intent to preempt state taxes must be clearly
shown by Congress.
When Congress speaks to proscribe the incidents on
which state taxes may be imposed, it does so clearly and
precisely. See, for example, the discussion in the annota-
tion of 12 USCA 548, state taxation of national banks
prior to 1973. It has long been recognized that ‘‘historic
* * * nowers of the States [are] not to be superseded’’ by
Federal law, ‘‘unless that was the clear and manifest pur-
pose of Congress’’. Rice v. Santa Fee Elevator Corp., 331
US 218, 230 (1974); accord, e.g., Ray v. Atlantic Richfield
Co., 435 US 151, 157 (1978).
The complete absence of any reference in the Congres-
sional history of section 1113 of the Federal Aviation Act,
as we discuss below, to broad-based corporate franchise,
16
property or net income, such as the tax which was then be-
ing imposed by the State of New York, supports the view
that Congress had not the remotest intent of including
them within the state tax proscription Congress set up in
subsection (a) of the Federal Act. To the contrary, Con-
gress, in subsection (b), carefully preserved state fran-
chise, property and income taxes. Congress, in the past,
has spoken with clarity when it desired to proscribe a par-
ticular type of taxation. These are the very considerations
discussed by this Court in Sullivan v. United States, 395
US 169 (1969). There the issue before the Court was
whether Connecticut’s sales and compensating use taxes
were prohibited on sales to or uses by servicemen as a
result of section 514 of the Soldiers’ and Sailors’ Civil
Relief Act. This Court held that Congress never intended
to bar state sales and use taxes (395 US at 178). Here, if
Congress wished to prohibit taxes other than those ‘‘on
the gross receipts’’ from the sale of air transportation, it
could have said so clearly as it has done with other pro-
hibitions of state taxes. Instead, it expressly protected
property taxes, net income taxes, franchise taxes and sales
Or use taxes on the sale of goods or services without
restriction.
It is clear, we submit, that Congress did not intend to
preempt state taxes measured by gross receipts by subsec-
tion (a) of section 1113 of the Federal Aviation Act. In ad-
dition, the entire statute demonstrates that Congress reaf-
firmed the rights of States to have airlines pay for the
privileges, protection and services which they and their
property received from the states.
17
2. The legislative history of section 1113 of the Federal
Aviation Act shows no intent to preempt States from
applying broad-based franchise and property taxes
to airlines.
Section 1113 of the Federal Aviation Act was enacted in
response to the Evansville- Vanderburgh Airport case, 405
US 707, 721, 722 (1972). In that case, this Court upheld
the validity of a city-imposed ‘‘use and service charge’’ of
$1.00 on each enplaning commercial passenger at Evans-
ville, Indiana, which was collected from the passenger,
and a New Hampshire state law levying a $1.00 charge on
the airline for each passenger on large commercial airlines,
and 50 cents for each passenger on smaller planes. The
Court ruled that States and cities could constitutionally
impose a reasonable charge on interstate and intrastate air
passengers where no Federal statute or specific congressional
action evidenced a purpose to preempt state power.
The statements by the prime sponsors* when the bills
were introduced, statements in the committee reports, and
statements by managers and others on the floor of both
*Though the Act was not enacted until 1973, an earlier version
was passed by both Houses of Congress in 1972, but was pocket
vetoed by President Nixon. See, 118 Cong Rec 35862 (Oct. 13, 1972)
(Senate passage of Conference Report); id. at 35116 (Oct. 11, 1972)
(House passage); id. at 37203 (announcement of pocket veto).
Senator Magnuson was one of the two prime sponsors in the
Senate, see id. at 22598. Representative Adams sponsored legislation
in the House and conducted most of the hearings on the various pro-
posals. See, hearings on HR 2337, 14847, and 10326 (and identical
bills) before the Subcommittee on Transportation and Aeronautics of
the House Comm. on Interstate and Foreign Commerce, 92nd Cong,
Ist Sess (1972).
The relevant legislative history of the Act spans two sessions of
Congress.
18
houses confirmed that the prime impetus for the pro-
hibitory language was to ban the proliferating head taxes
and similar taxes directed against airlines.* This is further
borne out by the 1982 amendment to the law, section 532
of the Airport and Aviation Improvement Act of 1982. At
the same time, Congress intended to reconfirm to the
States major sources of revenue.**
*The Senate Commerce Committee stated in its report on the bill:
**S.38 contains a prohibition on state taxation of
Passengers or on the carriage of passengers in air transpor-
tation. This prohibition will potentially deprive airport
operators from a new and attractive source of revenue with
which to support their airports—namely the passenger
head tax.”’
S. Rep. 12, 93rd Cong., Ist sess. 11-12 (1973).
See, e.g., H. Rep. 1279, 92nd Cong., 2d sess. 2, 4 (1972); S. Rep.
100$, 92nd Cong., 2d sess. 20-25 (1972); S. Rep. 12, 93rd Cong., Ist
sess. 4, 12, 17 (1973), H. Rep. 157, 93rd Cong., Ist sess. 2-3, 10
(1973); 118 Cong. Rec. 22599 (June 27, 1972) (remarks of Sen. Can-
non), id. at 27815 (Aug. !0, 1972) (remarks of Sen. Cannon), id. at
27816 (remarks of Sen. Cotton), id. at 27826-27 (remarks of Sen.
Hartke), id. at 27828 (remarks of Sen. Spong), id. at 29153 (Aug. 15,
1972) (remarks of Rep. Staggers); 119 Cong. Rec. 214 (Jan. 4, 1973)
(remarks of Sen. Cannon), id., at 3928 (Feb. 8, 1973) (remarks of
Rep. Adams), id. at 13898 (May 2, 1973) (remarks of Rep. Staggers),
id. at 13899 (remarks of Rep. Kuykendell), id. at 13900 (remarks 0!
Rep. Jarman), id. at 13905 (remarks of Rep. Adams).
**The senior staff counsel for the Ways and Means Oversight Sub-
committee of the United States House of Representatives wrote:
“The approach taken by the Airport Development
Acceleration Act broadly restricts states from imposing
taxes or ‘other charges’ with respect to air commerce, but
exempts from this broad restriction certain types of taxes
such as property, income, franchise, and sales or use taxes.
The exempted taxes are, of course, the major revenue
sources for states and, accordingly, the Act effectively
balances national interests and those of the states’ revenue
needs with respect to air commerce.”’
PARNELL, Constitutional Considerations of Federal Control Over
the Sovereign Taxing Authority of the States, 28 Cath UL Rev 227,
246 (1979).
19
The clearest congressional statement of the intent and
scope of section 1113 of the Federal Aviation Act is found
in Senate Report 12, 93rd Congress. In its discussion of
the state tax prohibition, the Report states:
‘(The bill prohibits] a new, inequitable and
potentially chaotic burden of taxation on the nearly
200 million persons who use air transportation each
year. The legislation prohibits the levying of state
or local head taxes, fees or charges either on pas-
sengers or on the carriage of such passengers in in-
terstate commerce. The provision is in response to a
situation which has been brought about by an April
19, 1972 Supreme Court decision in Evansville-
Vanderburg Airport Authority District, et al. v.
Delta Airlines, Inc., et al., upholding passenger
head taxes enacted by New Hampshire and by
Evansville, Indiana, for ‘aviation-related
purposes’. While this decision has invited state and
local governments to enact head taxes or fees on air
travelers, the Court decision does not provide ad-
quate [sic] safeguards to prevent undue or
discriminatory taxation.’’ (US Code Congressional
and Admin News, 93rd Cong, Ist Session, Vol 1, p
1446.)
Throughout the report, the type of tax primarily
discussed is a passenger head tax, whether paid directly by
the passenger or absorbed by the carrier.* The tax is
described in the report as a flat rate on passengers,
regardless of the distance traveled by the passenger.
*Taxes paid primarily by persons who can shift the burden some-
one else or who are under no legal compulsion to pay them are con-
sidered indirect taxes. Taxes on the ultimate consumer whose payment
cannot be avoided are direct taxes. See 71 Am Jur 2d, State and Local
Taxation, § 19.
20
In regard to subsection (b) of section 1113, which makes
clear other state taxes are not prohibited, the Conference
Report states:
‘*The Senate bill also provided that the prohibi-
tion would not extend to the levy or collection of
other taxes, such as property taxes, net income
taxes, franchise taxes, and sales taxes, and sales or
use taxes, nor to the levy or collection of other
charges such as reasonable rental charges, landing
fees, and other services charges from aircraft
operators for the use of airport facilities.’’ (Con-
ference Report No. 930225, found in US Code
Congressional and Admin News, 93rd Cong, Ist
Session Vol 1, p 1458.) (Emphasis supplied.)
If Congress had intended to prohibit franchise taxes
which are measured by gross receipts from the sale of air
transportation that part of subsection (b) permitting fran-
chise taxes would be a mere surplusage and meaningless.
There is no language other than that contained in section
1113(a) which conceivably could be construed as pre-
empting States from imposing franchise taxes measured by
gross receipts. That being so, section 1113(b) would have
no meaning if it were construed, as the courts below and
the airlines would have it, as protecting franchise taxes not
measured in some way by gross receipts. It is clear that
even a franchise tax measured by net income would liter-
ally be a direct or indirect tax on gross receipts. Indeed,
section 1113(b) treats income taxes and franchise taxes the
same way in recognition that neither type of tax was in-
tended to be preempted.
The legislative history of the Federal Act found in the
Subcommittee Hearings and Reports is replete with discus-
sions of the limited scope of the state tax prohibition in-
tended by Congress (Subcommittee on Transportation and
21
Aeronautics of the Committee on Interstate and Foreign
Commerce, House of Representatives, Ninety-Second
Congress, 2nd Session, on HR 2337, HR 14847 and HR
10326, Serial No. 92-74 [hereinafter referred to as ‘‘Sub-
committee hearings, Ninety-Second Congress’’] and
Ninety-Third Congress, Ist Session, on HR 4082, er al.,
Serial No. 93-6 [hereinafter referred to as ‘‘Subcommittee
hearings, Ninety-Third Congress’’]).
In the hearings there is limited discussion of a unique
Ohio Airlines excise tax. The concern of the Subcommittee
and of the industry witnesses was the proliferation of
discriminatory, selective state taxes in the form of the
Evansville type of taxation or the Ohio Airlines excise tax.
The Ohio excise tax on airlines read as follows:
**Section 5745.02. Tax imposed on transporting
by air.—For the purpose of providing revenue for
the use of the general revenue fund of the state * * *
an excise tax is hereby imposed upon the privilege
of engaging in the business of transporting persons,
or property by air within this state.’’ (Emphasis
supplied.)
The measure of the Ohio tax was four (4) percent of the
receipts derived from or attributable to business carried on
within Ohio.
Theodore Koetz, then Ohio Deputy Tax Commissioner,
testified before the Congressional subcommittee on con-
sidering the Federal Aviation Act stated:
‘*‘We have an airlines excise tax in Ohio which is
unique, and we are probably the only state in the 50
22
states that has such a tax. (p. 246 of Subcommittee
Hearings, Ninety-Third Congress).
‘‘The Ohio tax structure may be unique in refer-
ence to airlines. Most businesses in Ohio, be they
domestic or foreign, intrastate or multistate, are
amenable to a franchise tax and a personal prop-
erty tax * * * However, the airlines are fully subject
only to the corporate franchise tax. [And a less
burdensome property tax and the airlines excise
tax.]’’ (Emphasis supplied, p 247.)
The Ohio Supreme Court when examining the Ohio
airlines excise tax had clearly distinguished the Ohio fran-
chise tax (which as applied to airlines may include receipts
from the sale of air transportation in the calculation of its
base) from the Ohio Airlines excess tax as follows in
United Airlines v. Portersfield, 276 NE2d 629, 635 (1971),
app dsmd 401 US 917 (1972):
**R.C. 5733.01, Ohio’s corporation franchise tax
Statute, provides, in pertinent part:
‘* * * the tax * * * for foreign corporations shall be
[1] for the privilege of doing business in this state,
[2] owning or using a part or all of its capital or
property in this state, or [3] holding a certificate of
compliance with the laws of this state authorizing it
to do business in this state during the calendar year
in which such fee is payable.’
‘*United is subject to the tax provided for by that
Statute, measured, in part, by the amount of the
receipts from airline passenger tickets issued in
Ohio for both intrastate and interstate flights. See
American Airlines v. Porterfield (1970), 21 Ohio
St. 2d 272.
23
‘‘We mention the franchise tax to clearly reveal
that we are mindful that the tax in issue in the in-
stant case is not another franchise tax on the right
to do business in Ohio in the corporate form of
organization, and that the airline tax is not levied in
lieu of other state taxes.’’ (Emphasis supplied.)
Mr. Tipton, the Chairman of the Air Transporation
Association of America, Inc., described the Ohio tax in his
testimony at the Transportation and Aeronautics Subcom-
mittee Hearings on section 1113 (Ninety-third Congress,
First Session) at page 98, as follows;
‘Particularly dangerous, burdensome, and dis-
criminatory in our judgment is one state's imposi-
tion of a tax on the gross receipts derived from the
sale of interstate air transportation—a so-called
airlines excise tax. This tax is levied at a rate of 4
percent on airline receipts in that state ‘for the
privilege of engaging in the business of transporting
persons or property by air.’ ”’
He did not voice any objection to taxes measured by gross
receipts. The state tax prohibition of subsection [a] initial-
ly considered by the Ninety-Second Congress contained
the prohibition of a state or local tax on: [1] ‘‘persons
traveling in air commerce’’ and [2] ‘‘the carriage of per-
sons in air transportation’’ (HR 14847, p 2, lines 18-22;
HR 2337; p 1, lines 6-9). The legislative history indicates
that the language ‘‘on the sale of air transportation or on
the gross receipts derived therefrom’’ added to the final
text of section 1113 was directed specifically at Ohio’s
airlines excise tax. With the addition of this language,
24
subsection (b) was added to assure and reaffirm state tax-
ing power. It -ircumscribed the taxes prohibited by subsec-
tion (a), specifically describing certain taxes, including
franchise taxes, that were not preempted.*
Interestingly, one of the sponsors of Senate Bill 3755
92nd Cong, which included section 1113 of the Federal
Aviation Act as enacted, was Senator Magnuson from the
State of Washington. Representative Adams, also from
the State of Washington, sponsored the legislation in the
House. It is doubtful that they intended to preempt
Washington's nondiscriminatory tax on airlines and other
utilities and carriers.**
It is also significant that Congress has been mindful of
the long-established difference between taxes and their
measurement. Thus, when it amended 31 USC § 742 in
1959, which prohibits state taxes on Federal obligations, it
not only preserved non-discriminatory franchise taxes but,
unlike the present statute, also overcame the measurement
distinction for certain other taxes by extending the exemp-
tion to situations where certain Federal obligations were
used in the computation of the tax. American Bank &
*In November, 1973, the State of Ohio, sua sponte, in an opinion
by its Attorney General, declared that Ohio's airline excise tax ‘‘must
be discontinued because it conflicts with section 1113 of the Federal!
Aviation Act.’’ The opinion is not expansive and did not elaborate on
the reasoning which led to the legal conclusion, It is, however, consis-
tent with both the language and history of the Aviation Act, as we
have discussed,
**The Committee on Transportation and Aeronautics included
Congressman Bertram L. Podell of New York, The Committee on In-
terstate and Foreign Commerce included Congressmen Bertram L.
Podell, James F. Hastings and Norman F. Lent of New York and
Goodloe E, Byron of Maryland, These Committees held the hearings
on section 1113 of the Federal Aviation Act,
25
Trust Co. v. Dallas County, supra, _. US —_., $1
USLW $181, $183-$184 (1983), That section now pro-
vides:
“Except as otherwise provided by law, all stocks,
bonds, Treasury notes, and other obligations of the
United States, shall be exempt from taxation by or
under State or municipal or local authority. This
exemption extends to every form of taxation that
would require that either the obligations or the in-
terest thereon, or both, be considered, directly or
indirectly, in the computation of the tax, except
nondiscriminatory franchise or other nonproperty
taxes in lieu thereof imposed on corporations and
except estate taxes or inheritance taxes.’’ (Em-
phasis supplied.)
The purpose behind that amendment is stated in the
Bill's legislative history, $9 US Code Cong & Admin
News, pp 2773-2774, as follows:
‘“D, CLARIFYING EXEMPTION OF U.S.
OBLIGATIONS FROM STATE OR LOCAL
TAXATION
‘Present law provides that obligations of the
United States are to be exempt from taxation by or
under State or local authority. The Supreme Court
has held that this includes the exemption of interest
on U. S. obligations from taxation by or under
State or local authority. It has been pointed out to
your committee, however, that one State has taken
the position that the statute as now worded does
not prohibit a State from including interest on
Federal obligations in computing ‘gross income’
upon which taxable net income is determined. The
26
bill (sec, 108) makes it clear that the exemption for
Federal obligations extends to every form of taxa-
tion that would require either the obligation, or the
interest on it, or both to be considered directly or
indirectly in the computation of the tax, excepr
nondiscriminatory franchise taxes (or other non-
discriminatory nonproperty taxes imposed in lieu
thereof) on corporations and except estate or in-
heritance taxes.’’ (Emphasis supplied.)
The present statute again preserves franchise, property
and net income taxes. We submit that Congress expressly
intended to exempt these three types of taxes, even though
gross receipts are used as a measure.
27
CONCLUSION.
For these reasons, a writ of certiorari should be issued
to review the judgment and opinion of the Court of Ap-
peals of the State of New York and this case should be argued
with Aloha Airlines, Inc. v. Director of Taxation, State of
Hawaii (No, 82-585) and Hawaiian Airlines, Inc. v. Direc-
tor of Taxation of the State of Hawaii (No, 82-586).
Dated: Albany, New York
July 25, 1983
Respectfully submitted,
ROBERT ABRAMS
Attorney General of the
State of New York
Attorney for Petitioners
PETER H. SCHIFF
Acting Attorney in Chief
Appeals and Opinions
FRANCIS V. DoW
Assistant Attorney General
of Counsel
APPENDIX
Al
APPENDIX.
Decision of the Court of Appeals, Dated June 28, 1983.
No. 326
AIR TRANSPORT ASSOCIATION OF AMERICA,
Respondent,
Vv.
NEW YORK STATE DEPARTMENT OF TAXATION AND
FINANCE, ef al.,
Appellants.
Order affirmed, with costs, for reasons stated in the
opinion by Justice T. Paul Kane at the Appellate Division
(91 AD 2d 169).
Chief Judge Cooke and Judges Jasen, Jones, Wachtler,
Meyer and Simons concur.
A2
Remittitur.
COURT OF APPEALS,
STATE OF NEW YORK.
The Honorable Lawrence H. Cooke, Chief Judge,
Presiding.
No. 326
AIR TRANSPORT ASSOCIATION OF AMERICA,
Respondent,
Vv.
NEW YORK STATE DEPARTMENT OF TAXATION AND
FINANCE, ef al.,
Appellants.
The appellants in the above entitled appeal appeared by
Hon. Robert Abrams, Attorney General; the respondent
appeared by Debevoise & Plimpton, Esqs.
The Court, after due deliberation, orders and adjudges
that the order is affirmed, with costs, for reasons stated in
the opinion by Justice T. Paul Kane at the Appellate Divi-
sion (91 AD2d 169). Chief Judge Cooke and Judges Jasen,
Jones, Wachtler, Meyer and Simons concur.
A 3
The Court further orders that the papers required to be
filed and this record of the proceedings in this Court be
remitted to the Supreme Court, Albany County, there to
be proceeded upon according to law.
I certify that the preceding contains a correct record of
the proceedings in this appeal in the Court of Appeals and
that the papers required to be filed are attached.
Court of Appeals, Clerk’s Office, Albany, June 28,
1983.
JOSEPH W. BELLACOSA
Clerk of the Court
A4
Order, Dated January 27, 1983.
At a Term of the Appellate Division of the
Supreme Court of the State of New York,
held in and for the Third Judicial Depart-
ment, at the Justice Building in the City of
Albany, New York, commencing on the
13th day of December, 1982.
Present:
Hon. T. Pau! Kane,
Justice Presiding,
Hon. Ann T. Mikoll,
Hon. Paul J. Yesawich, Jr.,
Hon. Leonard A. Weiss,
Hon. Howard A. Levine,
Associate Justices.
SUPREME COURT OF THE STATE OF NEW YORK
APPELLATE DIVISION—THIRD DEPARTMENT
AIR TRANSPORT ASSOCIATION OF AMERICA,
Plaintiff-Respondent,
Vv.
NEW YORK STATE DEPARTMENT OF TAXATION AND FI-
NANCE, NEW YORK STATE TAX COMMISSION, JAMES
H. TULLY, Jr., Commissioner of Taxation and
Finance, FRANCIS R. KOENIG, Commissioner of the
A5
New York State Tax Commission, and MARK
FRIEDLANDER, Commissioner of the New York State
Tax Commission,
Defendants-A ppellants.
#43719
Albany County Clerk’s Index No. 11450-81
Appellants New York State Department of Taxation
and Finance, New York State Tax Commission, James H.
Tully, Jr., Commissioner of Taxation and Finance, Fran-
cis R. Koenig, Commissioner of the New York State Tax
Commission, and Mark Friedlander, Commissioner of the
New York State Tax Commission, having appealed from a
judgment of Albany County Supreme Court, Special
Term, entered on the 22nd day of June, 1982, in the office
of the Clerk of the County of Albany, and said appeal
having been presented during the above-stated term of this
Court, and having been argued by Francis V. Dow, Esq.,
of counsel for appellants, and by Andrew C. Hartzell, Jr.,
Esq., of counsel for respondent, and, after due delibera-
tion, the Court having rendered a decision on the 20th day
of January, 1983, it is hereby
ORDERED that the judgment appealed from be af-
firmed, without costs.
Dated and Entered: January 27, 1983.
JOHN J. O’BRIEN
Clerk
A True Copy
JOHN J. O’BRIEN
Clerk
A6
Opinion of the Appellate Division, Third Department,
Dated January 20, 1983.
January 20, 1983 43719
AIR TRANSPORT ASSOCIATION OF AMERICA,
Respondent,
Vv.
NEW YORK STATE DEPARTMENT OF TAXATION AND
FINANCE, ef al.,
Appellants.
Judgment affirmed, without costs.
Opinion per Kane, J. P.
*Mikoll, Yesawich, Jr., Weiss and Levine, JJ., concur.
A7
Opinion of the Appellate Division, Third Department.
STATE OF NEW YORK, SUPREME COURT,
APPELLATE DIVISION—THIRD DEPARTMENT.
e
AIR TRANSPORT ASSOCIATION OF AMERICA,
Respondent,
against
NEW YORK STATE DEPARTMENT OF TAXATION AND
FINANCE et al.,
Appellants.
#43719
e
Argued, December 14, 1982.
Before:
Hon. T. Paul Kane,
Justice Presiding,
Hon. Ann T. Mikoll,
Hon. Paul J. Yesawich, Jr.,
Hon. Leonard A. Weiss,
Hon. Howard A. Levine,
Associate Justices.
A 8
Appeal from a judgment of the Supreme Court at Spe-
cial Term (DeForest C. Pitt, J.), entered June 22, 1982 in
Albany County, which, inter alia, granted plaintiff’s mo-
tion for reargument, and, upon reargument, declared sec-
tion 184 (subd. 1) of the New York State Tax Law to be
unconstitutional.
Robert Abrams, Attorney-General (Francis V. Dow of
counsel), for appellants, The Capitol, Albany, New York,
12224.
Debevoise & Plimpton (Andrew C. Hartzell of counsel),
for respondent, 299 Park Avenue, New York, New York
10171.
Opinion for Affirmance.
KANE, J. P.
Plaintiff is an unincorporated trade and service associa-
tion consisting of 31 air carriers, 21 of whom do business
in New York State. In this declaratory judgment action,
plaintiff contends that section 184 (subd. 1) of the New
York State Tax Law imposes a tax that is prohibited by
section 1113 of the Federal Aviation Act (U. S. Code, tit.
49, § 1513) and is, therefore, unconstitutional under the
supremacy clause (art. VI, cl. 2) of the United States Con-
stitution.
Section 1113 of the Federal Aviation Act provides, in
pertinent part, that:
AQ
(a) No State * * * shall levy or collect a tax, fee, head
charge, or other charge, directly or indirectly, on
persons traveling in air commerce or on the car-
riage of persons traveling in air commerce or on the
sale of air transportation or on the gross receipts
derived therefrom * * * (emphasis added).
(b) Nothing in this section shall prohibit a State * * *
from the levy or collection of taxes other than those
enumerated in subsection (a) of this section, in-
cluding property taxes, net income taxes, franchise
taxes, and sales or use taxes on the sale of goods or
services * * *.
Section 184 (subd. 1) of the Tax Law provides, inter
alia, that:
Every corporation * * * formed for or principally
engaged in the conduct of aviation * * * for the
privilege of exercising its corporate franchise, or of
doing business, or of employing capital, or of own-
ing or leasing property in this state in a corporate or
organized capacity, or maintaining an office in this
state, shall pay a franchise tax which shall be equal
to three-quarters of one per centum upon its gross
earnings from all sources within this state (em-
phasis added).
Special Term found that section 184 (subd. 1) of the Tax
Law, while called an ‘‘additional franchise tax’’, was inter
alia, ‘‘in fact a tax upon the gross receipts from sale of air
transport services’’ and that section 1113 of the Federal
Aviation Act forbids such a tax. This being the case,
Special Term declared section 184 (subd. 1) of the Tax
Law unconstitutional. This appeal ensued.
A 10
Defendants’ central argument is that the gross earnings
of section 184 (subd. 1) are not entirely composed of gross
receipts from the sale of air coverage, but have other com-
ponents. As such, defendants assert that the franchise tax
in question, which includes gross receipts in its measure-
ment, is permissible and, therefore, not in conflict with
section 1113 since subdivision (b) of that section explicitly
permits the levy of franchise taxes.
This argument must be rejected. In our opinion, the
plain terms of section 1113 of the Federal Aviation Act
strike directly at the subject tax, and do not allow for a
construction which permits a tax either directly or indirectly
on gross receipts derived from air transportation. More-
over, legislative history, evidenced by the various forms of
the bills and hearing testimony, supports our reading of
section 1113 of the Federal Aviation Act. In particular,
Congress refused to adopt a suggestion by the State of
Ohio to add language to subdivision (b) of section 1113
which would have permitted State taxation of fairly ap-
portioned air carrier gross receipts (see Hearings Before
the Subcommittee on Transportation and Aeronautics,
House Committee on Interstate and Foreign Commerce,
93rd Congress, First Session).
In November, 1973, the Ohio Attorney-General issued
an opinion declaring the Ohio excise tax discussed above
to be in conflict with section 1113, as that section ‘‘pro-
hibits both direct and indirect state taxation of the sale of
air transportation’’ (Ohio Attorney-General Opn. No.
73-117). We would also note that the Court of Appeals of
Arizona has held that a transaction privilege levy imposed
by Arizona on air carriage measured by gross receipts of
sales was impermissible as it conflicted with, and was thus
preempted by, section 1113 (State ex rel. Arizona Dept. of
Revenue v. Cochise Airlines, 626 P 2d 596 [Ariz.}).
—
All
Defendants argue that the New York franchise tax
challenged herein is distinguishable from both the Ohio
tax and Arizona tax. We, however, are unable to find any
meaningful distinction. The language of section 184 (subd.
1) also refers to ‘‘privilege’’, and defendants’ argument
that the measurement of the challenged tax by gross earn-
ings is distinguishable from a direct tax on gross receipts is
without substance. In this regard, the fact that section 184
(subd. 1) of the Tax Law imposes a tax on other categories
of income does not alter the fact that it imposes a tax upon
the gross receipts derived from air carriage.* Finally,
defendants’ contention that to construe the Federal statute
as prohibiting the use of gross receipts in determining
franchise taxes would render meaningless the explicit pro-
vision in section 1113 (sub. [b]) permitting the levy of fran-
chise taxes by States is specious, since the measurement for
the franchise tax could be structured in a different way
(but see Matter of Aloha Airlines, Inc., 647 P 2d 263
[Hawaii], U.S. S. Ct. app. pending).
We would, therefore, agree with Special Term that sec-
tion 184 (subd. 1) of the Tax Law is preempted by the sub-
ject Federal statute insofar as gross earnings are measured
by gross receipts from air carriage. Special Term’s judg-
ment must, therefore, be affirmed.
The judgment should be affirmed.
Plaintiff does not challenge the tax on other categories of in-
come.
A 12
Judgment of Pitt, J., Dated June 22, 1982.
At a Special Term, Part I, of the Supreme
Court of the State of New York, County of
Albany, held at the Albany County Court-
house, Albany, on the 3rd day of June,
1982.
Present:
Honorable DeForest C. Pitt, Justice.
AIR TRANSPORT ASSOCIATION OF AMERICA,
Plaintiff,
against
NEW YORK STATE DEPARTMENT OF TAXATION AND FI-
NANCE, NEW YORK STATE TAX COMMISSION, JAMES
H. TULLY, Jr., Commissioner of Taxation and
Finance, FRANCIS R. KOENIG, Commissioner of the
New York State Tax Commission, and MARK
FRIEDLANDER, Commissioner of the New York State
Tax Commission,
Defendants.
Index No. 11450-81
AI3
Plaintiff having moved the Court by notice of motion
dated February 12, 1982, for summary judgment pursuant
to Rule 3212 of the Civil Practice Law and Rules; plain-
tiff’s motion for summary judgment having come on to be
heard on March 26, 1982; the Court having rendered a
decision dated April 15, 1982, denying plaintiff’s motion
for summary judgment and granting summary judgment
in favor of defendants; the Court having entered a Judg-
ment dated May 1, 1982, granting summary judgment in
favor of defendants; plaintiff having moved this Court by
notice of motion dated May 14, 1982, for reconsideration
of the Court’s decision; plaintiff’s motion for reconsidera-
tion having come on to be heard on June 3, 1982; and this
Court having rendered a decision dated June 10, 1982,
granting plaintiff’s motion for reconsideration and its mo-
tion for summary judgment, a copy of which is annexed
hereto.
Now, upon the complaint dated December 2, 1981; the
answer dated December 30, 1981; plaintiff’s notice of mo-
tion for summary judgment dated February 12, 1982; the
Affidavit of Robert Glasser sworn to February 8, 1982;
plaintiff's memorandum in support of its motion for sum-
mary judgment dated February 12, 1982, and the appen-
dices annexed thereto; the Affidavit of Paul B. Coburn in
opposition to plaintiff's motion for summary judgment
sworn to March 12, 1982; defendants’ memorandum in
opposition to plaintiff's motion for summary judgment
dated March 12, 1982; plaintiff’s reply memorandum in
support of its motion for summary judgment dated March
25, 1982, and the appendix annexed thereto; the
arguments by counsel for the parties on March 26, 1982;
defendants’ memorandum dated April 8, 1982, and the ex-
hibits annexed thereto, responding to plaintiff’s reply
memorandum; plaintiff’s notice of motion for recon-
sideration dated May 14, 1982; plaintiff’s memorandum in
A 14
support of its motion for reconsideration dated May 14,
1982, and the appendices annexed thereto; defendants’ let-
ter in response to plaintiff's motion for reconsideration
dated June 1, 1982; and the arguments by counsel for the
parties on June 3, 1982; and after due deliberation
thereon; it is hereby
ORDERED that plaintiff’s motion for reconsideration is
granted; and it is
FURTHER ORDERED that the Court’s Judgment dated
May 1, 1982, is vacated; and it is
FURTHER ORDERED, ADJUDGED and DECREED that
plaintiff’s motion for summary judgment pursuant to
Rule 3212 of the Civil Practice Law and Rules is granted;
and it is
FURTHER ORDERED, ADJUDGED and DECREED that
Subdivision 1 of Section 184 of the New York Tax Law,
insofar as it imposes taxes on the gross receipts of air car-
riers derived from air carriage (other than on the gross
receipts from freight services performed entirely in New
York State), is unconstitutional by reason of Section 1113
of the Federal Aviation Act, 49 U.S.C. § 1513, and the
Supremacy Clause of the United States Constitution; and
it is
FURTHER ORDERED, ADJUDGED and DECREED that
defendants and all persons in active concert and participa-
tion with them are permanently enjoined from assessing,
determining, imposing or collecting from plaintiff's
members any tax pursuant to Subdivision 1 of Section 184
of the New York Tax Law on the gross receipts derived
from air carriage (other than on the gross receipts from
A 15
freight services performed entirely in New York State):
and it is
FURTHER ORDERED that plaintiff is entitled to recover
its costs herein incurred.
Dated: Albany, New York
June 22, 1982
Enter:
S/ DEFOREST C. PITT
JBC,
A 16
Memorandum Opinion of Pitt, J., Dated June 10, 1982.
STATE OF NEW YORK, SUPREME COURT,
COUNTY OF ALBANY.
AIR TRANSPORT ASSOCIATION OF AMERICA,
Plaintiff,
against
NEW YORK STATE DEPARTMENT OF TAXATION AND FI-
NANCE, NEW YORK STATE TAX COMMISSION, JAMES
H. TULLY, Jr., Commissioner of Taxation and
Finance, FRANCIS R. KOENIG, Commissioner of the
New York State Tax Commission, and MARK
FRIEDLANDER, Commissioner of the New York State
Tax Commission,
Defendants.
(Supreme Court, Albany County Special Term, June 3,
1982.)
(Hon. DeForest C. Pitt, Presiding)
(No. 158)
Appearances:
Debevcise & Plimpton, Esqs., Attorneys for Plaintiff.
(Andrew C. Hartzell, Jr., Philip S. Winterer & Steven
Klugman, Esqs., of Counsel.)
A 17
Robert Abrams, Attorney General, State of New York,
Attorney for Defendants. (Lawrence L. Doolittle, Asst.
Atty. Gen., of Counsel.)
PITT, J.
The plaintiff, the Air Transport Association of
America, has moved for reargument of the decision and
order of this Court which found application of section 184
of the New York Tax Law constitutional and not within
the prohibition of section 1113 of the Federal Aviation
Act.
This Court found that section 184 of the Tax Law was in
fact a tax upon the gross receipts from the sale of air
transport services. The Court looked to the legislative
history to determine that such tax was not barred by the
Federal Aviation Act because the tax was not in any way
discriminatory. Upon reargument the plaintiff has shown
that the Court misinterpreted section 1113 of the Federal
Aviation Act. In its original decision the Court held that if
sales taxes were allowed on the sale of air transportation
then certainly franchise taxes would be allowed. The
Court then looked at the problems which section 1113 of
the Federal Aviation Act addressed and determined that
since section 184 of the Tax Law was not discriminatory
that it would not be barred by said section.
The legislative drafting history of section 1113 of the
Federal Aviation Act clearly shows that Congress did not
intend to allow sales taxes on the sale of air transporta-
tion. Furthermore, such drafting history shows that the
language of subdivision b of section 1113, which states
‘**nothing herein shall prohibit a state . . . from the levy or
collection of taxes other than those enumerated in subsec-
tion (a) of this section, '’ (emphasis added) was intended to
bar any type of tax based upon the gross receipts derived
from the sale of air transportation.
A 18
Since this Court mistakenly implied a requirement that
taxes be discriminatory to be barred by section 1113 of the
Federal Aviation Act and since it is now determined from
the legislative history that said section imposes an absolute
bar on any taxes upon gross receipts from the sale of air
transportation, it is the determination of this Court that
section 184 of the New York State Tax Law is in violation
of such prohibition and is unconstitutional pursuant to the
supremacy clause of the United States Constitution.
The plaintiff's motions for reargument and for sum-
mary judgment declaring that subdivision (1) of section
184 of the New York State Tax Law unconstitutional are
therefore granted in all respects.
Submit order.
Dated: Troy, N. Y.
June 10, 1982.
(All papers to the Attorneys for Plaintiff.)
A 19
Memorandum Opinion of Pitt, J., Dated April 15, 1982.
STATE OF NEW YORK, SUPREME COURT,
COUNTY OF ALBANY.
e
AIR TRANSPORT ASSOCIATION OF AMERICA,
Plaintiff,
against
NEW YORK STATE DEPARTMENT OF TAXATION AND FI-
NANCE, NEW YORK STATE TAX COMMISSION, JAMES
H. TULLY, Jr., Commissioner of Taxation and
Finance, FRANCIS R. KOENIG, Commissioner of the
New York State Tax Commission, and MARY FRIED-
LANDER, Commissioner of the New York State Tax
Commission,
Defendants.
(Supreme Court, Albany County Special Term, March 26,
1982.)
(Hon. DeForest C. Pitt, Presiding)
(No. 13)
Appearances:
Debevoise and Plimpton, Esqs., Attorneys for Plaintiff.
(Andrew C. Hartzell, Jr.; Philip S. Winterer and Stephen
Klugman, Esqs., of counsel.)
A 20
Robert Abrams, Attorney General, State of New York,
Attorney for Defendants. (Lawrence L. Doolittie, Asst.
Atty. Gen. of counsel.)
PITT, J.
Memorandum
The plaintiff, The Air Transport Association of
America, an unincoporated trade and service association
consisting of 31 air carriers, has moved for summary judg-
ment declaring subdivision 1 of section 184 of the New
York Tax Law unconstitutional insofar as it seeks to tax
the gross receipts of plaintiff’s member air carriers.
The defendants have raised the issue of whether the
plaintiff association has standing to challenge section 184
of the Tax Law because it does not pay any taxes pursuant
to said section. However, the complaint alleges that the
association members are subject to the tax and have paid
such tax and that such taxes amount to millions of dollars
each year. These allegations are sufficient to give the
plaintiff standing to sue, (Boston Stock Exchange v. State
Tax Com. 429 U.S. 318.)
The complaint alleges that subdivision 1 of section 184
of the Tax Law violates the supremacy clause of the
United States Constitution because said section of the Tax
Law imposes a tax upon the gross receipts from the sale of
air transport services in violation of section 1113 of the
Federal Aviation Act, (49 U.S.C. section 1513.) This sec-
tion of the Federal Aviation Act prohibits the states from
levying or collecting taxes based upon the gross receipts
derived from the sale of air transportation. Subdivision 1
of section 184 of the New York State Tax Law taxes every
corporation engaged in aviation three quarters of one per-
cent of its gross earnings from all sources within the State.
Said subdivision calls the tax a ‘‘franchise tax’’.
A 21
The defendants contend that the tax challenged herein is
a franchise tax and as such it is allowed by section 1113(b)
of the Federal Aviation Act. The defendants also contend
that since the tax in question covers all earnings from
every source that it does not constitute a gross receipts tax
barred by the Federal Aviation Act.
That the tax challenged herein is based upon gross
receipts is made clear by the affidavit of Paul B. Coburn
submitted in opposition to the plaintiff’s motion for sum-
mary judgment. Such affidavit demonstrates the opera-
tion of the tax in question with a hypothetical example of
an aviation corporation. Such corporation is taxed on in-
terest income, the sale of a plaiie, rental income, income
from refueling services and ticket sales for passenger
transportation. Gross earnings pursuant to subdivision 1
of section 184 of the Tax Law include all of the interest in-
come, only the capital gains income from the sale of the
plane, and all rental income. The amount received for
refueling operations is reduced by the cost of the fuel. In-
come from ticket sales is taxed in full without reduction
for the cost of providing the air transportation service.
Thus section 184 of the Tax Law includes a tax on air car-
riers on the gross receipts from ticket sales for air
transportation.
However, to apply section 1113 of the Federal Aviation
Act to bar the tax in question would lead to inconsistent
results and would make the statute irrational, or at least
ambiguous. Subdivision b of section 1113 allows franchise
taxes and sales taxes. This court cannot conceive of a sales
tax which is not directly or indirectly a tax on the gross
earnings from sales. Furthermore, such sales taxes can
amount to substantial sums of money, for example, 7% at
the Albany County Airport. This exceeds many of the
taxes barred by section 1113.
A 22
Since the statutory language is inconsistent and am-
biguous, the court must look to its legislative history to
determine the legislative intent. Such history shows that
the statute was enacted to bar discriminatory taxes levied
solely against airlines in addition to normal franchise taxes
and other taxes. Section 184 of the Tax Law levies a fran-
chise tax on all transportation carriers based upon gross
earnings. The plaintiff has failed to show that this tax, in
effect since 1880, is in any way discriminatory. As such it
is not barred by section 1113 of the Federal Aviation Act.
The motion for summary judgment in favor of the
plaintiff is denied in all respects. Since it appears that sec-
tion 184 of the Tax Law is constitutional, the defendants
are granted summary judgment pursuant to rule 3212(b)
of the CPLR.
Submit Judgment.
Dated: Troy, N. Y.
April 15, 1982.
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.