Petition for Writ of Certiorari — Great American Airways v. Nevada State Tax Commission

~

Supreme Court, U.S,

FILED

<r , Y

85-1867 || |S

i

. |

a : JOSEPH F. SPARDOL, az.

SK

i

5

In the Supreme Court

OF THE

United States

OcTOBER TERM, 1985

GREAT AMERICAN AIRWAYS,

Petitioner,

VS.

NeVADA STATE TAX COMMISSION,

Respondent.

PETITION FOR WRIT OF CERTIORARI

TO THE SUPREME COURT

OF THE STATE OF NEVADA

RICHARD G. CAMPBELL of

LIONEL SAWYER & COLLINS

1100 Valley Bank Plaza

50 West Liberty Street

Reno, Nevada 89501

Telephone: (702) 788-8666

Attorneys for Petitioner

BOWNE OF SAN FRANCISCO. INC + 190 NINTH ST. + S F.. CA 94103 + (415) 864-2300

a sian

QUESTIONS PRESENTED FOR REVIEW

The Nevada Sales and Use Tax Act imposes an “excise tax...

on the storage, use or other consumption in this state of tangible

personal property purchased from any retailer... for storage, use

or other consumption in this state.” A use tax was levied, without

apportionment, on the purchase of an aircraft by a Nevada-based

air carrier engaged exclusively in interstate transportation. The

aircraft was delivered in Kansas and utilized for interstate travel

before entering Nevada for any significant period of time. The

aircraft subsequently logged extensive air and ground time outside

of Nevada.

The questions presented for review are:

Is it error for a state court to employ the “home port doctrine”

in a modern use tax case involving an instrumentality of interstate

commerce?

Do the Commerce Clause and the Fourteenth Amendment

Due Process Clause of the United States Constitution require a

state to apportion any use tax levied on tangible persona! property

purchased and utilized exclusively in interstate commerce?

Is it impermissible for a state to require a taxpayer to prove

actual duplicative taxation by other jurisdictions before that state

will apportion its use tax on property purchased for and utilized in

interstate commerce?

x ee Te ee ee

ii

TABLE OF CONTENTS

Page

Questions Presented for Review .................ee008- i

Cela BOG os. 6564 «0:00 des aad alaepoebavannea ress l

etry err ee orriy hy og yt re 2

Constitutional Provisions and Statutes Involved .......... 2

SU WE GN GN ic ss Lio Cees c ccs ances ce ntteeses 3

Reasons for Allowance of the Writ .................... 4

I

The Nevada Supreme Court’s Decision Conflicts With the

Decisions of This Court Because It Misapplies The Com-

plete Auto Test and In Fact Employs The Home Port

DOGO . os .0c.ccnnse ones dens dl eee 4

Ii

The Nevada Supreme Court Wrongly Decided An Impor-

tant Question of Federal Law, In Apparent Conflict With

the Decisions of This Court, By Holding That A Use Tax

Levied On Property Used By a Nevada Resident In

Interstate Commerce Need Not Be Apportioned....... 7

Il

The Nevada Supreme Court Ignored Recent Decisions of

This Court When It Refused to Consider Apportionment

Unless The Petitioner Demonstrated Actual Multiple

|

|

|

|

Wen rtm

iii

APPENDIX

Appendix A: Opinion of the Supreme Court of Nevada. .

Appendix B: Order of the Supreme Court of Nevada

ee ee Li a. sachs bre con ta

Appendix C: Decision of the Second Judicial District

Court of the State of Nevada in and for the County of

PC SeCR GMa sek i he Wks do ki5's KERCA Ra edb hs

Appendix D: Findings of Fact, Conclusions of Law, and

Decision of State of the Nevada Department of Taxation

Appendix E: Notice of the Nevada State Tax Commission

Denying Administrative Appeal .....................

Appendix F: Pertinent Text of Additional Provisions of

Nevada Revised Statutes Chapter 372................

Page

l

17

18

36

50

iv

TABLE OF AUTHORITIES CITED

Cases

Page

Armco, Inc. v. Hardesty, 467 U.S. 638 (1984) ....... 9, 10, 11

Beatrice Foods Co., Inc. v. Lindley, 434 N.E.2d 727 (Ohio

I i iccw sine hs Saderaaes wMAIE 4 Me SR WAWESS 0 Kancounus 4

Central Railroad Co. of Pennsylvania v. Pennsylvania,

PTT Corer Tee Tree eer ey eee 11

Commonwealth Edison Co. v. Montana, 453 U.S. 609

CIE dics Wd SECA ERE A CORTE. NG ck Sa cas be cx ees 5, 8,9

Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977),

reh'g denied, 430 U.S. 976 (1977) .............205. passim

Container Corp. of America v. Franchise Tax Board, 463

SE Es ens ee eee ee in dhkn acs en heeks 9,11

District of Columbia v. W. Bell & Co., Inc., 420 A.2d 1208

Sn ts os is seek ene hae keen eens Keune 5

Exxon Corp. v. Department of Revenue, 447 U.S. 207

SGIAGL Re hoGeUie toNNeseakbeakakabade eee okies 4

Flying Tiger Line, Inc. v. County of Los Angeles, 333 P.2d

i ee caked Conk ee sake ce nsseené 6 9

Freeman v. Hewitt, 329 U.S. 249 (1946) ............... 11

General Motors Corp. v. Washington, 377 U.S. 436 (1964) 11

Geometrics v. County of Santa Clara, 129 Cal. App. 3d 415

ET Cage ee Lute eS XVA SG ch BK b Sk < oe Ose OCCK Ka 5, 8,9

Hays v. Pacific Mail S.S. Co., 17 How. 596, 15 L.Ed. 254

ee oa ere oe ee a paid Ah eek 6

Japan Line, Ltd. v. County of Los Angeles, 441 U.S. 434

LOU Lak brated hues Wh ain d One eeha Wik eu AS 6,7

King v. L & L Marine Service, Inc., 647 S.W.2d 524 (Mo.

La Marat Can eka cana wk eee. cheek Oe 5

Management Services, Inc. v. Spradling, 547 S.W.2d 466

I enter ee eae ee ele wake GC ew Ce Ck ak 5

Maryland v. Louisiana, 451 U.S. 725 (1981) ............ 10

Vv

TABLE OF AUTHORITIES CITED

CASES

Page

Master Craft Engineering, Inc. v. Department of Treasury,

366 N.W.2d 235 (Mich. App. 1985) ................. 5,6

McLeod v. Dilworth Co., 322 U.S. 327 (1944) .......... 10

Mobil Oil Corp. v. Commissioner of Taxes, 445 U.S. 425

CRE ESR UERELER Cee CAR EUE TERA SESEENS EES EES 11

Montana-Dakota Utility Co. v. South Dakota Department of

Revenue, 337 N.W. 2d 818 (S.D. 1983).............. 9

Northwestern States Portland Cement Co. v. Minnesota, 358

Sh Se UD ic New ehehe ces cincccadawecbwess 6, 11

Northwest Airlines, Inc. v. Minnesota, 322 U.S. 292 (1944) 6

Sjong v. Department of Revenue, 622 P.2d 967 (Alaska

1981), app. dismissed, 454 U.S. 1131 (1982) ......... 9

Slick Airways v. County of Los Angeles, 295 P.2d 46 (Cal.

PM. TE ik REVS AA hs AEE ra dn G05 9

Southwest Gas Corp. v. Public Service Commission, 96 Nev.

ow 3 8 8k. rr err 4

Standard Pressed Steel Co. v. Department of Revenue, 419

ae EY COUN oc koh i003 cc ducer erkcereereuoeeees 11

State v. Obexer & Son, Inc., 99 Nev. 233, 660 P.2d 981

Pere TPT eer ey errors Pe 10

State v. Zach, 502 A.2d 896 (Conn. 1985), ............. 7,8

Whitcomb v. Commissioner of Taxes, 479 A.2d 164 (Vt.

SO 666s a a ok eee ee Ea acs Beek 1!

Wisconsin Telephone Co. v. Wisconsin Department of Reve-

nue, 371 N.W. 2d 825 (Wis. App. 1985) ............. 11

vi

TABLE OF AUTHORITIES CITED

United States Constitution

Page

SG TEV ig 8 |< wane KACK i ohn 5 6 ORR he eR 2

og OE eye Foye Cry Se ee eee i, 2,7

Statutes and Regulations

Nevada Administrative Code, 361.451-361.4695 ......... Q

Nevada Revised Statutes:

pial pf ir Tag or OR OY im ioe Fp remy. 3

EE 6 <6 0 0.0-500hc 4646.64 454460004 0014CR Co 3

Pins < bb Cine weaee hh eckiaR nice cee 3

aoa ob cake bic Cckacd cer ckktea xeon 3

SEY ccke ya's chk bwin ou 60a ee ees a wks tee 3,8

DEE CR SR CeKK ERECTOR CURE Le bee Teatro 3,8

RR 4-4 0 Alle 0 ah oth Dee Ie id a 3,5

Other Authorities

P. Hartman, Federal Limitations on State and Local Taxa-

a Oe CUED 6.6 be ee rnitewrcescsensevitessie 4

oe

No.

In the Supreme Court

OF THE \

United States

OCTOBER TERM, 1985

GREAT AMERICAN AIRWAYS,

Petitioner,

VS.

NEVADA STATE TAX COMMISSION,

Respondent.

PETITION FOR WRIT OF CERTIORARI

TO THE SUPREME COURT

OF THE STATE OF NEVADA

The petitioner Great American Airways (“GAA”) respectfully

prays that a writ of certiorari issue to review the judgment and

opinion of the Supreme Court of Nevada, entered on August 27,

1985, rehearing denied on March 5, 1986.

OPINIONS BELOW

The opinion of the Supreme Court of Nevada is reported at 101

Nev. 96, 705 P.2d 654 (1985), and is set out as Appendix A. Its

order denying rehearing, presented as Appendix B, is not officially

reported. The trial court’s unreported decision is reprinted as

Appendix C. The Findings of Fact, Conclusions of Law, and

Decision of the State of Nevada Department of taxation are

reproduced as Appendix D, and the notice that GAA’s adminis-

2

trative appeal was denied by the Nevada State Tax Commission

as Appendix E.

JURISDICTION

The Supreme Court of Nevada entered its opinion on August

27, 1985. A timely petition for rehearing was filed and was denied

on March 5, 1986. This petition for certiorari is filed within ninety

days of that date. The Court’s jurisdiction is invoked pursuant to

28 U.S.C. § 1257(3).

CONSTITUTIONAL PROVISIONS AND

STATUTES INVOLVED

The Commerce Clause of the United States Constitution

provides:

The Congress shall have the Power... To regulate Com-

merce with foreign Nations, and among the several States,

and with the Indian Tribes.

U.S. Const. art. I, § 8, cl. 3. The Due Process Clause of the

Fourteenth Amendment provides:

No State shall...deprive any person of life, liberty, or

property without due process of law.

U.S. Const. amend. XIV, § 1.

The Nevada Sales and Use Tax Act, Chapter 397 of the 1955

Statutes of Nevada (codified for convenience, and herein cited, as

Chapter 372 of the Nevada Revised Statutes (1985) ), provides

in relevant part—

An excise tax is... imposed on the storage, use, or other

consumption in this state of tangible personal property pur-

chased from any retailer... for storage, use or other con-

sumption in this state at the rate of [5.75 or 6] percent of the

sales price of the property.

a ee ee ee ee Ce

3

NRS 372.185.' Other state law provisions involved are NRS

372.075, 372.080, 372.100, 372.250, 372.255 and 372.265. Be-

cause of their length, their pertinent text is set forth in Appendix

F.

STATEMENT OF THE CASE

This case presents questions of vital concern to interstate

carriers who use or store equipment in more than one state,

especially those carriers who purchase aircraft or other instru-

mentalities of interstate commerce outside their state of

residency.

Nevada, like many other states, imposes a use tax on the

storage, use or other consumption of tangible personal property in

that state. NRS 372.185. GAA challenged Nevada’s unappor-

tioned use taxation of an aircraft purchased for use in interstate

travel exclusively, delivered in Kansas, and subsequently used and

stored in several states. The parties stipulated as to the details of

these continuous, interstate events, which are recited at length in

Appendix C, and which include the facts that al! of GAA’s flights

are made to locations outside the State of Nevada where, in most

cases, the aircraft remains overnight before returning to Nevada.

The State of Nevada Department of Taxation and the Nevada

State Tax Commission ratified a deficiency assessment of an

unapportioned use tax against GAA, concluding a “taxable inci-

dent” had occurred in Nevada. On appeal, the district court

upheld the Commission’s decision, and Nevada Supreme Court

affirmed as well. 101 Nev. 96, 705 P.2d 654 (1985). They

' Nevada sales and use taxes are comprised of four separate taxes,

each imposed by identically-worded statutes or ordinances. For conve-

nience, and in accordance with Nevada practice, only the relevant

sections of the original tax act are cited or reproduced here and in

Appendix F. The total tax rate varies from 5.75 to 6 percent among

Nevada counties.

? This judicial review proceeding required the Nevada Supreme Court

to perform a function identical to that of the district court—to review

the evidence presented to the administrative agencies in light of proper

4

reasoned that only Nevada had sufficient “nexus” with GAA to

impose such a use tax, and refused to address other constitutional

issues because GAA did not establish actual duplicative taxation.

REASONS FOR ALLOWANCE OF THE WRIT

I

THE NEVADA SUPREME COURT’S DECISION CON-

FLICTS WITH THE DECISIONS OF THIS COURT BE-

CAUSE IT MISAPPLIES THE COMPLETE AUTO TEST

AND IN FACT EMPLOYS THE HOME PORT

DOCTRINE

The Nevada Supreme Court, and the stcte district court,

recognized that the “taxable moment” theory adopted by the

administrative agencies is no longer the appropriate Commerce

Clause analysis of state taxation, and purported to apply the four

prong test announced in Complete Auto Transit, Inc. v. Brady,

430 U.S. 274 (1977), reh'g denied, 430 U.S. 976 (1977) (“Com-

plete Auto”): A tax will be sustained against a “Commerce

Clause challenge when the tax is applied to an activity with a

substantial nexus with the taxing state, is fairly apportioned, does

not discriminate against interstate commerce, and is fairly related

to the services proved by the state.” Jd. at 279.° Through impre-

cise reasoning, however, the state courts avoided all but the first

element of this test, and in essence employed the now-defunct

legal standards and to determine whether the tax department and

commission acted contrary to law, arbitrarily, capriciously, or otherwise

in abuse of their discretion. See Southwest Gas Corp. v. Public Service

Commission, 96 Nev. 657, 614 P.2d 1080 (1980).

> The Due Process Clause imposes two limitations on state taxation,

mirroring the “nexus” and “fair relation” factors of Complete Auto:

First, no tax may be imposed unless there is some minimal

connection between those activities and the taxing State; and in the

second place, the [tax basis] must be rationally related to values

connected with the State imposing the tax.

P. Hartman, Federal Limitations on State and Local Taxation § 2:4 at

28 (1981); see Exxon Corp. v. Department of Revenue, 447 U.S. 207

(1980).

ae wre eu.

A. ead ee oh

5

“home port doctrine.” In fact, an alarming number of state courts

continue to decide Commerce Clause challenges to state taxes

without even acknowledging the Complete Auto standards which

this Court has developed and refined. See, e.g. Beatrice Foods

Co., Inc. v. Lindley, 434 N.E.2d 727 (Ohio 1982) (uphoiding use

tax under “taxable moment” approach); District of Columbia v.

W. Bell & Co., Inc., 420 A.2d 1208 (D.C. 1980) (to like effect).

This continued reliance on dated theories has been particularly

apparent in use tax cases involving aircraft used for interstate

transportation. See King v. L & L Marine Service, Inc., 647

S.W.2d 524 (Mo. 1983); Management Services, Inc. v. Spradling,

547 S.W.2d 466 (Mo. 1977); cf. Geometrics v. County of Santa

Clara, 129 Cal. App. 3d 415 (1982) (upholding apportioned ad

valorem tax under Complete Auto). Other courts are committing

errors akin to those of the state courts here. Despite this Court’s

general admonitions in cases concerning other forms of taxation,

see, e.g., Commonwealth Edison Co. v. Montana, 453 U.S. 609,

614-17 (1981) (state court erred in following “mechanical”

approach of pre-Complete Auto cases, and concluding that sever-

ance tax was not subject to the strictures of the Commerce

Clause), state courts continue to utilize discarded theories, not as

the test of constitutionality per se, but rather as a means of

characterizing the subject of taxation in such a way that it is

“excused” from the Complete Auto analysis. See, e.g., Master

Craft Engineering, Inc. v. Department of Treasury. 366 N.W.2d

235 (Mich. App. 1985).* State courts clearly need guidance on

‘The Master Craft court noted the four Complete Auto criteria, and

that “[ijn recognition of this prohibition concerning interstate com-

merce, Michigan provides an exemption from the use tax for property

which would otherwise be prohibited from taxation under the United

States or Michigan Constitutions.” 366 N.W.2d at 241 n. 3,242. Nevada

has a similar statutory provision. NRS 372.265. To determine whether

this exemption (and the Complete Auto test) would apply at all, the

Master Craft court first asked whether the aircraft in question had

“come to rest” in the state, whether a “taxable moment” had occurred.

Id. at 242. Relying on cases dating from the 1930s, the court concluded

that the taxable moment test was satisfied; although the aircraft was

ultimately “thrust into the interstate stream of commerce,” id. at 243,

6

this important federal question which, if answered wrongly,

promises dire consequences for interstate commerce.

The Nevada district court and Supreme Court reasoned that,

since GAA is based in Nevada, “only Nevada has a sufficient

nexus with GAA to levy a use tax upon its out-of-state airplane

purchase.” Appendix A at 12. Therefore, concluded the courts,

apportionment was not a relevant concern and Nevada could

impose a use tax on the full sales price of its aircraft. This analysis

is the essence of the home port doctrine, and the state courts were

wrong to embrace this antiquated rationale and ignore the affirm-

ative requirements of the Commerce Clause.

In Japan Line, Ltd. v. County of Los Angeles, 441 U.S. 434

(1979), this Court traced the history of the “home port doctrine”

first enunciated in Hays v. Pacific Mail S. S. Co., 17 How. 596, 15

L.Ed. 254 (1855), as

a corollary of the medieval maxim mobilia sequintur per-

sonam (“movables foilow the person,” see Black’s Law

Dictionary 1154 (rev 4th ed 1968)) and resulted in personal

property being taxable in full at the domicile of the owner.

This theory of taxation, of course, has fallen into desuetude,

and the “home port doctrine,” as a rule for taxation of

moving equipment, has yielded to a rule of fair apportion-

ment among the States.

Japan Line, Lid., 441 U.S. at 442. Clearly the Court has “aban-

doned” this “anachronistic” doctrine, id. at 443, one that in

earlier times would permit the domiciliary State to impose an

unapportioned on aircraft or other vessels so long as they had not

“acquired a permanent location, i.¢., a taxing situs, elsewhere.”

Northwest Airlines, Inc. v. Minnesota, 322 U.S. 292, 295-96

(1944).

Other state courts have properly “conclude[d] that a ‘home

port doctrine’ as a rule of state taxation of vessels engaged

exclusively in interstate commerce has been superceded by the

apportionment rule in Complete Auto,” specifically in use tax

the Master Craft court apparentiy saw no need to consider the Complete

Auto elements.

7

cases. State v. Zach, 502 A.2d 896, 905 (Conn. 1985). While

giving lip service to Complete Auto, the Nevada courts still

invoked the home port doctrine to sidestep the apportionment

requirement of this seminal decision. This Court can clarify that

Complete Auto has replaced older, wooden tests of state taxation

in all forms, while assuring a constitutional result in this case, by

Il

THE NEVADA SUPREME COURT WRONGLY DECIDED

AN IMPORTANT QUESTION OF FEDERAL LAW, IN

APPARENT CONFLICT WITH THE DECISIONS OF

THIS COURT, BY HOLDING THAT A USE TAX LEVIED

ON PROPERTY USED BY A NEVADA RESIDENT IN

INTERSTATE COMMERCE NEED NOT BE

APPORTIONED

In order to prevent multiple taxation of interstate com-

merce, this court has required that taxes be apportioned

among taxing jurisdictions, so that no instrumentality of

commerce is subjected tc more than one tax on its full value.

Japan Line, Lid., 441 U.S. at 448. The Nevada Supreme Court

ignored this apportionment requirement. Adopting the reasoning

of the state district court, the Nevada Supreme Court concluded:

[A] use tax is imposed upon an out-of-state purchase by a

state resident when the object of the purchase is used, stored

or consumed within the taxing state. NRS 372.185. The

incidence of taxation of the use tax is the residency of the

purchaser, the out-of-state purchase, and the use, storage or

consumption of the purchased object within the state. /f

these three incidents occur in one state, that state may assess

a use tax on the entire purchase price. Jd. Under these

circumstances, there is no danger of multiple state taxation

of the same tax incidences. The use tax is a fairly appor-

tioned tax.

8

Appendix A at 10-11 (emphasis in original). Assuming, as we

must, that it correctly construes Nevada law,° this pronouncement

runs afoul of the Commerce Clause and Due Process Clause,

because it fails to recognize that a Nevada resident engaged in

interstate commerce may indeed be subject to use taxes else-

where. Other states do not consider residency an incident of use

taxation, and do not exempt non-residents from use taxes which

represent a fair return for protections and benefits provided. See,

e.g., State v. Zach, 502 A.2d at 899 n.4, 902-03 (Connecticut

imposes use tax on federally-registered vessels of Delaware corpo-

rations having no connection with Connecticut other than in

interstate commerce). Because of the Nevada Supreme Court’s

failure to require apportionment, interstate commerce will suffer,

and GAA will be required to pay a levy not fairly related to

benefits provided it by the State of Nevada.

Apportionment has not been at issue in most of the recent state

taxation cases entertained by this Court. Because of the nature of

each taxing scheme under review, or some balancing feature built

into it, Complete Auto and its progeny have not outlined in detail

the minimum prerequisites of a validly apportioned tax. See, e.g.,

Commonwealth Edison Co. v. Montana, 453 U.S. at 617. This

lapse in state tax jurisprudence does not mean that apportionment

is left to the whim of the states, however; apportionment remains

an affirmative requirement of the Commerce Clause and of Due

Process.

Most state court opinions that address apportionment in depth

deal with ad valorem property taxation, but support the general

principle that apportionment of taxes is not at the option of a

state.° In Geometrics v. County of Santa Clara, 179 Cai. Rptr.

‘The referenced statute makes no reference to residency as an

incident of taxation. GAA knows of no other Nevada law or decision

which supports this reading. In contrast, residency is an express factor in

applying the statutory presumptions that property purchased out-of-state

by a Nevada resident is intended for use in Nevada, absent contrary

evidence. NRS 372.250-372.255.

* Notably, Nevada does apportion the ad valorem property tax it

assesses against GAA’s aircraft. The Nevada Administrative Code

ee |

Rented are

ee

9

850 (Cal. App. 1982), the parties stipulated that there was no

“multiple taxation in fact.” Jd. at 8-2. Still, after thorough and

scholarly consideration of key state and United States Supreme

Court precedents, the court concluded that Complete Auto re-

quired apportionment of any property tax imposed on aircraft

owned by a domiciliary corporation but located physically in

foreign countries for all or a portion of the tax year. See also

Montana-Dakota Utility Co. v. South Dakota Department of

Revenue, 337 N.W. 2d 818 (S.D. 1983) (requiring apportion-

ment of ad valorem tax, although validity of neighboring state’s

competing tax was in question); Flying Tiger Line, Inc. v. County

of Los Angeles, 333 P.2d 323 (Cal. 1959), following Slick

Airways v. County of Los Angeles, 295 P.2d 46 (Cal. App. 1956).

But while some state courts have properly acknowledged the

mandatory nature of Commerce Clause requirements, others have

not.

The Nevada Supreme Court’s refusal to enforce the apportion-

ment requirement brings its decision into conflict with other

aspects of Complete Auto. Nevada residents who do not employ

property out-of-state in the course of interstate commerce do not

face the threat of multiple use taxes, or the burden of maintaining

multiple protests to assessments that will not be apportioned

unless actual duplicative taxation is established. See infra. A use

tax that unfairly apportions the use of property in other States is a

form of discrimination against interstate commerce. Cf. Armco,

Inc. v. Hardesty, 467 U.S. 638, 645 (1984). Further, a system

that lacks any method of measuring the taxable activity that

occurs within the taxing State cannot produce a tax fairly related

to services and protections enjoyed by the taxpayer in that state.

Cf. Commonwealth Edison Co. v. Montana, 453 U.S. at 625-26

(“the measure of the tax must be reasonably related to the extent

of the contact”); see also Container Corp. of America v.

Franchise Tax Board, 463 U.S. 159 (1983) and Sjong v. Depart-

ment of Revenue, 622 P.2d 967 (Alaska 1981), app. dismissed,

454 U.S. 1131 (1982) (explaining requisites of valid apportion-

(“NAC”) contains extensive regulations for this purpose. NAC

361.451-361.4695.

10

ment formulae). Thus, Nevada’s unapportioned use tax falls short

of not only one, but three criteria of Complete Auto.

These unconstitutional aspects of Nevada’s use tax cannot be

overlooked simply because the tax is intended to be “compensa-

tory,” offsetting Nevada’s sales tax. Cf. Appendix A at 10-11; see

generally Armco, Inc. v. Hardesty, supra. “The concept of a

compensatory tax first requires identification of the burden for

which the State is attempting to compensate.” Maryland v.

Louisiana, 45i U.S. 725, 758 (1981). To be sure, Nevada has an

interest in preventing evasion of its sales tax, “to assure uniform

treatment of goods and materials to be consumed in the State.” Id.

at 759 (emphasis added). But no such equality exists where the

property is consumed in several States. Each State in which

GAA’s aircraft sets down has a similar incentive to compensate

for its sales tax. If each levies an unapportioned use tax, interstate

commerce will be impermissibly burdened. And, each State

would also be demanding more than a fair return for benefits

conferred on GAA.

Clearly, Nevada is constitutionally barred from levying its

sales tax on GAA’s out-of-state purchase. McLeod v. Dilworth

Co., 322 U.S. 327 (1944); State v. Obexer & Son, Inc., 99 Nev.

233, 660 P.2d 981 (1983). The State cannot effect the same

result under the guise of a compensating use tax, and any true use

tax liability must comply with the strictures of the Commerce

Clause.

iil

THE NEVADA SUPREME COURT IGNORED RECENT

DECISIONS OF THIS COURT WHEN IT REFUSED TO

CONSIDER APPORTIONMENT UNLESS’ GAA

DEMONSTRATED ACTUAL MULTIPLE TAXATION

The Nevada Supreme Court concluded that it “need not

address GAA’s concern that Nevada’s taxing scheme may result

in multiple taxation because GAA’s failure to demonstrate actual

multiple taxation is fatal to its assignment of error.” Appendix A

at 9 (emphasis added). The state court was wrong to place this

burden of proof on GAA, thereby avoiding consideration of the

11

constitutional minima of a state tax. While earlier decisions of

this Court were not entirely uniform on this point, the Court

recently made clear that the taxpayer need only show a risk of

multiple taxation. The Nevada court ignored this directive.

The state court in Armco, Inc. v. Hardesty, supra, also called on

the taxpayer to show a duplicative tax imposed by some other

state. This Court explained in reversing the state court, “This is

not the test.” 467 U.S. at 644. Rather, the tax must be judged as

“if applied by every jurisdiction.” Id., quoting Container Corp. of

America v. Franchise Tax Board, 463 U.S. at 169. See also

Central Railroad Co. of Pennsylvania v. Pennsylvania, 370 U.S.

607, 614 (1962) (“domiciliary State is precluded from imposing

an ad valorem tax on any property to the extent that it could be

taxed by another state, not merely on such property as is subject

to tax elsewhere”) (emphasis in original); Freeman v. Hewitt,

329 U.S. 249, 256 (1946) (“that, for the time being, only one

State has taxed is irrelevant to the kind of freedom of trade which

the Commerce Clause generated”).’

Despite these directives, the state courts are mired in confu-

sion. The Nevada courts ignored these authorities and imposed a

heightened burden on GAA before they would confront the

constitutional matter of apportionment. A Wisconsin court re-

cently voiced its view that a conflict among Supreme Court

opinions persists, although citing only the isolated case of General

Motors Corp. v. Washington, 377 U.S. 436 (1964), as suggesting

that actual multiple taxation must be demonstrated. Wisconsin

Telephone Co. v. Wisconsin Department of Revenue, 371 N.W.

2d 825, 830 (Wis. App. 1985). Perhaps the Nevada and Wiscon-

sin courts did not consider this Court’s recent examples to be

controlling in the use tax cases before them. In any event, the

7 Other cases commonly cited as establishing that the taxpayer’s

burden is to demonstrate a risk of multiple taxation include: Mobil Oil

Corp. v. Commissioner of Taxes, 445 U.S. 425, 443 (1980), Standard

Pressed Steel Co. v. Department of Revenue, 419 U.S. 560, 563 (1975),

and Northwestern States Portland Cement Co. v. Minnesota, 358 U.S.

450, 462-63 (1959). See Whitcomb v. Commissioner of Taxes, 479 A.2d

164, 168 (Vt. 1984).

12

Nevada Supreme Court’s imposition of an “actual multiple taxa-

tion” burden deprived GAA of a fair opportunity to correct an

unconstitutional, unapportioned tax. Review by this Court should

prevent the likely reoccurrence of similiar errors in other state tax

cases.

CONCLUSION

This Court should issue a writ of certiorari to the Supreme

Court of Nevada in this case. It is crucial to the smooth working

of interstate commerce that all States abide by modern Com-

merce Clause doctrine in administering all state taxes. The

factual scenario presented here—the imposition of a use tax on

aircraft employed in interstate transportation—is one which arises

time and again. Review in this case will redress the Nevada

Supreme Court’s conflict with this Court’s decisions, and comple-

ment the existing caselaw which construes and refines the Com-

plete Auto test.

Respectfully submitted,

LIONEL SAWYER & COLLINS

By: RICHARD G. CAMPBELL

Attorneys for Petitioner

(Appendices follow)

eke tS ee ao at ‘ Lah’ Tags Gas ~

Sie > J a) NaS ee 7

: ey

35 NY t : s

e “:

“i 7 -

. as

+

aja

APPENDIX A

OPINION

No. 15992. In the Supreme Court of the

State of Nevada.

Great American Airways, a Nevada corpo-

ration, Appellant, vs. Nevada State Tax

Commission, an administrative agency of

the State of Nevada, Respondent.

Filed: August 27, 1985.

Appeal from decision affirming the

judgment of the Nevada Tax Commission, and

ordering Great American Airways to pay a

use tax assessed against it for using,

consuming and storing in Nevada an air-

craft purchased in Kansas.

Affirmed.

Lionel Sawyer & Collins,

Laura B. Ahearn and

Richard G. Campbell, Reno,

for Appellant.

o2e

Brian McKay, Att'y Gen.

and Michael Dougherty, Deputy

Att'y Gen., Carson City,

for Respondent.

OPINION

PER CURIAM:

Great American Airways (GAA) is a

Nevada corporation, headquartered in Reno,

engaged in the interstate transportation

of charter air passengers. GAA primarily

transports charter groups for the Carson

City Nugget. Frequently, flights are made

to destinations outside of Nevada where,

in most instances, the aircraft remains

overnight before returning to Nevada.

On or about July 2, 1979 GAA purchased,

in Kansas, a DC=-9 aircraft from Trans

World Airways (TWA) for $3,600,000.00.

During oral argument before this court,

-3-

GAA's counsel admitted that GAA was not

required to pay a sales tax in Kansas.

The Department of Taxation conducted an

audit of the books and records of GAA

covering the period July 1, 1979 through

November 30, 1979. As a result of the

audit, GAA was assessed taxes and penal-

ties totaling $128,520.00 ($72,000.00

attributable to GAA's use, consumption and

storage, in Nevada, of the DC-9 aircraft

purchased in anaes).

The gravamen of GAA's complaint is: 1)

that the levying of a use tax on its

out-of-state aircraft purchase unconsti-

tutionally burdens interstate commerce,

and 2) that its aircraft purchase was

exempted from use taxation as_ an

“occasional sale" under NRS 372.320.+

l nRS 372.320 reads: "There are exempted

from the taxes imposed by this chapter the

gross receipts from occasional sales of

tangible personal property and the stor-

aha

We reject both propositions. Firstly,

the tax did not unconstitutionally burden

interstate commerce because it was fairly

apportioned, nondiscriminatory and fairly

related to services provided by Nevada.

See Complete Auto Transit, Inc. v. Brady,

430 U.S. 274 (1977), reh'g denied, 430

U.S. 976 (1977). Secondly, GAA presented

no evidence from which the Department of

Taxation or the trial court could have

determined that its aircraft purchase was

exempt as an “occasional sale” and thus

did not sustain its burden of proof. See

NRS 372.320.

Originally, interstate commerce was

immune from state taxation, but now inter-

state commerce is required to pay its just

age, use or other consumption in this

state of tangible personal property, the

transfer cof which to the purchaser is an

occasional sale.”

ate

share of state tax burdens. See Braniff

Airways, Inc. v. Nebraska State Board of

Eq. & A., 347 U.S. 590, 598 (1954), reh'g

denied, 348 U.S. 852 (1954). Where a tax

goes too far, it will be struck down as

burdening interstate commerce. In deter-

mining if a tax is excessively burdensome,

analysis focuses on the tax's practical

effects. “In reviewing Commerce Clause

challenges to state taxes, our goal has

instead been to ‘establish a consistent

and rational method of inquiry’ focusing

on ‘the practical effect of a challenged

tax.’” Commonwealth Edison Co. v. Mon-

tana, 453 U.S. 609, 615 (1981), reh'g

denied, 453 U.S. 927 (1981) quoting from

Mobil Oil Corp. v. Commissioner of Taxes,

445 U.S. 425, 443 (1980).

The four prong test announced in Com-

plete Auto Transit, Inc. v. Brady, 430

ao

U.S. 274 (1977), reh'g denied, 430 U.S.

976 (1977) culminated the United States

Supreme Court's efforts to focus on a

tax's practical effects. A tax will be

Sustained against a “Commerce Clause

challenge when the tax is applied to an

activity with a substantial nexus with the

taxing state, is fairly apportioned, does

not discriminate against interstate com-

merce, and is fairly related to the serv-

ices provided by the state." Id. at 279.

Complete Auto is the bench mark of

state taxation of interstate commerce. See

George S. Carrington Co. v. State Tax

Com'n, 377 N.E.2d 950, 952 n. 3 (Mass.

1978). ~ Complete Auto's four prong test

has been applied to a use tax on an air-

plane, Whitcomb v. Commissioner of Taxes,

479 A.2d 164 (Vt. 1984), a first-use tax

On natural gas, Maryland v. Louisiana, 45]

-7-

U.S. 725 (1981), a sales tax, George S.

Carrington Co. v. State Tax Com'n, 377

N.E.2d 950 (Mass. 1978), a privilege tax,

Complete Auto Transit, Inc. v. Brady, 430

U.S. 274 (1977), reh'g denied, 430 U.S.

976 (1977), and a severance tax, Common-

wealth Edison Co. v. Montana, 453 U.S. 609

(1981), reh'g denied, 453 U.S. 927 (1981).

At issue in this case is the propriety

of a use tax, NRS 372.185,2 imposed upon

GAA's out-of-state purchase of an airplane

used in interstate commerce and hangared

in Reno. GAA contends the use tax imposed

on its purchase violated the Complete Auto

2 WNRS 372.185 reads:

An excise tax is hereby imposed on the

storage, use or other consumption in

this state of tangible personal prop-

erty purchased from any retailer on or

after July 1, 1955, for storage, use or

other consumption in this state at the

rate of 2 percent of the sales price of

the property.

én

test because it was unapportioned, dis-

criminatory, and not fairly related to

values attributable to Nevada.? GAA's

nexus to Nevada is conceded.

A properly apportioned tax does not tax

activities carried on outside the state's

borders and does not result in multiple

taxation. Complete Auto, 430 U.S. at 282.

See also General Motors Corp. v. Washing-

ton, 377 U.S. 436, 440-441 (1964), reh'g

denied, 379 U.S. 875 (1964). Improper

apportionment results in multiple taxation

3 GAA also challenged the tax on due

process grounds. Due process challenges

have focused on the taxing jurisdiction's

nexus to the taxpayer and whether the

taxing jurisdiction provided services to

the taxpayer for which it could seek reim-

bursement, the first and fourth prongs of

the Complete Auto test. See Commonwealth

Edison Co. v. Montana, 453 U.S. at

622-629; Chicago Bridge & Iron v. State,

Dept. of Rev., 659 P.2d 463, 467 (Wash.

1983), appeal dismissed, U.S. ,

104 s.Ct. 542 (1983). Because of this

duplication, GAA's due process concerns

will not be treated separately.

--

and multiple taxation is clearly unconsti-

tutional. Northwestern States Portland

Cement Co. v. Minnesota, 358 U.S. 450, 452

(1959).

GAA's argument concerning apportionment

focuses on two points: 1) that because

NRS 372.3454 does not expressly provide an

exemption for sales and use taxes paid in

other states, there is the possibility of

multiple taxation and 2) that because

appellant's airplane is partially used and

consumed outside of Nevada, Nevada can

only tax a portion of the plane's value.

We need not address GAA's concern that

Nevada's taxing scheme may result in

multiple taxation because GAA's failure to

4 NRS 372.345 reads: “The storage, use or

other consumption in this state of prop-

erty, the gross receipts from the sale of

which are required to be included in the

measure of the sales tax, is exempted from

the use tax.”

=i0-

demonstrate actual multiple taxation is

fatal to its assignment of error. Whitcomb

Vv. Commissioner of Taxes, 479 A.2d 164,

168 (vt. 1984). GAA's counsel admitted

that no sales tax was paid in Kansas, and

there has been no showing that other

states are attempting to extract a func-

tionally equivalent use tax from GAA.

Because of this failure of proof, we need

not decide what effect a foreign jurisdic-

tion's uncredited sales or use taxes would

have on Nevada's taxing scheme.

GAA's argument that Nevada should

apportion its use tax based upon the

amount of miles flow in Nevada or hours

spent in Nevada would not only be adminis-

tratively complicated for both the state

and the taxpayer, but also misconceives

the function of a use tax,>- namely, to

> Use taxes are a form of excise tax. They

have long withstood constitutional chal-

o}le

prevent evasion of the state sales tax.

As the district court judge ably noted,

[A] use tax is imposed upon an

cut-off state purchase by ae state

resident when the object of the

purchase is used, stored or consumed

within the taxing state. NRS

372.185. The incidence of taxation

of the use tax is the residency of

the purchaser, the out-of-state

purchase, and the use, storage or

consumption of the purchased object

within the state. If these three

incidents occur in one state, that

state may assess a use tax on the

entire purchase price. Id. Under

these circumstances, there is no

danger of multiple state taxation of

the same tax incidences. The use tax

is a fairly apportioned tax. (Empha-

sis added.)

lenge and are employed "by all states that

have sales taxes in order to prevent

evasion of the sales tax, to equalize the

burdens on interstate and intrastate

transactions, and to expand the reach of

the sales tax beyond state boundaries. The

use tax is complementary to the _ sales

tax." White, State Sales and Use Taxes -

Variations, Exemptions, and the Aviation

Industry, 45 Journal of Air Law and Com-

merce, 509, 515-516 (1980). (Footnote

omitted. )

“it.

In Commonwealth Edison, whiie rejecting

the notion of a “local event," the Supreme

Court dismissed an apportionment challenge

by noting: "Nor is there any question

here regarding apportionment or potential

multiple taxation, for as the state court

observed, ‘the severance can occur in no

other state' and 'no other state can tax

the severance.'" Commonwealth Edison, 453

U.S. at 617. Viewing the use tax as

complimentary to the sales. tax, only

Nevada has a sufficient nexus with GAA to

levy a use tax upon its out-of-state

airplane purchase. The special relation-

ship between sales and use taxes, along

with the Complete Auto criteria, makes the

tax in the case at bar inherently appor-

tioned.

GAA also contends that Nevada's use tax

unduly burdens interstate commerce because

Pe ane ener oe

o)3-

it is discriminatory. The discrimination

prong of the Complete Auto test requires

that the state place no greater burden

upon interstate commerce than it places

upon competing intrastate commerce of like

character. Complete Auto, 430 U.S. at

282.

[A] State “may not discriminate

between transactions on the basis of

some interstate element." Boston

Stock Exchange, supra, 429 U.S., at

332-¢ Me La, 9? B-Ct., at 606, an. id.

That is, a State may not tax a

transaction or incident more heavily

when it crosses state lines than

when it occurs entirely within the

State.

Armco, Inc. v. Hardesty, U.S. P

, 104 S.Ct. 2620, 2622 (1984), reh'g

denied, U8. , 205 - Sees. fee

(1984).

Nevada's use tax, like the gross pro-

ceeds sales tax in Chicago Bridge & Iron

v. State, Dept. of Rev., 659 P.2d 463, 472

(Wash. 1983), appeal dismissed, U.S.

\

\

-14-

___, 104 S.Ct. 542 (1983) "treats intra-

state and interstate businesses equally,

making no distinction between them." Any

air carrier headquartered in Nevada,

whether intrastate or interstate, making

an out-of-state purchase of an airplane

which will be used, consumed or stored in

Nevada, is potentially subject to use

taxation. Under such circumstances, there

is no discrimination because intrastate

and interstate commerce are equally bur-

dened.

In passing, GAA argues that Nevada's

use tax is not fairly related to values

attributable to Nevada. This prong of the

Complete Auto test was addressed in Com-

monwealth Edison. The inquiry is premised

on whether the state has given anything

for which it can ask return and is closely

allied with the nexus inquiry. The greater

=} Se

the nexus, the less likely a benefits

challenge will be sustained. Because GAA

has a substantial nexus with Nevada and

derives many benefits from being a Nevada

corporation headquartered in Reno, the tax

is fairly related to values attributable

to Nevada. ®

NRS 372.320 exempts an "occasional

sale" from sales and use taxation. The

specific facts of each case are critical

6 we also conclude, under the former test

for state taxation of interstate commerce,

that there was a taxable moment, Southern

Pacific Co. v. Gallagher, 306 U.S. 167

(1939), in Nevada, when GAA's aircraft had

ended its interstate transportation and

not yet begun interstate operation. The

taxable moment was the storage which

occurred when the aircraft returned from

Kansas City and was stored in Reno prior

to beginning interstate operation on

September 26, 1979. Compare W. R. Grace &

Co. v. Comptroller of Treasury, etc., 258

A.2ad 740 (Md. 1969) with Management

Servs., Inc. v. Spralding, 547 S.W.2d 466

(Mo. 1977) and American Airlines, Inc. v.

State Bd. of Equalization, 30 Cal. Rprtr.

590 (Cal. App. 1983).

-16-

to evaluating whether a transaction is

exempted as an “occasional sale." Addi-

tionally, the taxpayer bears the burden of

proving that he is entitled to the exemp-

tion. See Pacific Pipeline Const. Co. v.

State Board of Equal., 321 P.2d 729, 732

(Cal. 1958). Because GAA failed to prove

that its purchase from TWA was an "“occa-

sional sale," the exemption does not

apply.

GAA's remaining contentions’ lacking

merit, we affirm the decision of the

district court.

ai Pa

APPENDIX B

ORDER DENYING REHEARING

No. 15992. In the Supreme Court of the

State of Nevada.

Great American Airways, a Nevada corpo-

ration, Appellant, vs. Nevada State Tax

Commission, an administrative agency of

the State of Nevada, Respondent.

Filed: March 5, 1986.

ORDER DENYING REHEARING

Appellant's petition for rehearing

has been considered and it is denied. NRAP

40(c).

It is so ORDERED.

-18-

APPENDIX C

DECISION

No. 80-9620. In the Second Judicial

District Court of the State of Nevada, In

and For the County of Washoe. Department

No. l.

Great American Airways, a Nevada Corpo-

ration, Petitioner, vs. Nevada State Tax

Commission, an administrative agency of

the State of Nevada, et al., Respondents.

Filed: June 22, 1984.

The parties to this petition for judi-

cial review have stipulated to the follow-

ing facts. Petitioner, Great American

Airways, is a Nevada corporation engaged

in providing contract air service in

interstate commerce. On July 2, 1979,

Petitioner purchased a DC-9 aircraft from

Trans World Airways (TWA) at a purchase

price of $3,600,000. Petitioner took

-19-

delivery of the aircraft in Wichita,

Kansas. The aircraft was then flown to

Kansas City, Kansas, for repairs according

to the maintenance contract. The aircraft

was registered in Kansas City, Missouri.

In September, 1979, the aircraft and

its crew underwent flight testing in order

to obtain federal certification with the

Federal Aviation Administration. The

crew, the federal inspectors, and some

non-paying passengers boarded the aircraft

in Kansas City and flew to Reno, Nevada.

The passengers deplaned in Reno. The

aircraft was refueled and resumed its

flight to Seattle, Washington. After

practicing landing maneuvers in Seattle,

the aircraft was returned to Reno where it

remained overnight. The next day the

aircraft, its crew and the _ federal

inspectors flew to Boise, Idaho, and

-20-

returned to Reno prior to September 26,

1979.

On September 26, 1979, Petitioner was

issued its operating certificate and it

commenced commercial air operations.

Petitioner assisted Evergreen Internation-

al Airlines with Evergreen's charter

commitments, including Evergreen's air

charter service agreement with the Carson

City Nugget (Nugget) from September 26,

1979, to September 30, 1979. Thereafter,

Petitioner contracted with the Nugget to

provide charter air service.

All Petitioner's flights are made to

locations outside the State of Nevada. In

most cases, the aircraft remains overnight

at an out-of-state location before return-

ing to Reno. All major maintenance of the

aircraft is done in Kansas City, Kansas,

under a contract with TWA. Minor mainte-

ee

nance is accomplished in either Oakland,

California, or Los Angeles, California.

All revenue that is received by Petitioner

arises from contracts with Nevada enti-

ties.

On February 1, 1980, Respondent noti-

fied Petitioner that a deficiency assess-

ment in the amount of $126,000, together

with interest in the amount of $2,000, had

been made pursuant to NRS 372.425. The

deficiency was determined for the period

beginning July 1, 1979, and ending Novem-

ber 30, 1979. $72,000 was assessed for

the Sales & Use Tax, $36,000 for the Local

School Support Tax, and $18,000 for the

County-City Relief Tax.

On February 14, 1980, a Petition for

Redetermination was filed by Petitioner.

That Petition alleged that Petitioner was

entitled to a constitutional exemption

-22-

from taxation under NRS 372.265. On May

12, 1980, the Petition for Redetermination

was set for hearing before a Nevada Tax

Commission Hearing Officer. On May 22,

1980, the Hearing Officer entered Findings

of Fact and Conclusions of Law which

rejected Petitioner's claim of a constitu-

tional exemption. Petitioner appealed

that decision to the Nevada State Tax

Commission. On October 7, 1980, the Tax

Commission denied Petitioner's appeal and

affirmed the Hearing Officer's decision.

This case comes before this court upon

a Petition for Judicial Review in accor-

dance with NRS Chapter 233B. NRS

233B.140(4) provides, in pertinent part,

that "“[t]Jhe court, upon request, shall

hear oral argument and receive written

briefs." The parties have submitted their

briefs in the form of Cross-Motions for

afi—

Summary Judgment pursuant to NRCP 54 and

have referred the court to Short v. Hotel

Riviera, Inc., 79 Nev. 94, 378 P.2da 979

(1963), as the applicable standard for

review. Since this is a matter for judi-

cial review, the court is bound to follow

the standards articulated in the Adminis-

trative Procedure Act, as provided in NRS

233B.140(5) and the cases of the Nevada

Supreme Court which interpret that statu-

tory section. See, e.g., Garvin v. State,

Dep't. of Mtr. Vehicles, 96 Nev. 827, 619

P.2d 534 (1980); Turk v. Nevada State

Prison, 94 Nev. 101, 575 P.2d 599 (1978);

Nevada Industrial Comm'n. v. Williams, 91

Nev. 686, 541 P.2d 905 (1975). NRS Chap-

ter 233B does not provide for the applica-

tion of the Nevada Rules of Civil

Procedure. This court will, therefore,

ignore the procedural dereliction of the

yo

parties and will consider this matter as

if the parties had followed proper proce-

dure.

Petitioner has alleged that Respon-

dent's decision is not in accordance with

the United States Constitution or statu-

tory provisions and has applied for judi-

cial review in accordance with NRS

233B.140(5)(a). The Petitioner has raised

two issues in its Petition for Judicial

Review. They are:

l. That Respondent accepted new evi-

dence while acting in an appellate capac-

ity, refused to allow Petitioner to

respond to this new evidence, and in doing

so, denied Petitioner its constitutional

right to due process; and

2. That the tax imposed upon Peti-

tioner is an impermissible burden upon

interstate commerce in violation of the

-25-

Commerce Clause of the United States

Constitution.

This court believes that the first

issue raised by Petitioner is without

merit. The record provided this court

fails to show any evidence that Respondent

considered additional evidence. Further-

more, at oral argument, counsel for the

parties informed this court that there

were no real statutory problems in this

case. Counsel conceded that the real

issue in this case is the _ constitu-

tionality of the assessed tax. In view of

that concession, this court will only

consider the constitutional argument

raised by the Petitioner.

Petitioner contends that its aircraft

has been engaged in interstate commerce

since the date of purchase on July 2,

1979. Petitioner argues that since the

-26-

aircraft has been in the stream of inter-

state commerce, a "taxable moment" did not

occur in the State of Nevada. Therefore,

the use tax is per se unconstitutional as

an impermissible burden on interstate

commerce. See Southern Pac. Co. Vv.

Gallagher, 306 U.S. 167, 59 §.Ct. 389

(1939); King v. L & L Marine Service,

Inc., 647 S.W.2d 524 (Mo. 1983). Addi-

tionally, Petitioner asserts that although

Gallagher has not been overruled by the

United States Supreme Court, that the High

Court has adopted a new test which applies

to all state taxation of interstate com-

merce. Petitioner asserts that this court

must apply this new test, as pronounced in

Complete Auto Transit, Inc. v. Brady, 430

U.S. 274, 97 S.Ct. 1076 (1977), reh'g

denied, 430 U.S. 976, 97 S.Ct. 1669, to

this case. It is Petitioner's contention

woth,

ow.

that the use tax will fail the apportion-

ment prong of the Complete Auto four-prong

test.

Respondent argues that the test of

Complete Auto has not been applied to a

state use tax and, therefore, it should

not be applied in this case. Respondent

also contends that a “taxable moment"

occurred in this state and urges this

court to apply the analysis of Gallagher

to this case.

After reading the administrative re-

cord, the briefs which were submitted by

the parties, several constitutional

treatises, and several law review arti-

cles, this court is persuaded that the

proper analysis to be applied in this case

is the four-prong test of Complete Auto.

Although Gallagher has not been specific-

ally overruled by the United States Su-

=28<

preme Court, the "taxable moment" theory

of the case does not appear to be the

appropriate modern analysis of = state

taxation and the Commerce Clause of the

federal constitution. See e.g., Common-

wealth Edison Co. v. Montana, 453 U.S.

609, 101 S.Ct. 2946 (1981), reh'g denied,

453 U.S. 927, 102 S.Ct. 889 (Complete Auto

applied to state severance tax); Nat.

Geographic Soc. v. Cal. Bd. of Equal., 430

U.S. 551, 97 S.Ct. 1386 (1977) (Complete

Auto applied to state use tax); L. Tribe,

American Constitutional Law $6-14 to 19,

at 344 to 369 (1978); Note, A Deferential

Interpretation of the Complete Auto Tran-

sit Test for Determining Whether a State

Tax Unconstitutionally Burdens Interstate

Commerce: Commonwealth Edison Co. Vv.

Montana, 1982 B.Y.U. L. Rev. 765;

Hellerstein, State Taxation in the Federal

=29—

System: Perspectives on Louisiana's First

Use Tax on Natural Gas, 55 Tul. L. Rev.

601 (1981); White, State Sales and Use

Taxes - Variations, Exemptions. and the

Aviation Industry, 45 J. Air. L. and Comn.

509 (1980). Since the United States

Supreme Court has declared that interstate

commerce must pay its way, states may now

tax property which is in interstate com-

merce if the tax scheme falls within the

ambits of the Complete Auto test. A

state court, however, in analyzing a state

tax scheme is also free to determine that

the tax is too burdensome upon interstate

commerce. See, e.g., King v. L & L Marine

Service, Inc., supra.

I believe that the use tax as applied

to Petitioner's aircraft is a valid state

tax and falls within the test of Complete

Auto. In Complete Auto, the United States

a

-30-

Supreme Court held that a tax on the

privilege of doing business in a state

does not violate the commerce clause,

absent a claim (1) that the business's

activity does not have sufficient nexus

with the state, (2) that the tax dis-

criminates against interstate commerce,

(3) that the tax is unfairly apportioned,

or (4) that the tax is unrelated to the

services provided by the state. See L.

Tribe, supra. At the outset, I note that

Petitioner has only challenged the appor-

tionment prong of Complete Auto. There-

fore, I will analyze the case at bar in

view of this prong only. Since this is

the only challenge to the validity of the

tax, this court assumes that Petitioner is

satisfied that the use tax passes federal

constitutional muster as to the three

other prongs. I, therefore, turn to this

«3i-

analysis.

Apportionment as used in the Complete

Auto test is a means to prevent multiple

taxation of the same tax incidence. See

White, State Sales and Use Taxes - Varia-

tions, Exemptions, and the Aviation Indus-

try, supra; Note, The Supreme Court, 1976

Term, 91 Harv. L. Rev. 72 (1977). Muiti-

ple taxation does indeed hinder interstate

commerce and has been often criticized by

the United States Supreme Court. See,

ScQer Northwest Airlines v. State of

Minnesota, 322 U.S. 292, 64 §.Ct. 950

reh'g denied, 323 U.S. 809, 65 S.Ct. 26. A

state tax is said to be fairly apportioned

if it adequately reflects the incidence of

the tax in the taxing state. Id.; Note,

The Supreme Court, 1976 Term, supra. For

example, a state sales tax applies to the

purchase of an object within a state.

-32-

That purchase happens in only one state.

It is therefore, a fairly apportioned tax.

Likewise, a severance tax applies to the

removal of minerals from one state.

Again, the removal of the minerals is an

event which happens in one state only. A

state mineral severance tax is also a

fairiy apportioned tax. Thus, the perti-

nent question in this case is whether the

incidence of the use tax occurs only in

this state.

The use tax as provided in NRS Chapter

372 is intended to complement the sales

tax. Compare NRS 372.105 with WNRS

372.185. See aiso, Nat. Geographic Soc.

v. Cal. Bd. of Equal., supra; Union Oil

Co. of Cal. Vv. State Board of

Equalization, 386 P.2d 496 (Ca. 1963),

appeal dismissed, 377 U.S. 404, 84 S.Ct.

1629 (1964). As noted above, a state

o33e

sales tax is assessed upon a purchase

which is made within the state. As a

complementary tax, a use tax is imposed

upon an out-of-state purchase by a state

resident when the object of the purchase

is used, stored or consumed within the

taxing state. NRS 372.185. The incidence

of taxation of the use tax is the

residency of the purchaser, the out-

of-state purchase, and the use, storage or

consumption of the purchased object within

the state. If these three incidents occur

in one state, that state may assess a use

tax on the entire purchase price. Id.

Under these circumstances, there is no

danger of multiple state taxation of the

same tax incidences. The use tax is a

fairly apportioned tax.

In the case at bar, Petitioner is a

Nevada resident. Petitioner purchased the

ee

~34-

aircraft out-of-state. Petitioner uses,

stores and consumes the aircraft within

Nevada. Under these circumstances, Nevada

is the only state which can assess a use

tax. Cf. Commonwealth Edison Co. v.

Montana, supra (Montana only state which

Northwest Airlines v. State of Minnesota,

could assess a mineral severance tax);

supra, (Minnesota only state which could

assess a recurring ad valorem tax). Fur-

thermore, the Petitioner has failed to ;

,

bring forth any evidence which would ,

indicate that it is subject to multiple

taxation. See Standard Pressed Steel Co.

v. Washington Dept. of Rev., 419 U.S. 560,

95 S.Ct. 706 (1975).

Therefore, based upon the record pre-

sented to this court, I find that the

assessed use tax is properly apportioned

and that the use tax passes federal con-

-35-

stitutional muster. I affirm the decision

below and further order Petitioner to pay

the assessed tax due Respondent.

DATED this 22nd day of June, 1984.

/s/ GRANT L. BOWEN

DISTRICT JUDGE

-36—

APPENDIX D

DECISION

Docket No. 11524. Account No. 204-751.

State of Nevada Department of Taxation.

In Re Great American Airways, Inc., on

Petition for Redetermination of a Defi-

ciency Determination.

This matter came on for hearing before

the Hearing Officer in the offices of the

Department situated in Carson City, Ne-

vada, on the 12th day of May, 1980.

Appearing for the taxpayer were Richard

G. Campbell, Esq., attorney; Mr. Ronald M.

Fune, President and Mr. Ken Damask, Direc-

tor of Finance. Representing the Depart-

ment were Mr. Gerald Rodrigue, Chief of

Audit; Mr. Robert Retrum, Supervising

Auditor and Ms. Josephine Matthews, Senior

Auditor.

An audit of the books and records of

eee rhlhleeeeeeeee ee

|

Great American Airways covering the period

July 1, 1979 through November 30, 1979 had

been conducted. As a result of the audit,

a Deficiency Determination in the total

amount of $128,520.00 was issued on Febru-

ary 1, 1980. The amount included tax of

$126,000 together with interest in the

amount of $2,520.00. A Petition for

Redetermination was timely filed on Febru-

ary 14, 1980 and the Petition stated:

"The Petitioner purchased the DC-9

airplane and took delivery in

Wichita, Kansas. The airplane com-

menced immediate interstate air

operation prior to its arrival in

Nevada. The airplane has never been

stored or used within the State of

Nevada except when it is engaged in

interstate air operations, pursuant

to authority issued by the Civil

Aeronautics Board.”

Mr. Campbell requested that the words

"Civil Aeronautics Board" be stricken from

the Petition and that the "Fédéral Avia-

tion Agency” be substituted therefor. The

-38—-

Hearing Officer concurred.

Mr. Campbell submitted as exhibits the

Articles of Incorporation of Great Ameri-

can Airways, Inc.; a copy of the operating

certificate issued by the Federal Aviation

Administration dated Septemner 26, 1979

and a copy of the purchase agreement

between the Petitioner and Trans World

Airlines Inc. for the procurement of a

Douglas DC-9-15 aircraft including in-

stalled engines.

FINDINGS OF FACT

l. Mr. Fune testified that the Peti-

tioner was a Nevada corporation incorpo-

rated on June 28, 1979 and had been issued

FAA "121 Commercial Operators Certificate"

as a charter operator for the Carson City

Nugget. Mr. Fune noted that they were not

permitted to charge individual passengers

but were limited to contracting with

CAS GY

-39—

casinos or entertainment groups in their

air operations. The Petitioner has but

one aircraft that was purchased from Trans

World Airlines for $3.6: million dollars

and that delivery took place in Wichita,

Kansas, on August 17, 1979. The aircraft

was flown to Kansas City, Kansas where a

maintenance contract with Trans World

Airlines was in effect and where certain

work was done on the aircraft.

2. The contract with the Carson City

Nugget was made prior to procurement of

the aircraft and was essential for the

financing of the purchase. The Federal

Aviation Authority officials took part in

a “proving" flight in mid September of

1979 where the aircraft was flown from

Kansas City, Kansas, to Reno, Nevada, and

from thence to Seattle for “touch and go”

landings then returning to Reno where the

-40-

aircraft remained overnight. After an

additional flight to Boise, Idaho on the

following day the aircraft returned to

Kansas City. After additional maintenance

work in Kansas City the aircraft was flown

to Reno, Nevada where additional crew

members were hired and qualified. Com-

mencing on the 26th of September, 1979 and

daily through the 30th of September of

1979 the Petitioner assisted Evergreen

International Airlines in conducting

charter flights for the Carson City Nug-

get. The contract with the Carson City

Nugget became effective October 1, 1979.

3. Subsequent to the commencement of

the contract operations with the Carson

City Nugget the Petitioner also entered

into contracts with the University of

Nevada Reno Athletic Department on Novem-

ber 19, 1979 and the MGM Grand Hotel in

wetted A cecal a»

oii} 0

Reno on November 25, 1979. These short

term contracts are still in force. The

contract with the Carson City Nugget is an

eight (8) year contract and guarantees

Petitioner 100 flying hours per month at a

set rate but with 15% escalation clauses.

4. All flights are made to locations

outside of the State of Nevada and, in

most instances, the aircraft remains

overnight at the out-of-state location.

5. The Petitioner contends that the

aircraft has been in interstate commerce

since the date of purchase in Wichita,

Kansas on August 17, 1979.

6. All major maintenance of the air-

craft is done in Kansas City, Kansas under

a contract with TWA. Minor maintenance is

accomplished in either Oakland, California

or Los Angeles, California. Maintenance of

the aircraft in Reno is limited to a

a4 2=

"daily walk-around" or an "A" or “"“B"

check. Such routine maintenance consists

of checking oil levels, tires, hydraulic

pressure and routine services. Such main-

tenance is also done whenever the aircraft

remains overnight at some other location.

7. Competitive airiines, not based in

Nevada, are not required to pay Nevada

sales or use taxes though operating under

similar contracts.

8. The aircraft is registered in the

State of Nevada according to official

Federal Aviation Administration records

and is, in fact, doing business in Nevada.

9. The aircraft is home based in Reno,

Nevada and parts for the aircraft are

shipped into Nevada and the use tax has

been paid on such parts.

10. Tax is imposed on tangible per-

sonal property used by Nevada businesses

=i 3—

and citizens.

ll. Use of the aircraft prior to

September 26, 1979 was for testing and to

insure that the aircraft and crew met FAA

standards. The first commercial flight

for which the Petitioner received compen-

sation was on behalf of Evergreen Interna-

tional Airlines on September 26, 1979

after the aircraft was located in Reno,

Nevada.

CONCLUSIONS OF LAW

l. NRS 372.075 defines storage as

including any keeping or retention in this

state for any purpose except sale in the

regular course of business or subsequently

for the purpose of transporting it outside

the state for use thereafter solely out-

side tne state of tangible personal prop-

erty purchased from a retailer.

2. NRS 372.080 states in part “storage

-44-

and use do not include the keeping, re-

taining or exercising any right or power

over tangible personal property for the

purpose of subsequently transporting it

outside of the state for use thereafter

solely outside the state . . ." (emphasis

added )

3. NRS 372.185 imposes an excise tax

on the storage, use or other consumption

in the state of tangible personal property

purchased from any retailer.

*_ NRS 372.265 states: "There are

exempted from the taxes imposed by this

chapter gross receipts from the sale of,

and the storage, use or other consumption

in this state of, tangible personal prop-

erty the gross receipts from the sale of

which, or the storage, use or other con-

sumption of which, this state is prohib-

ited from taxing under the constitutional

-45-

laws of the United States or under the

constitution of this state."

5. Attorney General's Opinion No. 285

of May 17, 1962 holds: “Tangible personal

property, for conduct of business opera-

tions by a Nevada airline company consti-

tuting interstate commerce, is not immune

or exempt from state non-discriminatory

storage and use excise tax, simply because

purchase and transfer of legal title

thereto was effected extra-state, if a

taxable moment or event in connection

therewith is shown to have occurred within

the state before the same again is regu-

larly placed in interstate commerce."

6. NRS 372.320 exempts from the taxes

the gross receipts from occasional sales

of tangible personal property and the

storage, use or other consumption in this

state of tangible personal property, the

aii

transfer of which to the purchaser is an

occasional sale.

7. NRS 372.055 defines a retailer as

every person making more than two retail

sales of tangible personal property during

any 12 month period.

DECISION

WHEREAS Petitioner indicated that

certain flight logs pertaining to the

initial operation of the DC-9 aircraft in

question and citations from the United

States Supreme Court and other state

supreme courts in similar instances could

be provided to the Hearing Officer, it was

determined that the Petitioner should be

Given until Tuesday, May 20, 1980 to

submit such information. Petitioner did,

in fact, submit the information indicated

on May 22, 1980 having been granted an

extension of time for submission by the

Hearing Officer.

WHEREAS, the Hearing officer having

heard the testimony and reviewed the

documents submitted by the Petitioner, the

following decision is rendered:

(1) Contract air operations did not

commence until after the aircraft was

situated in Nevada and the tax due is

non-discriminatory and the taxable inci-

dent does not fall within the exemption

cited in NRS 372.320.

(2) The “occasional” sale exemption

insofar as a purchaser is concerned ap-

plies only if the individual transferring

the property to the purchaser does not

meet the statutory definition of a re-

tailer. No evidence having been presented

that Trans World Airlines is not a re-

tailer as defined in Nevada statute

372.055, the transaction is determined not

To

to be an “occasional” sale.

Accordingly, the Petition for Redeter-

mination is denied and the findings of the

audit are affirmed and the tax, together

with applicable interest is now due and

payable. The taxpayer is reminded that

interest will continue to accrue until the

tax liability is extinguished.

No part of this decision shall become

final until the Tax Commission has an

opportunity to affirm, modify or reverse

this decision in its entirety or any part

thereof.

The taxpayer has an opportunity pursu-

ant to Rules 56 through 60 of the Regula-

tions of Practice and Procedure before the

Nevada Tax Commission to appeal all or any

part of this decision to the Tax Commis-

sion by filing with the Tax Commission a

notice of intent to appeal within fifteen

o49-

(15) days from the receipt of a copy of

this decision.

Dated at Carson City this 22nd day of

May, 1980.

FOR THE COMMISSION:

/s/ ROY E. NICKSON

Roy E. Nickson

Hearing Officer

-50-

APPENDIX E

NOTICE DENYING

ADMINISTRATIVE APPEAL

October 9, 1980

Certified Mail-828908

Richard G. Campbell, Esq.

P.O. Box 2610

Reno, NV 89505

Re: Appeal of Great American

Airways, Inc.

Account No. 204-751

Docket No. 11524

Dear Mr. Campbell:

At a regularly scheduled meeting of the

Nevada Tax Commission in Carson City on

October 7, 1980 the Commission denied the

appeal of Great American Airways, Inc. and

affirmed the Hearing Officer's decision

dated May 22, 1980 in the Matter of the

Petition for Redetermination of a Defi-

ciency Determination of Great American

Airways, Inc.

The motion was made by Commissioner

=-5l=

Mikulich, seconded by Commissioner Plath

and carried unanimously.

FOR THE COMMISSION

/s/ ROY E. NICKSON

Roy E. Nickson

Executive Director

a Dune

APPENDIX F

PERTINENT TEXT OF

ADDITIONAL PROVISIONS OF

NEVADA REVISED STATUTES

CHAPTER 372

Nevada statutes define the incidents of

use taxation as follows--

"Use" includes the exercise of any

right or power over tangible per-

sonal property incident to the

ownership of that property, except

that it does not include the sale of

that property in the regular course

of business.

NRS 372.100.

"Storage" includes any keeping or

retention in this state for any

purpose except sale in the regular

course of business or subsequent use

solely outside this state of tangi-

ble personal property purchased from

a retailer.

NRS 372.075.

"Storage" and “use” do not include

the keeping, retaining or exercising

any right or power over tangible

personal property for the purpose of

subsequently transporting it outside

the state for use thereafter solely

outside the state, or for the pur-

pose of being processed, fabricated

Or manufactured into, attached to,

or incorporated into, other tangible

@5 30

personal property to be transported

outside the state and thereafter

used solely outside the state.

NRS 372.080. Nevada statutes create

the following presumptions in favor of

taxation--

It is presumed that tangible per-

sonal property shipped or brought to

this state by the purchaser on or

after July 1, 1979, was purchased

from a retailer on or after July l,

1979, for storage, use or other

consumption in this state.

NRS 372.250.

1. On and after July 1, 1979, it

is presumed that tangible personal

property delivered outside this

state to a purchaser known by the

retailer to be a resident of this

state was purchased from a retailer

for storage, use or other consump-

tion in this state and stored, used

or otherwise consumed in this state.

2- This presumption may be con-

troverted by:

(a) A statement in writing,

signed by the purchaser or his

authorized representative, and re-

tained by the vendor, that the

property was purchased for use at a

designated point or points outside

this state.

(b) Other evidence satisfactory

to the department that the property

was not purchased for storage, use

or other consumption in this state.

~$4x

NRS 372.255.

There are exempted from the taxes

imposed by thlese statutes] the

gross receipts from the sale of, and

the storage, use or other consump-

tion in this state of, tangible

personal property the gross receipts

from the sale of which, or the stor-

age, use or other consumption of

which, this state is prohibited from

taxing under the Constitution or

laws of the United States or under

the constitution of this state.

NRS 372.265.

If approved by Nevada voters at the

general election on November 4, 1986, the

following paragraph will be added to NRS

372.185-

The tax is imposed with respect to

all property which was acquired out

of state in a transaction that would

have been a taxable sale if it had

occurred within this state.

—————

eeeeEEEeEeEeEEEEeEeEeEeEeEeEEeEeEeyEeEeEeEeEeEeEeEeEeEeEeEOE———eeeeeeeeeeeseee es tts«CSYN