# Petition for Writ of Certiorari — Alaska Airlines, Inc. v. Department of Revenue of Oregon > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385020_0227%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition for Writ of Certiorari - **Published:** January 1, 1990 - **Citation:** 493 U.S. 1019 ## Text 8 9 _ 3 4 6 Supreme Court, U.S. FILE D i AUG i968 No. 89- r SP SPANIOL, JR. CUE FR ‘o IN THE Supreme Court of the United States OCTOBER TERM, 1989 ALASKA AIRLINES, INC. and USAIR, INC., Petitioners, v. DEPARTMENT OF REVENUE, STATE OF OREGON, Respondent. PETITION FOR A WRIT OF CERTIORARI TO THE OREGON SUPREME COURT ROBERT L. WEISS WALTER A. SMITH, JR.* RICHARD M. BOTTERI JOHN G. ROBERTS, JR. JAMES P. DRAUDT HOGAN & HARTSON WEISS, DESCAMP & BOTTERI 555 Thirteenth Street, N.W. 2300 U.S. Bancorp Tower Washington, D.C. 20006-1109 111 S.W. 5th Avenue (202) 637-5728 Portland, Oregon 97204 Counsel for Petitioners (503) 243-2300 * Counsel of Record WILSON - EPES PRINTING Co., INC. - 789-0096 - WASHINGTON, D.C. 20001 a ici i ints abe tes QUESTION PRESENTED May a State constitutionally tax airplanes based on their flight over that State? (i) ii PARTIES TO THE PROCEEDINGS Petitioners Alaska Airlines, Inc. and USAir, Ine. were plaintiffs-appellants in the court below. Respondent De- partment of Revenue, State of Oregon, was defendant- appellee in the court below. As required by Rule 28.1, petitioners state that Alaska Air Group, Inc. is the parent company of petitioner Alaska Airlines, Inc. USAir Group, Inc. is the parent company of USAir, Ince. TABLE OF CONTENTS Page QUESTION PRESENTED on... nc... cscs cccec cs. i PARTIES TO THE PROCEEDINGS ..00..0...0.0-00-c0000-00-- ii TABLE OF AUTHORITIES .....................-e.ccceccssccse.- V I I occ sccescnsccsoccceacsnvacvensentene 1 ac censcasnasacsnrecnincseconsansio 1 CONSTITUTIONAL PROVISIONS INVOLVED... 2 STATEMENT OF THE CASE 0000.0... -o--cccccsecoeeoeeoeeee- 2 REASONS FOR GRANTING THE WRIT... 7 I. THE LOWER COURT’S DECISION DI- RECTLY CONTRADICTS DECISIONS OF aang oa bc vtcasivemcanonnnenncneh 7 Il. THE VARIOUS STATE TRIBUNALS ARE DIVIDED OVER THE CONSTITUTIONAL- ITY OF OVERFLIGHT TAXES...........000000........ 16 Ill. OVERFLIGHT TAXES WOULD HAVE A SIGNIFICANT IMPACT ON THE AIRLINE INDUSTRY AND THE NATIONAL TRANS- II ROTO MII ociccecsncssinscnascsesesssacersasnenens 18 CONCLUSION ................ Reeiabsinadedbartcechswtannissetananeatcabsoqssene 23 (iii) iv TABLE OF CONTENTS—Continued APPENDICES Appendix A: Appendix B: Appendix C: Appendix D: Appendix E: Qpinion of the Supreme Court of the State of Oregon ...................... Opinion of Oregon Tax Court........ Opinions and Orders of Department GN ae MTA a OL Res Appellate Judgment and Final Or- der of the Supreme Court of the Ns er io csc setncnenee Order Extending Time Within Which fo Petition for Certiorari.. Page la 17 26a 30a 33a v TABLE OF AUTHORITIES Cases Page American Trucking Associations Vv. Scheiner, 483 Ss EERE eer rnd: Savon anor aa 13, 14 Armco Inc. V. Hardesty, 467 U.S. 688 (1984) ........ 13 Blangers Vv. Idaho, Dept. of Taxation, No. 138 (Idaho, Oct. 28, 1988) (LEXIS, States li- TTT IIT TI ALTE ART BODEN TIN EIS) Vee ea 1f Boston Stock Exchange v. State Tax Commission, Bt EB: 5 , RRR NRT MOR ret ON 14 Braniff Airways, Inc. v. Nebraska State Board of Equalization & Assessment, 347 U.S. 590 OI saiditicctessnincpnkatininccinicisaeshtinbcanticighnacuamaiingaihiataniadaatal 8, 9, 10 City of Burbank v. Lockheed Air Terminal, Inc., GES Tees Sa Ee se ininciactecsecsitieceshsinaincigaciaieadadetastaentas 11 Evansville-Vanderburgh Airport Authority Dis- trict v. Delta Airlines, 405 U.S. 707 (1972) ........ 22 Goldberg v. Sweet, 109 S. Ct. 582 (1989) 000... passim Helson & Randolph v. Kentucky, 279 U.S. 245 CRIT ccosccucoitstnnsnasicsendcanunaciavcnedseidoiniebiaddansi tah selactumienigns 9 Maryland v. Louisiana, 451 U.S. 725 (1981) _...... 13 Michigan-Wisconsin Pipeline Co. v. Calvert, 347 ere ee is niccnsascchanieshncpehissaieeaenliigndalenigcatiiaeoeiies 16 Norfolk & Western Railway Co. v. Missouri State Tax Commission, 390 U.S. 317 (1968).................. 10 Northwest Airlines, Inc. v. Minnesota, 322 U.S. SON TI iiiicdacdicccasscenicccrettacceansccelataienesaaadedmunata passim Northwest Airlines, Inc. v. State Tax Appeal Board, 720 P.2d 676 (1986) ...............0000c 16, 17 Ott v. Mississippi Valley Barge Line Co., 336 U.S. Ue RD cb adic cae acon calicarnaanianid 8 Repudlic Airlines, Inc. v. Wisconsin Dept. of Reve- nue, © 203-058 Wisc. Tax Reports (CCH) at pk kg Re RUE rere 17 Southern Pacific Transportation Co. v. Dept. of Revenue, 732 P.2d 18 (1987).............0...0.............- 3 Tyler Pipe Industries, Inc. Vv. Washington State Dept. of Revenue, 483 U.S. 232 (1987) ............ 13 United Airlines, Inc. v. Mahin, 410 U.S. 623 REPUTE cnccacotihinedanicaccincetoiaGiiendes seduce aaa aa 7, 8,9 vi TABLE OF AUTHORITIES—-Continued Page USAir, Inc. Vv. Pennsylvania, No. 567 (Fa. Commw. Ct., Aug. 30, 1988) (LEXIS, States 5 CR OG ee ae THEI OS LEE EN TS 17 Constitutional Provisions and Statutes op RR OW a FO RRR een Retest ere passim ay Ma MIN, FE vasasencsnntsecesviccchbinatiadiaeceeanl passim 18 U.S.C. $§ 35, 659, 922, 2101-02, 2199, 2314........ 11 Be ein a re GD hse tniteestinacs saeeesiegheladipocannenngaitinnianns 2 a te I i sccSedsncincscienccbeniaciie cantadabamhipidlacaadpeaaens 1l Airline Deregulation Act of 1978, Pub. L. No. 95- la, Ce ae I roc ieasincssnisvnniipen aliedicebiaca it tchianiiaes citinses 18 Oregon Revised Statutes $$ 308.515(1) (a), .550, Fs ME Seectthakctbseiadnaccakccndcéaeaceosadecn ames 2,3 Oregon Revised Statute § 498.070 —......-. ee. 12 Congressional Material Airport Development Acceleration Act of 1973: Hearings on H.R. 4082, H.R. 2695, H.R. 4213, H.R. 4214, H.R. 4182 and S. 88 Before the Subcomm. on Transportation and Aeronautics ot the House Comm. on Interstate and Foreign Commerce, 93rd Cong., Ist Sess. (1973) .......... 22 S. Rep. No. 12, 93rd Cong., Ist Sess. (19738) .......... 22, 28 Other Authorities Air Transport Association of America 1989 An- EE IID sscccannicccncseeneniiasieeeaee 20 FAA Aviation Forecast—Fiscal Years 1989-2000 (March 1989) (U.S. Dept. of Transportation) .. 18, 19, 20 State Aviation Activity Funding and Aviation Generated Tax Revenue (National Association of State Aviation Officials, Center for Aviation Research and Education, Sept. 1988) 0.0.0... 21 Statistical Abstract of the United States (Depart- ment of Commerce, Bureau of Census, Jan. BUNGIE. sicvacosecstinsinnekauindiodisesidcuahinbeinbsaiasniablashceaeiccin eiaats 19 vii TABLE OF AUTHORITIES—Continued Page The Business Journal—Portland, Oct. 31, 1988, NIE Uh Anaussnttesics cortriiacisbts anid ns 22 The Economic Benefits of Air Transportation (Air Transport Association of America, Sept. I a ONL ors MILO OECD A TAS Dan 20, 21, 22 The Economic Impact of Civil Aviation on the U.S. Economy (Partnership for Improved Air 7 eee ee 21 The 1988-89 Economic Review of Travel in Amer- ica (U.S. Travel Data Center 1989) 20 IN THE Suprenw Cant of the United States OCTOBER TERM, 1989 No. 89- ALASKA AIRLINES, INC. and USAIR, INC., Petitioners, Vv. DEPARTMENT OF REVENUE, STATE OF OREGON, Respondent. PETITION FOR A WRIT OF CERTIORARI TO THE OREGON SUPREME COURT Petitioners Alaska Airlines, Inc. (“Alaska Air’) and USAir, Ine. (“USAir’’) petition this Court for a writ of certiorari to review the judgment of the Oregon Supreme Court in this case. OPINIONS BELOW The opinion of the Oregon Supreme Court is reported at 769 P.2d 193 and is reprinted in the Appendix to this Petition (“App.”) at la. The opinion of the Cregon Tax Court is reported at 10 O.T.R. 518 and is reprinted at App. 17a. The decisions of the Oregon Department of Revenue are unreported and are reprinted at App. 26a, 30a. JURISDICTION The judgment of the Oregon Supreme Court was en- tered on May 1, 1989. App. 32a. On July 25, 1989, Justice O’Connor entered an order extending the time 2 for filing a petition for a writ of certiorari to and in- cluding August 29, 1989. App. 33a. The jurisdiction of this Court is invoked under 28 U.S.C. § 1257(a). CONSTITUTIONAL PROVISIONS INVOLVED The Commerce Clause of the United States Constitu- tion, Art. I, $8, cl. 3, provides in pertinent part that “The Congress shall have Power ... to regulate Com- merce... among the several States... .” The Due Process Clause af the Fourteenth Amendment to the United States Constitution provides in pertinent part that “No State shall ... deprive any person of... property ... without due process of law... .” STATEMENT OF THE CASE This case presents the question whether a State may constitutionally tax interstate commercial aircraft simply because they have flown over that State. The Oregon tax authorities determined that a State may do so, and they have been upheld by the Oregon Tax Court and the Ore- gon Supreme Court. Under Oregon law, the Oregon Department of Rev- enue (“DOR”) is required to make an “annual assess- ment” of property that has “a situs” in the Staite and is held for use by certain “designated utilities and companies.” Oregon Revised Statutes (‘‘O.R.S.’’) § 308.515(1) (a). The assessment requirement is appli- cable to companies engaged in “air transportation,” whether “in domestic or interstate commerce or both.” Id. When a company operates “both within and without” Oregon, DOR is authorized to value the company’s total proverty “as a unit” and thereafter to determine what part of that “unit” is properly attributable to the State. O.R.S. $$ 308.550, .555. In determining the portion at- tributable to Oregon, DOR is authorized to employ any 3 ‘ method that is “reasonable.” O.R.S. § 308.550(2). The Oregon Supreme Court has interpreted the term “rea- sonable” as constituting ‘“‘a codification of the limits im- posed by the due process and commerce clauses of the United States Constitution.” ! A. DOR’s Formula for Taxing Airplanes Based on the foregoing, DOR devised the following time-based formula to assign an in-State taxable value to a given caryrier’s airplanes flying interstate routes: Oregon Taxable Value = Total Oregon Time for Carrier (Oregon Ground Time plus Oregon Flight Time plus Total Aircraft Value x Oregon Overflight Time) System-Wide Time for Carrier Thus, the formula first totals the ground time for each of a carrier’s take-offs or landings in Oregon (Oregon ground time); the formula then adds the flight time in Oregon for all of the carrier’s flights originating or terminating in the State (Oregon flight time); next, it allocates to Oregon all time spent by the carrier’s flights passing over Oregon on their way to and from other States (Oregon overflight time); finally, it divides this total time allocated to Oregon by the carrier’s system- wide time. The resulting fraction determines the portion of the total value of the carrier’s aircraft that Oregon taxes. B. DOR’s Taxation of Petitioners DOR applied this valuation method to the present peti- tioners, Alaska Air and USAir.? Both companies were 1 Southern Pacific Transportation Co. v. Dept. of Revenue, 732 P.2d 18, 21 (1987). 2 At the time DOR first applied its formula to USAir’s aircraft, they were owned by Pacific Southwest Airlines, Inc. (“PSA”). However, due to the merger between PSA and USAir in 1988, a a 4 incorporated outside Oregon; both maintained their cor- porate headquarters, flight-training facilities, major re- pair facilities, and base-maintenance facilities outside the State; and only 1% of each company’s work force is em- ployed in Oregon. App. 4a. In 1985, the year here at issue,* both companies oper- ated commercial airline flights that landed in Oregon; in addition, owing largely to Oregon’s location between major West-coast cities, both carriers had a significant number of flights that merely flew over Oregon enroute to other States. Indeed, both companies had significantly more flights passing over Oregon than flights landing in the State. Specifically, Alaska Air’s 1985 ratio of over- flights to in-State flights was 1.57; USAjir’s ratio was even larger, 2.66.4 As a result, under DOR’s formula, 45% of Alaska Air’s assessed aircraft value attributed to Oregon and fully 49% of USAir’s value attributed to Oregon was based solely on such overflights. App. 4a. Stated in dollar terms, by including overflight in its tax- ation formula, DOR nearly dowbled Alaska Air’s assessed Oregon value—from $11.7 million to $21.3 million; it similarly increased USAir’s assessed value—from $13.2 million to $26.1 million.°® USAir was substituted as the real party in interest in the Oregon Supreme Court (App. 4a n.1) and is the petitioner here. 3 DOR’s tax assessment date is January 1 and is based on data for the previous year. Thus, the valuation date in this case is January 1, 1986 and rests on 1985 data. 4JIn 1985, Alaska Air had 6,858 Oregon flights and 10,747 over- flights, producing its ratio of 1.57. In 1985, USAir had 3,852 Oregon flights and 10,236 overflights, producing a ratio of 2.66. Each carcier’s number of overflights and in-State flights is de- rived from data the carriers file with the U. S. Department of Transportation on ER 586, Domestic Service Segment Data. 5 The difference in assessed value is calculated simply by remov- ing overflights from Oregon’s assessed value. 5 C. The Tax Court’s Decision Alaska Air and USAir challenged DOR’s assessment in the Oregon Tax Court, contending that the effective tax- ation of their fly-overs violated both the Due Process and Commerce Clauses of the U.S. Constitution. The Tax Court agreed that petitioners’ planes had been taxed on the basis of their overflights, holding that that was “pre- cisely the effect of including [the overflights] in the formula.” App. 24a n.4. It furthermore agreed that Ore- gon could not constitutionally tax the overflights unless they had a nexus with or “situs” in the State. App. 19a. The court found this nexus requirement met on two alternative grounds: (1) Oregon’s criminal law “ex- tends into the skies” to the overflying planes and any such planes that might fall from the skies would receive the State’s “search and rescue” benefits; and (2) in anv event, the State’s benefits to petitioners’ planes that land in Oregon “are sufficiently great to extend to all of [their| property,” including their planes that merely fly over. App. 24a-25a (emphasis supplied). The court therefore affirmed the tax. D. The Oregon Supreme Court’s Decision Petitioners appealed the Tax Court’s decision to the Oregon Supreme Court, again contending that the sub- stantial tax on their overflights violated the Due Process and Commerce Clauses. The State’s Supreme Court rec- ognized that Oregon provided no regular services to peti- tioners’ overflights. App. 4a. Indeed, it expressly ac- knowledged that the only governmental service provided the overflights was exclusively federal: “radio communi- eation with radar tracking by air traffic controllers of the Federal Aviation Administration.” App. 5a. Never- theless, as did the Tax Court, the Oregon Supreme Court rejected petitioners’ contention that the substantial tax on their overflights violated the Constitution. Unlike the Tax Court, the Oregon Supreme Court first reasoned that petitioners’ overflights had not in fact been 6 — taxed: “[t]he validity of each airline’s tax assessment does not depend upon whether the State could have as- sessed a tax against overflights—the state did not do so. Rather, the validity depends upon whether each airline’s aircraft property was part of a unit with situs in this state and whether the state fairly apportioned that unit.” App. 8a (emphasis supplied). Because petitioners* air- craft as a unit did have significant State contacts— “through aircraft landings, departures, boarding and de- planing of passengers and unloading of cargo’’—the court held those contacts sufficient “to sustain the power of this state to levy an apportioned ad valorem tax.” App. 8a (emphasis supplied). The court therefore saw the central question as whether petitioners’ property had been fairly apportioned to the State. ~ In resolving this apportionment question, the court recognized that the State could not tax extraterritorial values, but only those fairly attributable to activities “in” Oregon. App. 9a. The court furthermore acknow!- edged that overflights are not “in” Oregon the way that railroad tracks, for example, are “in” the State, and that valuing aircraft on the basis of their overflight is there- fore not equivalent to valuing rolling stock on the basis of in-State railroad tracks. As the court stated, “[r]Jolling stock and railroad track touch the ground, but aircraft in flight, obviously, do not.” App. 9a. Nevertheless, the ~ eourt concluded that petitioners’ overflights were “in” Oregon for purposes of the property tax in the same way their flights landing in Oregon were in the State; this must be so, the court reasoned, because petitioners “(| did] not explain where an overflight was if not ‘in’ the state . ‘In’ would seem to be the answer because [of] ... the applicability of Oregon criminal law to overflights.” App. 10a. Having thus concluded that petitioners’ aircraft as a unit had a “situs” in the State, and that the overflight component of this unit was “in” the State, the court 7 found DOR’s formula consistent with the Due Process Clause. App. 10a. For substantially the same reasons, it also found the formula consistent with the Commerce Clause. App. 12a-14a. The court therefore affirmed the tax against petitioners. REASONS FOR GRANTING THE WRIT This Court should grant review in this case for three reasons: (1) the lower court’s approval of the challenged tax directly contradicts decisions of this Court; (2) the State courts are currently divided over the constitutional- ity of such taxes; and (3) such taxes, if permitted to stand, would have a significant, disruptive impact on the airline industry, the nation’s transportation system, and the consumers served by that system. I. THE LOWER COURT’S DECISION DIRECTLY CONTRADICTS DECISIONS OF THIS COURT The Oregon Supreme Court thought that the question of taxing airplane overflight “ha[d] not before been raised” in this Court. App. 9a. In fact, it has often been raised here; more importantly, it has been repeatedly decided by this Court directly contrary to the reasoning and judgment of the lower courts in this case. Indeed, just last Term in Goldberg v. Sweet, 109 S. Ct. 582 (1989), this Court expressly noted that a “State has no nexus to tax an airplane based solely on its flight over the State.”* Goldberg’s recognition of this principle simply reflects a long line of cases that began with North- west Airlines, Inc. v. Minnesota, 322 U.S. 292 (1944). In Northwest Airlines, this Court for the first time addressed the constitutionality of a State tax levied on planes of an interstate airline. There, the Court held that only an airline’s domiciliary State may lay a property $Id. at 589 (citing United Airlines, Inc. v. Mahin, 410 U.S. 623, 631 (1973); Northwest Airlines, Inc. v. Minnesota, 322 U.S. 292, 302-04 (1944) (Jackson, J., concurring) ). 8 tax on the airline’s planes flying interstate, unless an- other State has “shown ... that a defined part of the [planes] has acquired a permanent location, i.e., a tax- ing situs” in that other State. Jd. at 295, 298. In his concurring opinion, Justice Jackson expressly stated what has become the law of this Court: “flight over a state either casually or on regular routes confers no jurisdiction to tax.” Id. at 304 (emphasis supplied). Subsequently, in Braniff Airways, Inc. v. Nebraska State Board of Equalization and Assessment, 347 U.S. 590 (1954), the Court addressed the showing that a non- domiciliary State must make to demonstate that a “de- fined part” of a carrier’s fleet has in fact acquired a tax- able “situs” in that other State. The standard to be applied, the Court held, is whether the nondomiciliary State’s tax “in practical operation” is shown to have a nexus with specific “opportunities, benefits, or protection conferred or afforded by [that] State.” Jd. at 600 (quot- ing Ott v. Mississippi Valley Barge Line Co., 336 U.S. 169, 174 (1949)). Because Braniff’s aircraft were shown by Nebraska to have eighteen stops a day in that State, the Court held that “the situs issue devolves into the ques- tion whether eighteen stops per day by [Braniff’s] aircraft is sufficient contact ... to sustain... an apportioned ad valorem tax on such aircraft.” 347 U.S. at 600-01 (em- phasis supplied). The Court held that “such regular contact is sufficient to establish Nebraska’s power to tax,” noting that “Nebraska certainly affords protection during such stops and these regular landings are clearly a bene- fit to [Braniff].” Jd. at 601. Since the Braniff decision, the Court has twice ad- dressed the question whether activity Jess than the regular landings and departures shown there would meet a State’s burden to show “situs” over activities of interstate air- craft. The first case was United Air Lines, Inc. v. Mahin, 410 U.S. 623 (1973). There, the question was whether a State may levy a use tax on the full value of aviation fuel stored in that State and then loaded aboard aircraft 9 to be consumed in interstate flights. The Court upheld such a tax on the basis of two critical factors: (1) States over which the planes fly would have no authority to levy a tax;* and (2) permitting a tax on the full value by the State where the fuel was stored and loaded is “a fair result,” because,that State “is likely to provide substantial services... .” 410 U.S. at 630, 631. The latest reiteration by this Court that overflight does not provide a basis for State taxation came in Goldberg, a case that concerned taxation of interstate telecommuni- cations. There, the Court held that only the originating and terminating States “have a nexus substantial enough” to tax an interstate telephone call. 109 S. Ct. at 590. To support its further holding that the States over which the call’s electronic signal “merely pass[ed]” would have no basis to tax, the Court, as previously noted, relied on two of its overflight-tax decisions as follows: See United Air Lines, Inc. v. Mahin, 410 U.S. 623, 631 (1973) (State has no nexus to tax an airplane based solely on its flight over the State) ; Northwest Airlines, Inc. v. Minnesota, 322 U.S. 292, 302-304 (1944) (Jackson, J., concurring). [109 S. Ct. at 589 (emphasis supplied) .] As earlier indicated, the citation to Justice Jackson’s opinion includes his determination that “flight over a state . . . confers no jurisdiction to tax.” In the face of these decisions—Helson, Northwest Air- lines, Braniff, United Airlines, and Goldberg—it is diffi- cult to understand how the lower courts could have found the question presented by this case to be an open one. Under this Court’s decisions, planes flying over a State 7In holding that fly-over States have no jurisdiction to tax, the Court relied on Helson & Randolph v. Kentucky, 279 U.S. 245 (1929). There the Court held that a State through which an inter- state boat trip passed could not constitutionally tax fuel consumed in the passage. 10 are not “in the State” either for Due Process or Com- merce Clause purposes. The fact that Oregon chose to tax petitioners’ airplanes as “a unit” does not alter tnis constitutional principle. Rather, it simply means that the State had to apportion to Oregon only that part of the unit which was “in the State.” Whether this case is viewed as one of nexus under the Due Process Clause, or one of apportionment under the Commerce Clause, the constitutional standard is in either event the same: a State may not tax “property not located in the taxing State.” Norfolk & Western Railway Co. v. Missouri State Tax Commission, 390 U.S. 317, 325 (1968). Such a tax “is constitutionally invalid, both because it imposes an illegitimate restraint on interstate commerce and because it denies to the taxpayer the process that is his due.” Id. (footnote omitted). The only justification the Oregon courts gave for treat- ing the overflights as “in the State” was their claim that Oregon’s criminal laws might be applied to overflights and that search and rescue benefits might be afforded if a flight landed in Oregon on an emergency basis. There are several complete answers to these claims. First, the claims are completely incompatible with this Court’s determination that States have insufficient con- tacts to warrant overflight taxes. Second, even if this Court’s decisions were not otherwise completely disposi- tive, under Northwest Airlines and Braniff it was DOR’s burden to prove that its contacts were of such significance “in practical operation” that they effected a “situs” for the overflights. DOR never did so; indeed, for all the record shows, Oregon’s asserted criminal law and search and rescue have never been applied or given any benefit to a single carrier overflight, must less served as a con- stitutional justification for multi-million-dollar assess- ments on overflying carriers. It is not surprising that DOR could not make the requisite showing. Whatever criminal laws Uregon might 11 hypothetically apply to the overflights are rendered super- flous (if not wholly pre-empted)* by the comprehensive, pervasive federal scheme of criminal laws relating to interstate air commerce that already prohibit: threats of harm regarding interstate flights, thefts from interstate commerce, civil disturbances on interstate aircraft, trans- portation of stolen goods on interstate commerce, stow- aways on aircraft, transportation of firearms or ammuni- tion by aircraft passengers, carrying weapons or explo- sives aboard aircraft, improperly carrying hazardous materials aboard aircraft, aircraft piracy, interference with flight crew members or flight attendants, assault, maiming, personal property theft, receiving stolen prop- erty, murder, manslaughter, attempted murder or man- slaughter, sexual abuse, robbery, and conveying false information. 18 U.S.C. §§ 35, 659, 922, 2101-02, 2199, 2314; 49 U.S.C. § 1472. Similarly lacking in substance is the claim that State assistance to emergency landings creates a taxable nexus for ali overflights. In the first place, any emergency landings are already counted in DOR’s formula as in- State Oregon flights, not overflights. App. 24a-25a. Sec- ond, DOR did not even begin to show that “in practical operation” its asserted search and rescue efforts have established an in-State “situs” for overflights. Quite to 8 As this Court held in City of Burbank v. Lockheed Air Termi- nal, Inc., 411 U.S. 624, 633 (1973), federal regulation of the na- tion’s navigable airspace is “intensive and exclusive” (citing Northwest Airlines, 322 U.S. at 3083 (Jackson, J., concurring) ). Indeed, what Justice Jackson noted in Northwest Airlines is still true today: [Airplanes] move only by federal permission, subject to fed- eral inspection, in the hands of federally certified personnel and under an intricate system of federal commands. * * * [A plane’s] privilege, rights and protection, so far as transit is concerned, it owes to the Federal Government alone and not to any state government. [322 U.S. at 303 (Jackson, J., con- curring). ] 12 the contary, there have been no crashes by overflying air carriers or commuter airlines in Oregon in the last 20 years—as far back as the National Transportation Safety Board has records available. Moreover, even as- suming there would be need for a search and rescue op- eration related to an overflight air carrier crash, that operation would be performed by either civil air patrol or military flying units—which are federally-supported entities. Finally, in those cases where State search and rescue services might be provided to an airline in Oregon, any cost of those services borne by the State is already paid for. Under O.R.S. § 493.070, all moneys received by the Aeronautics Division of the Oregon Department of Trans- portation from pilot registrations are paid into an Aero- nautical Search and Rescue Account. “Such amount as may be necessary, and no more, is appropriated out of such account for the payment of all expenses incurred by the division in conducting activities authorized under ORS 491.190 to search for lost planes and lost persons, the rescue of lost persons, pilot survival education and training and all other expenses directly attributable to the search and rescue program and the registration of pilot licenses.” Jd. (emphasis supplied). Accordingly, in no event could such putative services by the State justify overflight taxes. Furthermore, the unconstitutional burden on commerce imposed by such taxes is clear under numerous other decisions of this Court. That burden lies not only in the State’s taxing of values which it has no nexus to tax and which are not properly attributable to the State. Under this Court’s decisions, it is also clear that Oregon’s tax: (1) risks multiple taxation of overflights, (2) op- erates in a discriminatory manner against those flights, and (3) impermissibly disrupts the free flow of com- merce by laying tariffs on the air above a State—simply because that State happens to lie below a significant in- 13 terstate flight path. Each of these three points will be briefly addressed. If other States were to adopt a time-based formula for taxing airplanes, under Goldberg the only States that would have a sufficient nexus to count overflight time for a given flight would be those States where the flight originated or terminated. Under United Air Lines this also would be the fair result inasmuch as those States would be the ones that provide the substantial take-off and landing facilities. Yet if an intervening State such as Oregon also were to count overflight time for that same flight—merely because the plane happened to pass over the State—the inevitable result would be double tax- ation of the same interstate flight. This is unquestion- ably prohibited by this Court’s decisions.°® This Court’s decisions also prohibit a tax which in practical operation either discriminates against inter- state commerce in favor of intrastate commerce, or fa- vors some participants in interstate commerce over others. See, e.g., Goldberg v. Sweet, 109 S. Ct. at 591; American Trucking Associations v. Scheiner, 483 U.S. 266, 281-87 (1987) ; Maryland v. Louisiana, 451 U.S. 725, 756 (1981). Oregon’s tax discriminates in both these ways. Since flights within Oregon and those that overfly the State are taxed at the same rate—-but only the former receive State services of any significance—Oregon is necessarily imposing a higher effective rate for those services on carriers with substantial overflight than those with little or none.'® Moreover, the higher the ratio of flights be- ® See, e.g., Tyler Pipe Industries, Inc. v. Washington State Dept. of Revenue, 483 U.S. 232, 240-48 (1987); Armco Inc. v. Hardesty, 467 U.S. 638, 642-46 (1984). 10 Nine carriers with landings in Oregon also have taxable over- flights (American Airlines, Alaska Airlines, Continental Airlines, Delta Airlines, America West, Northwest Airlines, USAir, United Airlines, and Horizon Airlines). But five other carriers with land- 14 ~ ginning or ending in Oregon to flights merely overflying the State, the lower will be the effective rate for services rendered. Consequently, the lowest effective tax would be imposed on a wholly intrastate carrier, which by def- inition has the highest level of services provided to it by the State. Such a tax structure—obviously favoring those that “ply their trade within the State’”—unconstitu- tionally discriminates against interstate commerce."' Ironically, a tax such as Oregon’s also discriminates against petitioners in favor of carriers who have sub- stantial overflight but have no landings in the State. Those carriers are not taxed by Oregon at all, even though the Oregon Supreme Court held that their activi- ties were “in” the State and were therefore taxable.'” Quite arbitrarily—and discriminatorily—-such a carrier is not taxed by Oregon unless it lands once, and then that one landing triggers a tax on both that single landing and all the carrier’s overflight. Finally, and perhaps most significantly, the tax in this case runs afoul of the “central tenet” of the Commerce Clause to which this Court has “steadfastly adhered’— that the Clause “by its own force created an area of trade free from interference by the States.” Scheiner, 483 U.S. at 280 (quoting Boston Stock Exchange Vv. State Tax Commission, 429 U.S. 318, 328 (1977)). If ings in Oregon have no taxed overflights at all, i.«., flights that merely pass over the State (Eastern Airlines, Hawaiian Airlines, TWA, United Express, and Skylink Airlines). 11 Scheiner, 483 U.S. at 286. In Goldberg, the Court held that this kind of discrimination would not be held unconstitutional if it were directed against in-State residents or concerned activities that could not easily be measured. 109 S. Ct. at 591. Neither cir- cumstance is presented here: both petitioners are non-domiciliaries in Oregon and their overflights have already been precisely meas- ured. 12 At least one domestic carrier—Pan Am—has Oregon over- flight, but no landings, and is not taxed by the State. — 15 ; there were in fact substantial State services associated with the passage of an interstate flight over a State, a tax could appropriately be assessed. But, as we have shown, that is not the case. Rather, simply to take ad- vantage of its fortuitous position in the middle of the West Coast’s north/south flight corridor, Oregon has erected a toll both at 35,000 feet for interstate airplanes wishing to pass over the State." As a result, if Alaska Air wished to inaugurate a new Seattle Los Angeles flight, it must either find a circuitous route that avoids Oregon, or pay Oregon a fee for over- flight. Worse, if an overflight tax like Oregon’s were ap- proved elsewhere, USAir could be subjected to multiple overflight tolls from the several States it must cross if it wished to offer, say, a new trans-continental flight from Pittsburgh to San Francisco. Thus, Oregon’s ac- 13To illustrate how disproportional overflight time is in the State of Oregon—and how much it inflates that State’s tax—we show below each petitioner’s ratio of flyover time to in-State time for the year in question (1985), both for Oregon as well as for each petitioner’s operations system-wide: A B C Ground Hours Column B & In-State Flyover asa % of Hours Hours Column A Alaska Oregon only 7,830 7,566 97% Air System-wide 276,758 23,674 9% USAir Oregon only 6,511 6,312 97% System-wide 377,520 6,442 2% As the chart demonstrates, Alaska Air and USAir have almost as much overflight time for Oregon as they do ground time and in- State flight time for that state. But system-wide this is not true at all: on average, less than 10% of petitioners’ 1985 time in all States was overflight, owing to other States’ much smaller propor- tion of overflight to in-State flight and ground time. As a result, in a State like Oregon—which happens to lie in the middle of important interstate flight paths—inclusion of overflight in the State’s tax base greatly exaggerates its property tax. (As noted, the USAir data for 1985 refer only to PSA operations, now merged with USAir.) | 16 - tion, if upheld, would require airlines to begin making flight routing decisions no longer just on the basis of safety, operational efficiency, and air traffic control con- siderations; instead, they would also have to consider tolls demanded by those States that are in the path of air routes heretofore exclusively determined, maintained, and protected by the federal government. Such disruptive re- sults are prohibited by this Court’s decisions, because their “net effect would be substantially to resurrect the customs barriers which the Commerce Clause was de- signed to eliminate.” Michigan-Wisconsin Pipeline Co. v. Calvert, 347 U.S. 157, 170 (1954). For all these reasons, the lower Court’s decision con- tradicts this Court’s constructions of the Due Process and Commerce Clauses. The Court should grant certiorari to enforce its own decisions and to make clear that a tax such as Oregon’s is constitutionally prohibited. II. THE VARIOUS STATE TRIBUNALS ARE DI- VIDED OVER THE CONSTITUTIONALITY OF OVERFLIGHT TAXES While petitioners believe this Court’s decisions should have foreclosed the possibility that any State would im- pose a tax based on overflight, that is not the case. Courts or agencies in no less than five different States have recently had to address the permissibility of such taxes, and they are divided 3-2 on the question. The five States are Oregon, Montana. Wisconsin, Pennsylvania, and Idaho. The division among them provides further reason for this Court to grant certiorari in this case. Prior to the Oregon decisions in this case, the Mon- tana Supreme Court addressed the same question pre- sented here and resolved it directly contrary to the Ore- gon Supreme Court. Northwest Airlines, Inc. v. State Tax Appeal Board, 720 P.2d 676 (1986). There, as here, the State’s DOR had included overflight mileage in the numerator of its apportionment formula for purposes 17 of assessing a tax (there, an income tax) on an inter- state airline. Finding that “(t]he flyover flights of North- west have no contact with Montana’—*not even... radio contact’”—the court invalidated the tax." On the other hand, two other States—Wisconsin and Pennsylvania—have followed Oregon’s lead in imposing taxes on overflights. Wisconsin’s tax is not simply on the privilege of overflight, but is imposed on drinks thought to be sold aboard the aircraft during overflight above Wisconsin. Py a 3-2 vote, the Wisconsin Tax Com- mission upheld this tax, expressly relying on the Oregon Supreme Court’s decision in this case. Republic Airlines, Inc. Vv. Wisconsin Dept. of Revenue, { 203-058 Wise. Tax Reports (CCH) at 14,247 (May 3, 1989). The dissenting Commissioners would have invalidated the tax, reason- ing, as did the Montana Supreme Court, that activities during overflights are not “in this State.” Jd. at 14,256. The Commonwealth of Pennsylvania likewise imposes a tax on overflights by apportioning interstate carriers’ net income to that State based on miles flown over it. The DOR in the State recently rejected USAir’s attack on the constitutionality of such a tax. USAir, Ine. V. Pennsylvania, No. 567 at 8 (Pa. Commw. Ct., Aug. 30, 1988) (LEXIS, States library). Finally, the Supreme Court of Idaho recently deter- mined—contrary to the decisions in Oregon, Wisconsin, and Pennsylvania, but consistent with that in Montana-— that States may not tax overflights. In the course of holding that nonresident train crews merely passing through the State could not be subjected to tax, the Court relied on the prohibition against a similar tax on over- flights: 14 The case turned on the Court’s determination that flyovers are not “in this state’ within the meaning of the Montana taxing statute. 720 P.2d at 678. Because the Oregon Supreme Court’s determination turned on its directly contrary view—that flyovers are “in” the State—the two courts’ decisions are plainly in conflict. 18 A bank executive from Denver may fly regularly between Denver and Seattle, passing over Idaho on each trip. By the logic of [the DOR,] this executive would be required to pay Idaho income tax while traveling across Idaho. Idaho would apparently have provided this executive with the fruits of its civili- zation for which it was entitled to payment. No case has been cited that would subject this banker to income taxation by Idaho, merely because of in- vasion of our air space. There is no authority for doing so. [Blangers v. Idaho, Dept. of Taxation, No. 138 (Idaho Oct. 28, 1988) (LEXIS, States library) (Denying Petition for Rehearing) (emphasis sup- plied) .] The cases in these five States illustrate several im- portant points. First, notwithstanding this Court’s de- cisions, the State courts are divided over the permissibil- ity of overflight taxes. Second, those taxes are proliferat- ing. And third, as further discussed below, the impact of those taxes in the various States is likely to be quite substantial on the airline industry and those it serves. For these reasons, the Court should grant certiorari to guide the States concerning the permissibility—if any— of such taxes. Ill. OVERFLIGHT TAXES WOULD HAVE A SIGNIFI- CANT IMPACT ON THE AIRLINE INDUSTRY AND THE NATIONAL TRANSPORTATION SYS- TEM A. The State of the Industry In the 10 years since passage of the Airline Deregula- tion Act (1978), the airline industry has changed dra- matically. As the most recent FAA study demonstrates, from fiscal year 1979 to fiscal 1988, U.S. air carrier activity “has increased substantially (up 26.2 percent),” air fares in real dollars “ha[ve] declined more than 20.0 percent (2.3 percent annually)” and, primarily due to competitive forces and the introduction of the “hub-and- 19 spoke” route system, “the traveling public has benefited from better service since deregulation... .” FAA Avia- tion Forecasts—Fiscal Years 1989-2000 (March 1989) (“FAA Report”) at 39, 45, 46 (U.S. Dept. of Transpor- tation) (emphasis supplied). At the same time, the profitability of the industry— and the viability of many individual carriers—has been adversely affected by deregulation. During the 5-year pe- riod 1979-1983, owing in part to carriers’ “lack of ex- perience in competing. in an unregulated market,” U.S. carriers posted cumulative operating losses of over $1 billion. FAA Report at 50. Moreover, of the 70 new carriers entering the market since 1979, only 17 sur- vived, and a “number of [the survivors] are in financial trouble.” Jd. at 57. While the industry’s performance began to improve be- ginning in 1984, “the air industry’s rate of return is still below that of other unregulated industries ... .” Id. at 50. Indeed, the most recent figures from the Bu- reau of Census show that among the 30 largest U.S. in- dustries, air transportation ranks next to last in net profit margin (1.9%). Statistical Abstract of the United States at 540 (Department of Commerce, Bureau of Census, Jan. 1989). Furthermore, even these figures are somewhat misleading in that a few larger carriers have “accounted for 85.9 percent of the cumulative op- erating profits of the entire industry.” FAA Report at 50. In contrast, “{m]jost of the [other] carriers, al- though profitable, have managed to post only meager operating profits over the 10-year period and. . . most have incurred net [overall] losses over the period.” Jd. B. The Importance of the Industry Although the economic health of the industry itself is weak but improving,” its contribution to the national! 15 For example, while revenue per passenger mile for domestic service declined on a year-over-year basis for 10 consecutive quar- 20 economy and to the national transportation system is robust and growing. By 1987, 72% of all American adults had flown, and the average number of flights per year for the fiving public was 3.4 roundtrips.’* In fiscal year 1988, the country’s 61 domestic commercial sched- uled passenger and cargo carriers flew 414.2 million pas- sengers—almost double the country’s population.'? By the year 2000, the FAA projects the number to be nearly 700 million. FAA Report at 76. Furthermore, airlines now account for 92% of all common carrier inter-city travel (air, rail, and bus).'* The industry now employs some 480,090 people di- rectly, another 300,000 are employed at airports, in aero- space, and other related industries, and approximateiv 60,000 more are employed by the federal and State gov- ernment to oversee and facilitate airline services—for a total of over 800,000 employees with a payroll of nearly $30 billion annually. The Economic Benefits of Air Transportation at 1-2. Moreover, these numbers do not include the hundreds of thousands of persons engaged in the travel and tourism industry—which is the country’s second largest private employer (after medical '’)—all ters—from the fourth quarter 1984 to the first quarter 1987—it began to increase in fiscal year 1988. In real dollars, revenues per mile increased by 5.0 percent from 1987 to 1988 (from 10.07 cents to 10.57 cents). FAA Report at 61. 16 The Economic Benefits of Air Transportation at 6 (Air Trans- port Association of America, Sept. 1988). 17 These passengers flew some 330 billion miles domestically in fiscal 1988. FAA Report at 28. In addition, carriers flew some 8.1 billion freight, express, and mail ton miles domestically. FAA Report at 37. 18 Air Transport Association of America 1989 Annual Report at 7. 19 The 1988-89 Economic Review of Travel in America at 35 (U.S. Travel Data Center 1989). 21 of whom depend on airline services.*° Those airline serv- ices, furthermore, provide benefits to the country that cannot be quantified, such as greater job mobility; in- creased business efficiency and productivity; increased ac- cess to friends and family, to health and recreation fa- cilities, and to business opportunities; the speedy dis- tribution of mail, industrial raw materials, and finished consumer goods; the overnight delivery of medical sup- plies, vital organs, bank checks, and time-sensitive docu- ments; and the enhancement of national security. C. The Industry and Taxes States and localities currently impose a number of taxes on air carriers, including fuel taxes, sales taxes on aircraft and parts, licensing and registration taxes, land- ing fees and facility rentals, and property taxes (both on facilities and aircraft). State Aviation Activity Funding and Aviation Generated Tax Revenue (National Asso- ciation of State Aviation Officials, Center for Aviation Research and Education, Sept. 1988). It is estimated that in 1987 alone, user fee payments made by carriers (such as landing fees, rentals, and related assessments) amounted to more than $2 billion. That same year, the carriers paid another $800 million in federal income taxes. In addition, airline employees paid some $4.4 billion in local, State, and federal taxes, while passengers and shippers paid another $4 billion in taxes that went di- rectly to the federal Airport and Airways Trust Fund to fund federal capital and operating expenditures for air- port improvements and expansion and the enhancement and operation of the air traffic control system. The 20 The Economic Benefits of Air Transportation at 1. One recent study estimates that when all U.S. jobs attributable to aviation are considered—those in aviation use, aviation provision, and air- craft manufacturing—they add up to 8 million workers who con- tribute 5.6% of the nation’s gross national product. The Economic Impact of Civil Aviation on the U.S. Economy at 6-7 (Partnership for Improved Air Travel, June 1989). 22 Economic Benefits of Air Transportation at 4. This is thus a heavily taxed industry that already pays signifi- cant sums for federal and State contributions to aviation. The threat that significant further taxes will be added to these taxes is a serious concern to these »>titioners, particularly for a smaller carrier such as Alaska Air. Its Oregon overflight tax for 1988 alone—more than three-quarters of a million dollars—represented a 200% increase since the year here at issue, an increase due in large part simply to the fact that the carrier increased its flights from Alaska and Washington to California and Arizona (thus creating greater Oregon overflight). Peti- tioners must assume—-as must the airline industry as a whole—that if this Court permits the present Oregon tax to stand, similar taxes will quickly be adopted in other States and localities.*! The resulting impact on interstate commerce, on the industry, and on consumers would be considerable. Indeed, for an industry whose profit mar- gins are slim already—and in the case of smaller carriers, for whom they are almost non-existent—such an addi- tional tax could be highly injurious. As noted in the Senate Report accompanying the legislation disapproving airport departure taxes, “If the passenger must pay [the] tax, it adds directly to the cost of [the] trip.” And even “1 As Oregon’s Assistant Attorney General has acknowledged, “other states and quite a few airlines are keeping an eye on (this case).” The Business Journal—Portland, Oct. 31, 1988, Section 1 at 2 (quoting Assistant Attorney General Jerry Bronner). The most recent example of how quickly an air transport tax spreads is the departure tax approved by this Court in 1972. Evansville- Vanderburgh Airport Authority District v. Delta Airlines, 405 U.S. 797 (1972). When this Court let that tax stand, there were then (as is true in this case) only five or six jurisdictions with such a tax. During the year after this Court’s decision, some 44 jurisdic- tions had adopted the tax. Airport Development Acceleration Act of 1973: Hearings on H.R. 4082, H.R. 2695, H.R. 4213, H.R. 4214, H.R. 4182 and S.38 Before the House Subcomm. on Transportation and Aeronautics of the House Comm. on Interstate and Foreign Commerce, 93rd Cong., Ist Sess., at 64-67 (1973). 23 if carriers attempt to absorb it, “it will still lead to in- creased air travel costs” inasmuch as “(t]he airlines could not reasonably be expected to bear such a burden.” Ac- cordingly, “[i]n the end, a fare increase would have to be implemented,” thereby “mak[ing] air travel uneconomical for some people, and .. . inhibit{ing] the growth of the air transportation system ....” S. Rep. No. 12, 93rd Cong., 1st Sess., at 1451 (1973). Given the serious doubt about the constitutionality of overflight taxes, given the conflict in the lower State courts over the permissibility of such taxes, and given the inevitable, injurious proliferation of such taxes should the present one be permitted to stand, the Court should grant certiorari. CONCLUSION For the foregoing reasons, the petition should be granted and the judgment below reversed. Respectfully submitted, ROBERT L. WEISS WALTER A. SMITH, JR.* RICHARD M. BOTTERI JOHN G. ROBERTS, JR. JAMES P. DRAUDT HOGAN & HARTSON WEIss, DESCAMP & BOTTERI 555 Thirteenth Street, N.W. 2300 U.S. Bancorp Tower Washington, D.C. 20006-1109 111 S.W. 5th Avenue (202) 637-5728 Portland, Oregon 97204 Counsel for Petitioners (503) 243-2300 * Counsel of Record ie ee a 2 fry oe Tn a : j os . i ior = ; - ‘ { j ; - = = APPENDICES la APPENDIX A IN THE SUPREME COURT OF THE STATE OF OREGON (OTC 2496/2497; SC S34859 (Control) /SC S34860) ALASKA AIRLINES, INC., Appellant, V. DEPARTMENT OF REVENUE, State of Oregon, Respondent. USAIR, INC., Appellant, v. DEPARTMENT OF REVENUE, State of Oregon, Respondent. On appeal from the Oregon Tax Court The Honorable Carl Byers, Judge Argued and submitted October 6, 1988 Richard M. Botteri, Portland, argued the cause for appellants. On the brief and reply brief were Robert L. Weiss and James P. Draudt, respectively, and Richard 2a M. Botteri, and Weiss, DesCamp & Botteri, A Profes- sional Corporation, Portland. Elizabeth S. Stockdale, Assistant Attorney General, Salem, argued the cause for respondent. With her on the brief were Dave Frohnmayer, Attorney General, Virginia L. Linder, Solicitor General, and Jerry Bronner, Assist- ant Attorney General, Salem. Before Peterson, Chief Justice, and Linde, Campbell,* Carson, Jones, Gillette, Justices, and Van Hoomissen, Justice, pro tempore. CARSON, J. The decision of the Oregon Tax Court is affirmed. [Filed February 22, 1989] * Campbell, Justice, retired December 31, 1988. 3a DESIGNATION OF PREVAILING PARTY AND AWARD OF COSTS Case Name: Alaska Airlines v. Department of Revenue Appellate case number: SC $34859 (Control) SC S34860 Trial Court or agency case number: OTC 2496/2497 Prevailing party or parties: Respondent {| | No costs awarded [X] Costs awarded to the prevailing party or parties, payable by: Appellants FINAL ORDER* IT IS ORDERED that on appeal or judicial review the prevailing party or parties recover from costs and disbursements taxed at $ , and attor- ney fees in the amount of $ . (ORAP 11.08, 11.05, and 11.10). IT IS FURTHER ORDERED that judgment be en- tered in favor of the Judicial Department and against in the amount of $ for filing fees not waived and unpaid at the time of entry of the final written disposition of this case. ORS 21.605. Dated: SUPREME COURT | SEAL | * This section will be completed when the appellate judgment is prepared. The Records Division of the Office of the State Court Administrator will prepare the appellate judgment, enter it in the appellate register, and mail copies to the parties within the time and in the manner specified in ORAP 11.03. See also ORS 19.190(1). 44 CARSON, J. Alaska Airlines, Inc. (Alaska), and Pacific Southwest Airlines, Inc. (PSA),! appeal a decision of the Oregon Tax Court upholding 1986 property tax assessments deter- mined, in part, on the basis of time spent in the air by aircraft that flew over, but did nct land in, Oregon.’ In 1986, Alaska and PSA were so-called “regional airlines” qualified to do business in Oregon. Each oper- ated commercial airline service in western states, includ- ing Oregon, Washington and California. Alaska sched- uled flights that landed in and departed from the Port- land International Airport, whereas PSA operated air- craft that flew into and out of Portland, Eugene, Med- ford and Redmond. Forty-nine employees worked in Alaska’s Oregon facilities, and 74 employees worked in PSA’s Oregon facilities. For each airline these employees represented about 1 percent of its total work force. Each airline maintained its corporate headquarters, flight- training facility, major repair facility and base-main- tenance facilities in states other than Oregon. Each was incorporated in a state other than Oregon. Alaska and PSA also operated flights that criginated from cities outside Oregon and that flew over Oregon, without landing, to destinations in other states, e.g., non- stop from Seattle to Los Angeles. These flights, called “overflights,”’ represented 45 to 49 percent of each air- line’s total flight time over Oregon. As might be expected, overflights involved little contact with ground facilities, and the State of Oregon did not provide regular service to overflights. Regular government service to overflights 1 As the result of a merger occurring on April 9, 1988, USAir, Inc. has been substituted as the real party in interest for Pacific Southwest Airlines, Inc. In the interests of consistency with the proceedings below, we refer to appellant as Pacific Southwest Airlines, Inc. (PSA). 2 The appeals of Alaska Airlines, Inc. and Pacific Southwest Air- lines, Inc. were consolidated by order of this court dated April 11, 1988. 5a only occurred through radio communication with and radar tracking by air traffic controllers of the Federal Aviation Administration. For ad valorem property tax purposes, the Department of Revenue (Department) is required to assess certain designated utilities and companies, including airlines, and to apportion the assessment among qualifying Oregon counties. ORS 308.505 to 308.660. By statute, the De- partment is permitted to value the airlines’ property, both within and without Oregon, as a unit. ORS 308.555. It then must apportion a “fair” amount of the unit value to Oregon. Southern Pacific Trans. Co. v. Dept. of Rev., 302 Or 582, 585, 732 P2d 18 (1987). Alaska’s and PSA’s properties consisted of non-mobile (ground) and mobile (aircraft) properties constituting the total system properties of the airlines. The Depart- ment allocated to Oregon portions of the values of the total system properties of the airlines to determine each airline’s 1986 property tax assessment. According to the airlines, allocating these portions involved the following steps: First, the Department allocated to Oregon a portion of the value of each airline’s ground property. These amounted to $204,000 and $687,000 for Alaska and PSA, respectively. These allocations and the method by which they were determined are not at issue. Second, the Department allocated to Oregon a portion of the value of each airline’s aircraft property. To de- termine these portions, the Department used the follow- ing formula: Allocation Percent =OR Ground + OR Flight + OR Flyover Total System Hours OR Ground = Oregon ground time OR Flight =Oreyon flight time for aircraft landing in and departing from Oregon OR Flyover = Flyover time for overflights Total System Hours =All system flight and ground time wher- ever generated 6a “OR Ground,” as the name suggests, represented the amount of time that aircraft spent on the ground in Oregon and was calculated as a standard one-half hour for each flight. “OR Flight” and “OR Flyover” repre- sented flight time for aircraft that flew within the borders of Oregon «‘equated” to the type of aircraft flown. “OR Ground” also was “equated.” “Equating” involved, in effeet, crediting to more valuable aircraft additional time over that actually spent in the air or on the ground.’ The Department then derived the “Allocation Percent” for each airline’s aircraft property by dividing the prod- uct ef “OR-Ground,” “OR Flight” and “OR Flyover” by each airline’s “Total System Hours,” which simply rep- resented all “equated” flight and ground time throughout each airline’s system. The Department next took the percentage that the value of each airline’s aircraft property represented to the total system value of each airline. That figure was 81.8 percent for Alaska and 88.07 percent for PSA. It multiplied this percentage by the “Allocation Percent”’ derived through use of the formula above—5.3718 per- cent for Alaska and 3.5011 percent for PSA. The result- ing product was multiplied by the total system value of each airline to allocate to Oregon a portion of the value of each airline’s aircraft property—$21,091,000 for Alaska and $25,439,000 for PSA. These were added to the ground property allocations to determine the 1986 property tax assessments. Alaska and PSA argue that the Department’s method of allocating aircraft property resulted in invalid tax 3 The following example illustrates “equating.” Among its vari- ous aircraft Alaska operated the B727-200 and the MD-83. The MD-83 was worth 2.47543 times what the B727-200 was worth and so was assigned an “equating factor” of 2.47543. The “equating factor” assigned to the B727-200 was 1.0000. An hour “equated” for an MD-83 thus became 2.47543 “equated” hours; an hour “equated” for a B727-200 remained one hour, but “equated.” Ja assessments. They specifically object to the use of over- flight time to determine a portion of the value of air- craft property. Phrased in terms of the above formula, they argue that the Department should not have included “OR Flyover” in the numerator. They argue that the Department’s formula violated the Due Process Clause of the Fourteenth Amendment and the Commerce Clause of the United States Constitution and ORS 308.550 (2) .4 The Tax Court did not agree. Alaska Airlines v. Dept. of Rev., 10 OTR 518 (1987). We discuss, in turn, each of the airlines’ arguments and affirm for the reasons set forth below.° I. DUE PROCESS Alaska and PSA argue that the State of Oregon did not confer protection, opportunities or benefits on overflights. They argue that overflights did not generate revenue, use public facilities or cause commerce to be conducted in this state. They contend that “alleged benefits,” in- cluding search and rescue services* and criminal law protection,” were “too nebulous and speculative to justify * Alaska and PSA also raise an argument based on Article I, section 32, of the Oregon Constitution (uniformity of taxation). They failed to raise this argument in the Tax Court, however. We decline to address the issue. Leiser v. Sparkman, 281 Or 119, 122, 573 P2d 1247 (1978). To the extent that plaintiffs raise a separate statutory issue of situs under ORS 308.515 and 308.550(2), we likewise do not con- sider this assertion because it was not raised to the Tax Court. * Because the airlines’ statutory argument concerns a statute codifying constitutional standards, we first address those constitu- tional standards. ® See ORS chapter 401 and 491.190. 7See ORS 131.205 and 131.215(1). See also ORS 493.160 and 493.991(2) (prohibiting operation of aircraft recklessly or while under influence of drugs), which may afford some protection to commercial aircraft. 8a the taxation of overflights.” In short, Alaska and PSA focus exclusively on overflights—they argue that over- flights did not have a connectien to or contact with this state sufficient to justify a tax under the Due Process Clause of the Fourteenth Amendment to the United States Constitution.* This premise—that the Department assessed taxes against overflights—is the fly in the airlines’ ointment. The Department did not assess overflights or specific air- craft; the Department assessed each airline’s aircraft property based on a formula reflecting (in part) time spent in the air by that aircraft. The validity of each airline’s tax assessment does not depend upon whether the state could have assessed a tax against overflights— the state did not do so. Rather, the validity depends upon whether each airline’s aircraft property was part of a unit with situs in this state and whether the state fairly apportioned that unit. Alaska’s and PSA’s aircraft properties constituted in- tegrated enterprises whose business was to transport pas- sengers and cargo between cities in western states. These enterprises conducted operations into and out of Oregon airports, with each enterprise having regular contact with this state through aircraft landings, departures, boarding and deplaning of passengers and loading and unloading of cargo. They enjoyed the benefits and pro- tection of Oregon criminal laws, the provision of search and rescue services if needed and opportunities for fur- ther commerce through contacts with Oregon. Alaska’s and PSA’s aircraft properties functioned as units with sufficient contact with this state to sustain the power of the state to levy an apportioned ad valorem tax. 8 Amendment XIV, section 1, of the United States Constitution (the Due Process Clause) provides, in part: “No State shall * * * deprive any person of life, liberty, or property, without due process of law.” 9a Braniff Airways v. Nebraska Board, 347 US 590, 600- 02, 74 S Ct 757, 98 L Ed 967 (1954). Although the units of the airlines’ aircraft properties thus had situs in Oregon, the Due Process Clause also required that the Department fairly apportion the units. The state may not tax extraterritorial value. Norfolk & W.R. Co. v. Tax Comm’n., 390 US 317, 324-25, 88 S Ct 995, 19 L Ed 2d 1201 (1968); Southern Pacific Trans. Co. v. Dept. of Rev., supra, 302 Or at 588-89. The ques- tion remains whether overflight time could be used to apportion Alaska’s and PSA’s aircraft properties. Whether an overflight occurs “in” a state has not before been raised under the Due Process Clause. But cf. State v. Northwest Airlines, 213 Minn 395, 7 NW2d 691 (1942), affd sub nom Northwest Airlines v. Min- nesota, 322 US 292, 64 S Ct 950, 88 L Ed 1283 (1944) and Northwest Airlines v. State Tax Appeal Bd., 720 P2d 676 (Mont 1986). Nevertheless, the question is not difficult. A formula apportioning aircraft property on the basis of time spent in the air or on the ground is anal- ogous to a formula apportioning railroad rolling stock on the basis of miles of track. See Norfolk & W.R. Co. v. Tax Comm’n., supra. Just as rolling stock moves from state to state, requiring reference to fixed, quantifiable factors such as miles of track for apportionment pur- poses, so too do aircraft used in interstate transportation require reference to quantifiable factors. Time is such a factor, and the airlines do not object to a formula ap- portioning on the basis of time when restricted to air- craft that landed at or departed from an Oregon airport. But aircraft are, of course, different from rolling stock. Rolling stock and railroad track touch the ground, but aircraft in flight, obviously, do not. Overflight aircraft did not touch the ground in Oregon at all—and hence the airlines’ argument that overflight time did not occur “in” this state for purposes of the 1986 tax assessments. 10a This argument, however facially appealing, does not persuade. It has, to paraphrase Justice Hugo L. Black on a different matter, a superficial plausibility that cloaks a lack of substance. See United States v. Wallace Co., 336 US 793, 799, 69 S Ct 824, 93 L Ed 1042 (1949). Alaska and PSA concede that air time of aircraft landing at or departing from Oregon airports could have been included in the numerator of the Department’s appor- tionment formula (so-called “ramp to ramp” time). They concede that such time could have been used to appor- tion aircraft property. But their premise—that over- flights did not occur “in” this state—and their con- clusion—that overflight time could not have been used to apportion aircraft—lead to an anomaly. The airlines do not explain how what was indistinguishable when it occurred—ramp to ramp time and overflight time were both, by definition, time spent in the skies above this state—became distinguishable because ramp to ramp air- craft landed at or departed from this state. Alaska and PSA also do not explain where an over- flight was if not “in” this state while traveling within the borders of this state. “In’’ would seem to be the answer because the airlines concede (as they must) the appli- cability of Ovegon criminal law to overflights. Although Alaska and PSA argue that the value represented by an overflight should have been taxed to the domiciliary state, that argument does not address whether the over- flight was “in” this state for purposes of apportioning aircraft property. We conclude that the Department properly included overflight time in the numerator of the apportionment formula. Each airline’s aircraft property, considered as a unit, had situs in this state. Moreover, inclusion of overflight time to apportion aircraft property did not tax extraterritorial value. For apportionment purposes, an overflight was “‘in” this state. lla ‘iI. COMMERCE CLAUSE The United States Supreme Court stated the test for the validity of a. state tax under the Commerce Clause in Complete Auto Transit, Inc. v. Brady, 430 US 274, 97 S Ct 1076, 51. L Ed 2d 326 (1977).° A state tax does not offend the Commerce Clause when the tax is: (1) Applied to an activity with a “substantial nexus” with the taxing state; (2) fairly apportioned; (3) nondis- criminatory against interstate commerce; and (4) fairly related to services provided by the state. Complete Auto Transit, Inc. v. Brady, supra, 430 US at 279: see also Budget Rent-A-Car v. Multnomah Co., 287 Or 93, 104- 05, 597 P2d 1232 (1979). This test for determining whether a tax is valid under the Commerce Clause is similar to the test for determining whether a tax is valid under the Due Process Clause. See Norfolk & W.R. Co. v. Tax Comm’n., supra, 390 US at 323-25: Southern Pacific Trans. Co. v. Dept. of Rev., supra, 302 Or at 588. Alaska and PSA argue that the 1986 taxes were not applied to activities with a substantial nexus with this state, fairly apportioned or fairly related to services pro- vided by this state. Substantial Nexus For a substantial nexus to exist, there must be “some definite link, some minimum connection,” between the taxing state and the taxed activity.’° Nat. Bellas Hess ® Article I, section 8, clause 3, of the United States Constitution provides, in part, that “Congress shall have Power * * * [to] regulate Commerce * * * among the several States.” 10 The overlap between the Due Process and Commerce Clauses is most manifest in the “substantial nexus” requirement of the latter. Professor Tribe writes: “* * * The degre: of ‘connection,’ ‘contact,’ or ‘nexus’ between the taxing state and the interstate commerce taxed is also the fundamental measure of whether or not a state tax vio- 12a v. Dept. of Revenue, 386 US 758, 756, 87 S Ct 1389, 18 L Ed 2d 505 (1967) (quoting Miller Bros. Co. v. Mary- land, 347 US 340, 344-45, 74 S Ct 535, 98 L Ed 744 (1954)). As they did in arguing under the Due Process Clause, the airlines try to shift the focus to the view that the state taxed overflights rather than the units of which overflights were parts. In Adams Express Company v. Ohio, 165 US 194, 17 S Ct 305, 41 L Ed 683 (1987), the U.S. Supreme Court recognized that under the Commerce Clause a state may value as a unit an integrated business enter- prise operating in interstate commerce. In Adams Ex- press, the property was personal and not physically connected, yet it was used in concert to carry on the interstate commerce of the express company. The Court looked to a “unity of use, not simply for the convenience or pecuniary profit of the owner, but existing in the very necessities of the case—resulting from the very nature of the business.” Adams Express Company v. Ohio, supra, 165 US at 222. Alaska’s and PSA’s aircraft properties functioned as did the property of the express company in Adams Ex- press. Each airline’s aircraft property comprised part of a “unity of use’—the business of transporting passen- gers and cargo—and so was used in an integrated and coordinated manner to carry on interstate commerce. The consequence must be as it was in Adams Express—the activities of the airlines’ units of aircraft properties es- tablished the substantial nexuses required under the Commerce Clause. lates the commerce and due process clauses. * * * [Tlo the extent that a state can point to a substantial connection with a particular aspect of interstate commerce, it can also demon- strate that its program is consistent with the commerce and due process clauses.” L.H. Tribe, American Constitutional Law 446 (2d ed 1988). 13a Fair Apportionment The Commerce Clause requires that an apportionment formula bear a rational relationship, both on its face and as applied, to property values connected with the taxing state. Norfolk & W.R. Co. v. Tax Comm’n, supra, 390 US at 325. A state may not tax an activity carried on outside its borders. See Complete Auto Transit, Inc. v. Brady, supra, 430 US at 282 (quoting Memphis Gas Co. v. Stone, 335 US 80, 96-97, 68 S Ct 1475, 92 L Ed 1832 (1948) (Rutledge, J.,- concurring)); Southern Pacific Trans. Co. v. Dept. of Rev., supra, 302 Or at 589 (state may not tax extraterritorial value). The airlines again characterize the taxes as, in part, taxes assessed against overflights—and they again mischaracterize the taxes. The Department assessed portions of the values of the airlines’ aircraft properties. Aircraft were on the ground or in the air at any given time; the Department’s formula reflected this fact. More precisely, the formula reflected that portion of time that each airline’s aircraft property spent on the ground or in the air in Oregon. This was a fair manner of determining the extent of each airline’s aircraft activity in Oregon, and it was a fair manner of apportioning property based on the presence of each air- line’s aircraft. Alaska and PSA argue, however, that the formula resulted in values wildly at odds with values that might have been achieved by formulas used to apportion in seven other western states. These formulas did not in- clude overflight time in their numerators. The airlines draw the conclusion that these formulas showed “a uni- form practice contrary to Oregon’s,” thus rendering the Department’s formula suspect under the Commerce Clause. Although there is merit in the airlines’ argument, see Southern Pacific Trans. Co. v. Dept. of Rev., supra, 302 Or at 589 (commerce clause may require apportionment formula not substantially different from formulas used l4a by other states), the airlines tell an incomplete story. The ultimate test is whether the taxing state itself appor- tions fairly. Jd. The seven other western states might have failed to apportion to themselves full values consist- ent with the Commerce Clause. Because the Department’s formula resulted in fair apportionment of the values of the airlines’ aircraft properties, the use of different formulas by other states was not in itself reason for this state to have changed its apportionment practice. Phrased in terms of the “internal and external consist- ency tests” of the U.S. Supreme Court, see, ¢.g., Goldberg v. Sweet, 1989 US LEXIS 308, the formula used by the Department complied with the fair apportionment re- quirement of the Commerce Clause. The formula was internally consistent because, were every state to have used it, no multiple taxation would have resulted—only 100 percent of aircraft value would have been taxed. Moreover, it was externally consistent because it reflected only in-Oregon aircraft activity. Fair Relation to Services Provided The inquiry into whether a tax bears a fair relation- ship to services provided by the taxing state is similar to the inauiry into whether the tax was assessed against an activity with a substantial nexus with the state. Commonwealth Edison Co. v. Montana, 453 US 609, 625-26, 101 S Ct 2946, 69 L Ed 2d 884 (1981); see also Budget Rent-A-Car v. Multnomah Co., supra, 287 Or at 105 n 6. This fourth prong of the Complete Auto Transit test, however, imposes the additional limitation that “the measure of the tax must be reasonably related to the extent of the contact [with the taxing state], since it is the activities or presence of the taxpayer in the State that may properly be made to bear a ‘just share of state tax burden.’” Commonwealth Edison Co. v. Mon- tana, supra, 453 US at 626. (Emphasis in original.) (Citations omitted.) The tax must be assessed in propor- tion to benefits, opportunities and protection conferred or 15a afforded by the taxing state, but it need not be assessed only as compensation for services provided. Id. at 622- 24. The Commerce Clause does not demand that a state tax only on the basis of quid pro quo. See Budget Rent- A-Car v. Multnomah Co., supra, 287 Or at 105 n 6. The Department assessed Alaska and PSA based on the presence, as reflected in air and ground time, of air- craft property in this state. The taxes were proportioned to the extent of the activities of the airlines’ units of aircraft properties within this state. While engaging in these activities, the airlines enjoyed benefits, opportuni- ties and protection conferred or afforded by this state— search and rescue services, opportunities for further com- merce and the protection of Oregon criminal laws—and so could be made to bear a “just share of state tax burden.” The taxes were fairly related to services pro- vided by this state. We conclude that the Department’s inclusion of over- flight time in the numerator of its apportionment formula did not violate the Commerce Clause. III. STATUTORY ISSUE ORS 308.550(2)'' requires the Department to use a “reasonable method” when it uses an apportionment method other than that prescribed by ORS 308.550(1). Alaska and PSA argue that the Department did not use a reasonable method. 11 ORS 308.550(2) provides: “Tf the value of any property having a situs in this state, of a company operating both within and without the state, cannot fairly be determined in the manner prescribed in sub- section (1) of this section, the department may use any other reasonable method to determine the proper proportion of the entire property assessable for taxation in this state.” ORS 308.550(2) has not been changed since its enactment in Oregon Laws 1955, chapter 735, section 2. 16a The “reasonable method” requirement of ORS 308.550 ‘2) codifies Due Process and Commerce Clause standards. Southern Pacific Trans. Co. v. Dept. of Rev., supra, 302 Or at 588. An apporticnment formula that complies with these standards complies with the requirement that the Department use a reasonable method in apportioning property. Because the Department’s formula complied with the federal constitutional standards, it complied with ORS 308.550 (2). The decision of the Tax Court is affirmed. i 17a APPENDIX B IN THE OREGON TAX COURT Property Tax No. 2496 ALASKA AIRLINES, INC., Plaintiff, Vv. DEPARTMENT OF REVENUE, State of Oregon, Defendant. No. 2497 PACIFIC SOUTHWEST AIRLINES, INC., Plaintiff, We DEPARTMENT OF REVENUE, State of Oregon, Defendant. OPINION Plaintiffs, incorporated and headquartered in other states, are airlines qualified to do business in Oregon. In conducting their businesses, plaintiffs utilize both mo- bile (primarily airplanes) and nonmobile transportation property. Plaintiffs do not question the taxation of their nonmobile property located in Oregon. This appeal per- tains only to property taxes attributable to plaintiffs’ mobile property. Although not formally consolidated, the 18a parties agreed for the sake of convenience and efficiency that these cases be tried, briefed and decided together. By statute, defendant is required to assess plaintiffs’ property for ad valorem taxation. “(1) The Department of Revenue shall make an annual assessment * * * of the following property having a situs in this state: “(a) * * * any property used or held for its own future use by any company in performing or main- taining any of the following businesses or services *** . * * * oir transportation using aircraft * * * for scheduled air service; * * *.” (ORS 308.515) Because plaintiffs operate both within and without Oregon, defendant valued plaintiffs’ property under ORS 308.550(2) using a formula which apportions a part of plaintiffs’ property to Oregon. ORS 308.550(2) provides: (2) “If the value of any property having a situs in this state, of a company operating both within and without the state, cannot fairly be determined in the manner prescribed in subsection (1) of this section, the department may use any other reasonable method to determine the proper proportion of the entire property assessable for taxation in this state.” The method defendant chose in this case was to apply a single-factor formula (time) composed of three ele- ments: Ground time, flight time (for aircraft landing and departing Oregon) and fly-over time (for aircraft which fly over Oregon but do not touch down). Plaintiffs do not dispute that their operations in Oregon are taxable, nor do they dispute use of the time-factor formula based on the ground time and flight time ele- ments. What plaintiffs do dispute is the inclusion of fly-over time in the numerator of the formula. Plaintiffs’ claim that inclusion of fly-over time in the numerator is contrary to the “reasonable” requirement of the statute 19a and violates the Due Process Clause and the Commerce Clause of the United States Constitution.! The cases which chronicle the history of taxation of businesses operating interstate are numerous and not al- ways consistent. Although the United States Supreme Court has applied the Due Process Clause and the Com- merce Clause with overlapping requirements in some cases, they are not the same. Privilege and income taxes need to satisfy the “nexus” test of the Due Process Clause but property taxes can only be imposed on property which has “situs” in the taxing state. Further, in the area of property taxation, it is necessary to distinguish cases where the issue is the amount of property taxable as opposed to the value of the property taxable. Adams Express Co. v. Ohio State Auditor, 165 US 194, 17 S Ct 305, 41 L Ed 683 (1897). Consequently, it is necessary to relate the language of the cases to the underlying tax concepts.? For example, plaintiff cites Wisconsin v. J. C. Penney Co., 311 US 435, 444, 61 S Ct 246, 85 L Ed 267 (1940), for the proposition that the tax must bear “fiscal relation to pro- tection, opportunities and benefits given by the state.” Plaintiff argues that: “It is clear that it is the degree of presence for commercial purposes and the substance of the contacts which give rise to taxability.” (Plaintiff’s Post Trial Memorandum, at 14). While plaintiffs’ argu- ment and its quotation of the covrt are appropriate to that case, which was a privilege tax case, such may be 1The statutory standard of “any other reasonable method’’ is iraplicitly controlled by the constitutional standards. The court is unable to visualize a method which would meet the constitutional requirements but would be otherwise considered unreasonable. ? As Justice Douglas pointed out in his concurring opinion in Braniff Airways v. Nebraska State Board, 347 US 590, 74 S Ct 757, 98 L Ed 967 (1953): “What might be an adequate formula for a gross receipts tax might be inadequate for an ad valorem tax.” 20a somewhat misleading as to a property tax case. If prop- erty is located in a state, it is subject to taxation regard- less of whether it is used for commercial purposes or used at all. Jurisdiction to tax property is not a function of its use but of its location. Defendant’s citation of Communication Satellite Corp. v. Franchise Tax Board, 156 Cal App 3d 726, 203 Cal Rptr 779 (1984), which was an income tax case, is like- wise of little benefit in this case. Looking to an income tax case for guidance, either in terminology or tests, may be misleading for a property tax case. Commerce Clause The fundamental basis for taxing plaintiffs’ property was explained by Justice Douglas in his concurring opin- ion in Braniff Airways v. Nebraska State Board, 347 US 590, 74 S Ct 757, 98 L Ed 967 (1953), where he stated: “My understanding of our decisions is that the power to lay an ad valorem tax turns on the per- manency of the property in the State. All the prop- erty may be there or only a fraction of it. Property in transit, whether a plane discharging passengers or an automobile refueling, is not subject to an ad valorem tax. Property in transit may move so regu- larly and so continuously that part of it is always in the State. Then the fraction, but no more, may be taxed ad valorem.” (Emphasis supplied. ) Or, as stated in Johnson Oil Refinery Co. v. Oklahoma, 290 US 158, 162, 54 S Ct 152, 78 L Ed 238 (1933): “The basis of the jurisdiction is the habitual em- ployment of the property within the State.” For the ad valorem tax, the test under the Commerce Clause is simple. As stated by the United States Supreme Court in Ott v. Mississippi Valley Barge Line Co., 336 US 169, 173, 69 S Ct 931, 93 L Ed 585, 589 (1948): 2la “The problem under the Commerce Clause is to de- termine ‘what portion of an interstate organism may appropriately be attributed to each of the various states in which it functions.’ [Citing Nashville, C and St. L. R. Co. v. Browning, 310 US 362, 365, 84 L Ed 1254, 1255, 60 S Ct. 968.j” Or, as stated in the negative: “A State will not be permitted, under the shelter of an imprecise allocation formula or by ignoring the peculiarities of a given enterprise to ‘project the tax- ing power of the state plainly beyond its borders.’ ” Norfolk and Western R. Co. v. Missouri Tax Com., 390 US 317, 88 S Ct 995, 19 L Ed 1201 (1968). Thus the test under the Commerce Clause is whether the formula employed by the defendant fixes a reasonable fraction of plaintiffs’ mobile property as being situated in the State of Oregon by virtue of its habitual employ- ment in the state. In Ott v. Mississippi Valley Barge Line Co., supra, Louisiana and the City of New Orleans levied ad valorem taxes on the plaintiff’s barges which transported freight interstate via the Mississippi and Ohio Rivers. The for- mula for apportioning the ad valorem tax was the ratio between the number of miles in Louisiana and the total number of miles in the system. In upholding the tax, the court found no difference between water vessels and rail- road cars as far as applying the Due Process Clause or the Commerce Clause. Later, the court in Braniff Air- ways v._Nebraska State Board, 347 US 590, 74 S Ct 757, 98 L Ed 967 (1953), found that: “A closer analogy exists between planes flying inter- state and boats that ply the inland waters. We per- ceive no logical basis for distinguishing the constitu- tional power to impose a tax on such aircraft from the power to impose taxes on river boats.” (At 600.) 22a This court likewise finds no logical distinction between boats which ply Oregon’s navigable inland waters, over which the federal government has jurisdiction, and air- planes which fly the skies of Oregon, over which the fed- eral government has jurisdiction. In both cases, the state’s power to tax is not displaced by the federal govern- ment’s power to regulate. Regulation does not remove the property from the presence of the state.’ The court finds that the inclusion of the fly-over time in the formula is reasonable. Application of the formula does not allo- cate to Oregon property which is outside its borders. The purpose of the formula is to measure that portion of plaintiffs’ property which is habitually employed within the state. If the formula is accurate, “freezing” plaintiffs’ operations at an average instant on a typical day would tind approximately the same proportion of property in Oregon as indicated by the formula. Plaintiffs argue that use of the fly-over element in the numerator is not appropriate because plaintiffs’ air- planes which merely fly over have no contact with and receive no benefits from the state. If this were true, then the fly-over factor should not be included in either the denominator or the numerator. If it is not relevant to determine the presence of property for tax purposes, its relevance is not affected by the fact that plaintiff may wish to use it in the denominator. The court acknowledges the point made by Justice Frankfurter in his dissent in Braniff that while one state’s formula may be reasonable, the uncoordinated cumulative effect of different reasonable formulas of many states may impose an undue burden on interstate com- 3In so deciding, the court is assuming thet plaintiffs’ airplanes fly low enough to be in Oregon airspace as opposed to being in outerspace. As technology changes, undoubtedly an issue which must be decided in the future is where air ends and space begins. See, for example, Arnold Duncan McNair, The Law of the Air, (3d ed 1964). 23a merce. Plaintiff argues strenuously that defendant’s posi- tion erroneously assumes all states use the same formula and fails to recognize that the state of domicile may tax all unapportioned property. This court is in no better position than was the Supreme Court in Braniff to deter- mine whether in fact there is any danger of plaintiffs being subject to double taxation. It is clear, however, that the domiciliary state cannot tax the full value of property located only part of the time in that state. Standard Oil Co. v. Peck, 342 US 382, 72 S Ct 309, 96 L Ed 427 (1952). If plaintiffs’ airplanes are habit- ually employed in other states, which would appear to be the case for regularly scheduled airlines, plaintiffs should be able to avoid the undue burden they fear. Due Process The Fourteenth Amendment of the United States Con- stitution prohibits depriving a person of property with- out due process. As applied to taxation, the law assumes that the quid pro quo for the tax taken by government are the benefits received. The tax burden, when com- pared with the benefits, may ‘all unequally upon tax- payers. “This is almost unavoidable under every system of direct taxation. But the tax is not rendered illegal by such discrimination. Thus every citizen is bound to pay his proportion of a school tax, though he have no children; of a police tax, though he have no build-- ings or personal property to be guarded; or of a road tax, though he never use the road.” Union Re- frigerator Transit Co. v. Kentucky, 199 US 194, 203, 26 S Ct 36, 50 L Ed 199 (1905). “Moreover, there is no requirement under the Due Process Clause that the amount of general revenue taxes collected from a particular activity must be reasonably related to the value of the services pro- 24a vided to the activity. Instead, our consistent rule has been: “Nothing is more familiar in taxation than the imposition of a tax upon a class or upon individuals who enjoy no direct benefit from its expenditure, and who are not responsible for the condition to be remedied. “A tax is not an assessment of benefits. It is, as we have said, a means of distributing the burden of the cost of government. The only benefit to which the taxpayer is constitutionally entitled is that de- rived from his enjoyment of the privileges of living in an organized society, established and safeguarded by the devotion of taxes to public purposes.’”’ Com- monwealth Edison Co. v. Montana, 453 US 609, 622, 101 S Ct 2946, 69 L Ed 2d 884 (1981). Thus the basic test of the Due Process Clause may be phrased as follows: “The simple but controlling question is whether the state has given anything for which it can ask return.” Wisconsin v. J. C. Penney Co., 311 US 435, 444, 61 S Ct 246, 85 L Ed 267 (1940). There can be no question that Oregon affords plain- tiffs substantial benefits as to its airplanes which land and depart from Oregon. The question is whether plain- tiffs’ fly-overs receive any benefit that would justify the inclusion of that element in the apportionment formula.' The court believes the answer to this question is affirma- tive. Oregon’s criminal laws and its enforcement of those laws extends into the skies as well as upon the waterways and the land. Defendant points out that Oregon provides funds for search and rescue at no cost to the airlines if 4 Although defendant disclaims that the tax is being imposed on the fly-over planes, that is precisely the effect of including them in the formula. 25a a plane were to go down. Theoretically, however, it is not necessary to find specific benefits for the fly-over planes only. The benefits received by plaintiffs’ operations which touch down in Oregon are sufficiently great to extend to all of plaintiffs’ property in Oregon under the “benefits of civilization” test. The court finds that inclusion of the fly-over time ele- ment in the apportionment formula is a “reasonable method” to apportion plaintiffs’ property for taxation in Oregon. The court further finds that the formula meets the requirements of the Commerce Clause by determining an appropriate fraction of plaintiffs’ property that is habitually employed within the state and also meets the requirements of the Due Process Clause by providing broad scope benefits directly and indirectly to plaintiffs and their properties. Judgment will be entered in each case consistent with this opinion. Costs to neither party. Dated this 14th day of December, 1987. /s/ Carl H. Byers Judge 26a APPENDIX C STATE OF OREGON DEPARTMENT OF REVENUE No. A&AU-86-24 IN THE MATTER OF THE PETITION OF ALASKA AIRLINES, INC. for Review of its True Cash Value Assessment for the Year 1986. OPINION AND ORDER Alaska Airlines, Ine. appealed to the Department of Revenue for a reduction of the property tax assessment as of January 1, 1986 on its properties assessable by the Department. I held a hearing at the Department of Revenue office in Salem, Oregon on June 27, 1986. Korbey Hunt, Proper- ties Manager, represented the company. The Department staff was represented by Rudy Bischof and Ed Gerhardus. The petition requested the system value be lowered from $480,000,000 to $310,000,000. Mr. Hunt explained that this was a figure based on estimates made for budget purposes and was not based on an appraisal. Mr. Hunt also raised questions on the handling of aircraft leased to others and the rounding upward of the leased aircraft cost indicators. The main issue was the inclusion of fly-over time in the allocation factor. Mr. Hunt stated that the use of fly- 27a over time is unfair to Alaska Airlines because they re- ceive no benefits from this taxation. He presented several documents relating to laws and legal decisions. He also submitted an allocation calculation which excluded fly- over time. I have reviewed this information and have concluded that the present allocation method is reasonable. I also ap- prove the system value at $480,000,000. NOW, THEREFORE, in the matter of the appeal of Alaska Airlines, Inc. for a reduction in true cash value as of January 1, 1986, on its properties assessable by the Department of Revenue, it is ORDERED that the true cash value of said property as of January 1, 1986, of $21,295,000 is sustained. Zi Done at Salem, Oregon, this 8th day of July, 1986. DEPARTMENT OF REVENUE /s/ Robert Getz NOTICE: If you are dissatisfied with this decision, you may appeal it to the Oregon Tax Court, 520 Justice Building, Salem, Oregon 97310, within 60 days of the date of mailing shown above. ORS 305.560. 28a STATE OF OREGON DEPARTMENT OF REVENUE No. AG AU-86-25 IN THE MATTER OF THE PETITION OF PACIFIC SOUTHWEST AIRLINES for Review of its True Cash Value Assessment for the Year 1986. OPINION AND ORDER Pacific Southwest Airlines appealed to the Department of Revenue for a reduction of the property tax assessment as of January 1, 1986, on its properties assessable by the Department. I held a hearing at the Department of Revenue office in Salem, Oregon on June 26, 1986. The company was represented by Jeffrey Peterson and Denise Smith. The Department staff was represented by Rudy Bischof and Ed Gerhardus. The staff recommended reducing the Oregon true cash value due to computation errors. I agree with that recom- mendation. Mr. Peterson raised the issue of the inclusion of fly-cver time in the Oregon allocation factor. He contended that using fly-over time is unfair to PSA because it repre- sents paying taxes for benefits which are not received. In addition, it is discriminatory in that some airlines which never land in Oregon do not pay taxes when their planes fly over the state. Mr. Peterson submitted several 29a alternative calculations for determining an allocation fac- tor. I have reviewed this information and have concluded that the present allocation method is reasonable. NOW, THEREFORE, in the matter of the appeal of Pacific Southwest Airlines for a reduction by the De- partment of Revenue, it is ORDERED that the true cash value of said property as of January 1, 1986, is reduced from $26,797,000 to $26,126,000. Done at Salem Oregon, this 8th day of July, 1986. DEPARTMENT OF REVENUE /s/ Robert Getz NOTICE: If you are dissatisfied with this decision, you may appeal it to the Oregon Tax Court, 520 Justice Building, Salem, Oregor 97310, within 60 days of the date of mailing shown above. ORS 305.560. ola APPENDIX D IN THE SUPREME COURT OF THE STATE OF OREGON ALASKA AIRLINES, INC., Appellant, Vv. ——— DEPARTMENT OF REVENUE, STATE OF OREGON, Respondent. USAIR, INC., Appellant, ¥. DEPARTMENT OF REVENUE, STATE OF OREGON, Respondent. (OTC 2496 2497; SC S34859 (Control) /SC 834860) On Appeal from the Oregon Tax Court The Honorable Car] Byers, Judge Argued and submitted October 6, 1988 APPELLATE JUDGMENT Richard M. Botteri, Portland, argued the cause for ap- pellants. On the brief and reply brief were Robert L. Weiss and James P. Draudt, respectively, and Richard M. Botteri, and Weiss, DesCamp & Botteri, A Professional Corporation, Portland. 3la Elizabeth S. Stockdale, Assistant Attorney General, Salem, argued the cause for respondent. With her on the brief were Dave Frohnmayer, Attorney General, Virginia L. Linder, Solicitor General, and Jerry Bronner, Assistant Attorney General, Salem. Before Peterson, Chief Justice, and Linde, Campbell,* Carson, Jones, Gillette, Justices, and Van Hoomissen, Justice, pro tempore. CARSON, J. The decision of the Oregon Tax Court is affirmed. [Filed February 22, 1989] DESIGNATION OF PREVAILING PARTY AND AWARD OF COSTS Case Name: Alaska Airlines v. Department of Revenue Appellate case number: SC 834859 (Control) SC S34860 Trial Court or agency case number: OTC 2496/2497 Prevailing party or parties: Respondent | ] No costs awarded {|X| Costs awarded to the prevailing party or parties, payable by: Appellants * Campbell, Justice, retired December 31, 1988. 32a FINAL ORDER * IT IS ORDERED that on appeal or judicial review the prevailing party or parties recover from Appellants costs and disbursements taxed at $145, and attorney fees in the amount of $——. (ORAP 11.03, 11.05, and 11.103). Dated: May 1, 1989 SUPREME COURT [SEAL } * This section will be completed when the appellate judgment is prepared. The Records Division of the Office of the State Court Administrator will prepare the appellate judgment, enter it in the appellate register, and mail copies to the parties within the time and in the manner specified in ORAP 11.03. See also ORS 19.190(1). 33a APPENDIX E SUPREME COURT OF THE UNITED STATES No. A-21 ALASKA AIRLINE, INC. and USAIr, INc., Petitioner Vv. DEPARTMENT OF REVENUE OF OREGON ORDER UPON CONSIDERATION of the application of ceun- sel for the petitioner, IT IS ORDERED that the time for filing a petition for a writ of certiorari in the above-entitled case, be and the same is hereby, extended to and including August 29, 1989. /s/ Sandra Day O’Connor SANDRA DAy O’CONNOR Associate Justice of the Supreme Court of the United States Dated this 25th day of July, 1989. --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385020_0227%3A1. Public record. Not legal advice.