Petition for Writ of Certiorari — Travel Services, Inc. v. Government of the Virgin Islands

Oo . FILED

No. ‘JOSEPH F. SPANIOL, J

CLERK

IN THE

Supreme Court of the United States

OCTOBER TERM, 1990

TRAVEL SERVICES, INC.,

Petitioner,

Ws

GOVERN MENT OF THE VIRGIN ISLANDS,

ANTHONY P. OLIVE, Director, Virgin Islands

Bureau of Internal Revenue,

Respondents.

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

GORDON C. RHEA

1138 King Street, Suite 101

Christiansted, St. Croix

U.S. Virgin Islands 00820

(809) 773-3305

Counsel of Record for Petitioner

Of Counsel

THOMAS ALKON

1138 King Street, Suite 101

Christiansted, St. Croix

U.S. Virgin Islands 00820

(809) 773-3305

WILSON - Evrae Printing Co., Inc. - 789-0096 - WASHINGTON, D.C. 20001

QUESTION PRESENTED FOR REVIEW

Whether 49 U.S.C. sec. 1513(a), which expressly pro-

hibits the Virgin Islands from levying gross receipts

taxes “directly or indirectly ... on the sale of air trans-

portation,” prohibits the Virgin Islands from imposing

gross receipts taxes on air transportation sales by travel

agencies.

PARTIES TO THE PROCEEDINGS BELOW

All parties to the proceedings below are listed in the

caption.

(i)

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TABLE OF CONTENTS

Page

QUESTION PRESENTED FOR REVIEW ................... i

PARTIES TO THE PROCEEDINGS BELOW .............. i

TABLE OF AUTHORITIES iv

‘OPINIONS BELOW 1

JURISDICTION 1

STATUTES INVOLVED 2

STATEMENT OF THE CASE 0uwo....22.2.22.2..-eeeeceeseeeee 3

REASONS FOR GRANTING WRIT 4

CONCLUSION bes 7

APPENDICES:

A. Opinion of the United States Court of Appeals

for the Third Circuit in Travel Services, Inc. v.

~ Government of the Virgin Islands, et al. -............. la

B. Opinion of the District Court of the Virgin Is-

lands, Appellate Division, in Travel Services,

Inc. v. Government of the Virgin Islands, et al... 9a

C. Opinion of the Territorial Court of the Virgin

Islands in Travel Services, Inc. v. Government of

oe eee eee, Oe GE. 16a

D. Stipulation of Facts 25a

(iii)

—_—

iv

TABLE OF AUTHORITIES

CASES: Page

Air Jamaica, Ltd. v. State Dept. of Revenue, 374

So.2d 575 (Fla. App. 1979) ... 7

Aloha Airlines, Inc. v. Director of Taxation of

Hawaii, 464 U.S. 7 (1983) 3,5

Arizona Dept. of Revenue v. Cochise Airlines, 128

Ariz. 432, 626 P.2d 596 (1980) 7

Illinois Corporate Travel, Inc. v. American Air-

lines, Inc., 889 F.2d 751 (1989), 806 F.2d 722

(1986) 6

Manier, Bankruptcy, N.D. Ohio 1986, 59 B.R. 588.. 6

Salem Transportation Co. v. Port Authority of

New York & New Jersey, 611 F.Supp. 254

OE Tl cpenee 6

Travel Services, Inc. v. Government of the Virgin

Islands, et al., 904 F.2d 186 (3d Cir. 1990) ........... 1

Wardair Canada, Inc. v. Florida Department of

Revenue, 477 U.S. 1 (1986) 7

STATUTES:

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I I ac acenmenmnsemninncnieae 2, 5, 6, 7

MISCELLANEOUS:

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IN THE

Supreme Com of the Anited States

OCTOBER TERM, 1990

No. —

TRAVEL SERVICES, INC.,

Petitioner,

Vv.

GOVERNMENT OF THE VIRGIN ISLANDS,

ANTHONY P. OLIVE, Director, Virgin Islands

Bureau of Internal Revenue,

Respondents.

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

OPINIONS BELOW

The opinion of the United States Court of Appeals for

the Third Circuit is reported at 904 F.2d 186 and is

printed in appendix “A.” The opinion of the District

Court of the Virgin Islands, Appellate Division, is repro-

duced in Appendix “B.” The opinion of the Territorial

Court of the Virgin Islands is reproduced in Appendix

“—”

JURISDICTION

The judgment of the United States Court of Appeals

for the Third Circuit was entered on May 31, 1990. The

jurisdiction of the Supreme Court is invoked under 28

U.S.C. Section 1254(1).

2

STATUTES INVOLVED

49 U.S.C. sec. 1513 provides in pertinent part:

(a) No state (. . . including the Virgin Islands)

shall levy or collect a tax, fee, head charge, or other

charge, directly or indirectly, on persons traveling

in air commerce or on the sale of air transportation

or on the gross receipts derived therefrom; .. .

(b) Nothing in this section shall prohibit a State

. from the levy or collection of taxes other than

those enumerated in subsection (a) of this section,

including property taxes, net income taxes, fran-

chise taxes, and sales or use taxes on the sale of

goods or services. .

33 V.LC. sec. 48(a) provides in pertinent part:

Every individual and every firm, corporation, and

other association doing business in the Virgin Islands

shall report their gross receipts and pay a tax of four

percent (4%) om the gross receipts of such busi-

ness...

STATEMENT OF THE CASE

Petitioner is a travel agency doing business in the

United States Virgin Islands. It sells, among other

things, airline tickets. In its capacity as the seller of air

transportation, petitioner is closely regulated and super-

vised by the airlines. Petitioner acts as an agent of the

airlines, selling airline tickets solely under the terms and

conditions set by the airlines.

Petitioner participates in the Agent Reporting Plan

(ARP). Under this plan, petitioner deposits the pro-

ceeds of airline ticket sales into an account against which

ARP has a right of withdrawal. ARP withdraws the

proceeds on behalf of the airlines and leaves only the por-

tion that represents petitioner’s commissions.

By law, petitioner is required to sell airline tickets at

the same price as those tickets are sold by the airlines

themselves. If a ticket is sold directly by an airline, the

Virgin Islands Government levies no gross receipts tax

on any portion of the sale. If the same ticket is sold at

an identical price by a travel agent such as petitioner,

the Virgin Islands Government contends that it is en-

titled to levy a gross receipts tax on the portion of the

sale that is paid to the agency as its commission.

Pursuant to 33 V.I.C. sec. 43(a), petitioner filed

monthly gross receipts tax returns for June 1983

through April 1986, omitting from those returns income

representing commissions earned from selling air trans-

portation. Petitioner excluded gross receipts from the

sale of air transportation because of the plain language

of 49 U.S.C. see. 1513(a), which prohibits the levy of “a

tax, fee, head charge, or other charge, directly or in-

directly . . . on the sale of air transportation or on the

gross receipts derived therefrom; .. .” The Virgin Is-

lands Department of Internal Revenue disagreed and

assessed a deficiency in the amount of the withheld gross

receipts taxes.

Petitioner filed an action for redetermination of tax

in the Territorial Court of the Virgin Islands, urging

that 49 U.S.C. sec. 1513(a) preempted 33 V.I.C. sec. 43

(a) to the extent that the local statute attempted to im-

pose a gross receipts tax on the sale of air transporta-

tion. Petitioner advanced three arguments. First, the

plain wording of the Federal statute protected the act of

selling air transportation, irrespective of whether the

seller was an airline or an agent of the airline. Second,

Congress’ intent in enacting 49 U.S.C. sec. 1513(a) was

to protect the entire airline industry, not just airlines,

from multiple taxes that would inhibit air travel. Aloha

Airlines, Inc. v. Director of Taxation of Hawaii, 464

U.S. 7 (1983). Third, the policies of inexpensive air

travel underlying the Airport Development Acceleration

Act of which 49 U.S.C. sec. 1513(a) forms a part are

4

—

undermined if local entities can impose gross receipts

taxes on travel agents for selling airline tickets. Since

agents cannot charge higher prices than do airlines, the

cost of added taxes must ultimately be passed on to the

consumer in the form of higher ticket prices across the

board.

The matter was submitted on cross-motions for sum-

mary judgment based on stipulated facts. (Appendix

“—”). In Memorandum Opinion and Order dated June

23, 1988, the Territorial Court granted summary judg-

ment in favor of the Virgin Islands Government, holding

that 49 U.S.C. sec. 1513(a) did not prevent the local

government from imposing a gross receipts tax on a

travel agent’s sale of air transportation because that

sale constituted a “service” and not the sale of air trans-

portation. On August 18, 1989, the District Court of the

Virgin Islands, Appellate Division, affirmed the decision

of the Territorial Court. That decision was in turn af-

firmed by the United States Court of Appeals for the

Third Circuit on May 31, 1990.

REASONS FOR GRANTING WRIT

The narrow interpretation placed on 49 U.S.C. sec.

1513(a) by the Third Circuit is contrary to the plain

wording of the statute and to existing precedent. It un-

dermines the very policies that the statute was designed

to foster. The impact of the Circuit’s decision is of na-

tionwide import. If the opinion is permitted to stand,

states and municipalities will be permitted to impose

gross receipts taxes on commissions derived from the

sale of air transportation, inevitably resulting in higher

ticket prices contrary to the scheme envisioned by Con-

gress in the Airport Acceleration Act.

In reviewing 49 U.S.C. sec. 1513(a) in a related con-

text, the Supreme Court observed: “When a Federal

statute unambiguously forbids the States to impose a

5

particular kind of tax on an industry affecting inter-

state commerce, courts need not look beyond the plain

language of the federal statute to determine whether a

state statute that imposes such a tax is preempted.”

Aloha Airlines v. Director of Taxation, 464 U.S. 7, 12

(1983). 49 U.S.C. 1513(a) is a model of clarity. By its

plain wording, it protects the act of selling air trans-

portation from gross receipts taxation. Taxes may not

be collected “directly or indirectly . . . on the sale of air

transportation or on the gross receipts derived there-

from.” The fallacy in the opinion below is its attempt to

read into the statute the condition that the statute pro-

ects only air carriers themselves. Such is patently not

the case, nor was it ever intended to be. See Aloha Air-

lines v. Director of Taxation, supra, 464 U.S. at 13.

Moreover, the legislative history of the statute is con-

sistent with its plain meaning. Senator Pearson ob-

served, “The committee bill prohibits State and local tax-

ation of air fares .. .” 119 Cong. Record, part 3, pp.

3349-3350.

The Circuit erroneously concluded that taxing a travel

agent’s commissions derived from the sale of air trans-

portation was not a tax on the sale of air transportation,

but rather a tax on the sale of a “service” to airlines,

and hence taxable under 49 U.S.C. sec. 1513(b). Such

reasoning is, of course, obviously flawed, since the activ-

ity at issue here is the sale of air transportation. This

is precisely the activity that the statute exempts from

gross receipts taxation.

In effect, the Circuit affixed the label of “service” to

petitioner’s sale of air transportation, and then concluded

that the new label rendered petitioner’s sale of air trans-

portation something other than what it really was. This

is the identical mode of reasoning rejected by the Su-

preme Court in Aloha Airlines v. Director of Taxation,

supra. There, Hawaii sought to tax the carriage of air

6

passengers by levying a “property tax” on airlines com-

puted on gross receipts. The Supreme Court rejected this

subterfuge for two recsons. First, even though Hawaii

imposed the tax on air carriers instead of on air tra-

velers, the reach of sec. 1513(a) was not so narrow: the

statute “unambiguously forbids the States to impose a

particular kind of tax on an industry affecting interstate

commerce ...” Second, even though Hawaii styled its

tax as a property tax, the Court looked to the effect of

the tax and deemed it a gross receipts tax, and hence

preempted. In sum, emphasized the Court, sec. 1513(a)

was designed to protect the air travel industry. Local

governments could not circumvent the law’s reach simply

by taxing different components of the industry or by

calling taxes something other than what they reaily were.

Accordingly, in the instant case, the fact that the Cir-

cuit chose to call petitioner’s sale of air transportation

a “service” in no way changes the reality of petitioner’s

activity. Petitioner sells air transportation and cannot

be taxed on gross receipts derived from that activity.

Moreover, the Circuit’s reasoning is at odds with judi-

cial precedent which treats airline ticket sales by carriers

as legally identical to airline ticket sales by travel agen-

cies because of the close principal-agent relationship be-

tween the two. See Illinois Corporate Travel, Inc. v.

American Airlines, Inc., 889 F.2d 751 (1989) and 806

F.2d 722 (1986), where the Seventh Circuit rejected the

distinction between the sale of air travel service by a

carrier directly or through an agency on the one hand,

and their agency’s reservation-ticketing activities on the

other.

Existing case law draws a sharp distinction between

“goods and services” that can be taxed under 49 U.S.C.

sec. 1513(b) and the “sale of air transportation” that is

protected under sec. 1513(a). The Supreme Court re-

cently approved sales tax on fuel used by air carriers.

7

Wardair Canada, Inc. v. Florida Dept. of Revenue, 477

U.S. 1 (1986). In a concurring opinion, Chief Justice

Burger observed that section (b) was added to ensure

that the statute would not “prohibit even unobjectionable

taxes such as landing fees, fuel taxes and sales taxes on

food provided to airline passengers.” In like spirit, lower

courts have sustained taxes on the sale of packaged

meals to passengers, Air Jamaica, Ltd. v. State Dept. of

Revenue, 374 So.2d 575 (Fla. App. 1979); on the sale

of air freight transportation, State ex rel. Arizona Dept.

of Revenue v. Cochise Airlines, 128 Ariz. 432, 626 P.2d

596 (1980); and on the sale of fuel, In re Manier, Bank-

ruptcy, N.D. Ohio 1986, 59 B.R. 588. See also, Salem

Transportation Co. v. Port Authority of New York and

New Jersey, 611 F. Supp. 254 (D.C.N.Y. 1985), finding

that the sale of ground transportation is not protected

under sec. 1513 (a).

Until the Third Circuit’s break with precedent in this

case, however, no court had ever approved the levy of

gross receipts taxes on the sale of air transportation. In

striking down a privilege tax on air carrier ticket sales,

the Supreme Court of Arizona emphasized that “the sales

tax referred to in section 1513(b) on the sales of goods

and services cannot logically include sales of air trans-

portation or sales directly connected with the carriage

of persons in air commerce.” State ex rel. Arizona De-

partment of Revenue v. Cochise Airlines, supra, 626 P.2d

at 601.

CONCLUSION

This is an appropriate case for Supreme Court review.

The Third Circuit has construed a Federal statute con-

trary to its plain meaning and to its legislative history.

The Circuit’s construction is contrary to existing prece-

dent and upsets a carefully drawn nationwide regulatory

scheme. If permitted to stand, the Circuit’s interpreta-

tion of 49 U.S.C. sec. 1513 will allow local governments

to impose taxes that will affect the price of airline travel

with national consequences.

Respectfully submitted,

GORDON C. RHEA

1138 King Street, Suite 101

Christiansted, St. Croix

US. Virgin Islands 00820

(809) 773-8305

Counsel of Record for Petitioner

Of Counsel

THOMAS ALKON

1188 King Street, Suite 101

Christiansted, St. Croix

U.S. Virgin Islands 00820

(809) 778-8305

APPENDICES

la

APPENDIX A

Filed May 31, 1990

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 89-3619

TRAVEL SERVICES, INC.,

Appellant

Vv.

GOVERNMENT OF THE VIRGIN ISLANDS,

ANTHONY P. OLIVE, Director,

Virgin Islands

Bureau of Internal Revenue,

Appellees

Appeal from the District Court

of the Virgin Islands

Division of St. Croix,

Appellate Division

(D.C. Civil Action No. 88-264)

Argued: April 25, 1990

PRESENT: SLOVITER, STAPLETON and

HUTCHINSON, Circuit Judges

Opinion filed May 31, 1990

2a

Gordon C. Rhea, Esquire (Argued)

Alkon & Rhea

46 King Street

Christiansted, St. Croix

U.S. Virgin Islands 00820

Attorney for Appellant

Rosalie Simmonds Ballentine, Esquire

Roy E. Parrott, Esquire

Darlene C. Grant, Esquire (Argued)

Department of Justice

48B-50C Kronprindsens Gade

Charlotte Amalie, St. Thomas

U.S. Virgin Islands 00801

Attorneys for Appellees

OPINION OF THE COURT

HUTCHINSON, Circuit Judge.

In this appeal we decide whether 49 U.S.C.A. § 1513 (a)

(West 1976) preempts a Virgin Islands’ gross receipts

tax on the commissions earned by travel agents for the

sale of airline tickets. For the reasons stated below, we

hold that § 1513(a) does not preempt such a tax.

I.

Appellant, Travel Services, Inc. (Travel Services), op-

erates a travel agency in the United States Virgin Is-

lands. Among its activities is the sale of airline tickets,

as agent for various airlines, to persons wishing to fly to

and from the Virgin Islands. It sells those tickets at the

same price the airlines would charge and receives from

them a commission. When it sells an airline ticket,

Travel Services is required to deposit the fares into a

8a

special account that it holds in trust for the airlines. The

airlines draw funds from this account for the total fares

less the commissions owed to Travel Services. The price

of the airline ticket is established by the airlines and can-

not be increased or decreased by Travel Services. The

amount paid by a passenger is the same whether he or

she purchases a ticket from Travel Services or directly

from the air ca: rier.

The Virgin Islands gross receipts tax, set forth at V.I.

Code Ann. tit. 33, §43(a) (Supp. 1989-90), provides in

relevant part:

Every individual and every firm, corporation, and

other association doing business in the Virgin Islands

shall report their gross receipts and pay a tax of

four percent (4%) on the gross receipts of such

business.

The United States Congress has enacted a statute con-

cerning taxes levied on airline travel. That statute, set

forth at 49 U.S.C.A. § 1513 (West 1976 & Supp. 1990),*

reads in relevant part:

(a) No State (or political subdivision thereof, in-

cluding . . . the Virgin Islands . . .) shall levy or

collect a tax, fee, head charge, or other charge, di-

rectly or indirectly, on persons traveling in air com-

merce or on the carriage of persons traveling in air

commerce or on the sale of air transportation or on

the gross receipts derived therefrom ....

(b) . . . [NJothing in this section shall prohibit

a State (or political subdivision thereof, including

... the Virgin Islands ...) from the levy or collec-

tion of taxes other than those enumerated in subsec-

tion (a) of this section, including property taxes,

1 For a discussion of the history behind the passage of 49 U.S.C.A.

§ 1513, see Aloha Airlines v. Director of Taxation, 464 U.S. 7, 8-10

(1983).

4a

net income taxes, franchise taxes, and sales or use

taxes on the sale of goods or services. ...

Travel Services filed tax returns for the period of

June 1983 through April 1986, as required under the

Virgin Islands statute, but did not include in its re-

ported gross receipts the commissions it had earned on

the sale of airline tickets. The Virgin Islands taxing au-

thorities assessed gross receipts taxes and interest on

Travel Services’ commissions from the sale of airline

tickets for the period of June 1983 through April 1986.

Travel Services then brought an action in the Territorial

Court of the Virgin Islands contending that the Virgin

Islands’ assessment of tax on the commissions it had

earned from the sale of airline tickets was prohibited by

49 U.S.C.A. § 1513 (a).

The parties filed stipulated facts and, on cross-motions

for summary judgment, the territorial court denied

Travel Services’ motion and granted summary judgment

to the government. The territorial court held that the

tax imposed by the Virgin Islands statute was not a tax

on gross receipts derived from the sale of air transpor-

tation preempted by 49 U.S.C.A. § 1518(a), but instead

was a tax on services permitted by § 1513(b). The Ap-

pellate Division of the District Court of the Virgin Is-

lands accepted the territorial court’s reasoning and af-

firmed. This appeal followed.

Il.

The territorial court had subject matter jurisdiction

pursuant to V.I. Code Ann. tit. § 76(a) (Supp. 1989-90).

The district court had appellate jurisdiction over Travel

Services’ appeal from the final judgment of the territor-

ial court pursuant to 48 U.S.C.A. §16138a(a) (West

1987), and V.I. Code Ann. tit. 4, § 33 (Supp. 1989-90).

We have appellate jurisdiction over the final order of the

district court. See 28 U.S.C.A. §1291 (West Supp.

5a

1990); 48 U.S.C.A. § 1613a(c) (West 1987). Since the

issues the parties raise involve statutory construction, our

scope of review is plenary. See Chrysler Credit Corp. v.

First Nat'l Bank & Trust Co., 746 F.2d 200, 202 (3d

Cir. 1984).

III.

Section 1513(a) prohibits the Virgin Islands from “di-

rectly or indirectly” taxing gross receipts derived from

the sale of air transportation. Travel Services contends

§ 1518(a) should be construed broadly to prohibit a tax

on travel agency commissions paid from an airline’s gross

receipts. However, in §1513(b) Congress limited the

broad sweep of § 1513(a) by permitting states to impose

“taxes other than those enumerated in subsection (a) ...

including . . . sales or use taxes on the sale of goods or

services.” See Wardair Canada, Inc. v. Florida Dep’t of

Revenue, 477 U.S. 1, 7 (1986).

We believe the broad reading of § 1513(a) that Travel

Services suggests would be inconsistent with the Supreme

Court’s interpretation of the statute in Wardair. Under

that reading, every item paid from an airline’s gross re-

ceipts, such as an airline’s direct purchase of goods or

services or an airline employee’s wages, would be exempt

from taxation. However, in Wardair, the Supreme Court

held that a tax on aviation fuel sold to airlines was not

preempted by §$1518(a), see Wardair, 477 U.S. at 7,

without regard to whether the tax would ultimately be

paid out of an airline’s gross receipts derived from the

sale of air transportation. Thus, we reject Travel Serv-

ices’ broad reading of § 1513(a).

Instead, we think that the commissions Travel Serv-

ices receives from the airlines are commissions paid for

the service of selling airline tickets. A tax on these com-

missions is not a tax on gross receipts from the sale of

air transportation prohibited by § 1513(a); it is merely

a tax on compensation paid for a service. Section 1513 (b)

6a

allows the Virgin Islands to impose taxes “other than

those enumerated in [§ 1513(a)], including .. . sales or

use taxes on the sale of goods or services.” The Virgin

Islands tax on Travel Services’ commissions is not one of

the enumerated taxes that § 1513(a) prohibits, and thus

it is expressly allowed under § 1513(b).

The fact that the commissions are paid from the same

account into which the gross receipts from the sale of

airline tickets are deposited does not change the nature

of the compensation. As the territorial court persuasively

reasoned :

The fact that [Travel Services] is paid from the

Same account in which the gross receipts from the

sale of air transportation are deposited is irrelevant.

Those receipts are not the property of [Travel Serv-

ices]. The instant that a portion of those receipts is

assigned, or paid to [Travel Services], the character

of that portion is altered. It no longer represents

“gross receipts derived from the sale of air trans-

portation.” It is now commissions for services ren-

dered. This is so because its purpose is not for travel,

but to compensate [Travel Services] for services ren-

dered. The airlines, by paying commissions, surely

are not purchasing air transportation. Obviously,

this is not a transaction between an airline and a

passenger, but rather it is a transaction between an

airline and its travel agent.

Travel Services, Inc. v. Government of the Virgin Islands,

Civil No. 204/87, slip op. at (V.I. Terr. Ct. June 23,

1988), reprinted in Appendix of Appellant (App.) at 30. _

Travel Services argues that the tax on its commissions

is an indirect tax on the sale of air transportation pro-

hibited by § 1513(a). In support, Travel Services relies

on Aloha Airlines v. Director of Taxation, 464 U.S. 7

(1983). However, Aloha Airlines did not speak to the

issue this case raises. In Alisha Airlines, the Supreme

Ta

Court held that a state tax, denominated as a property

tax on airlines measured by their gross receipts, was in

reality a tax on the gross receipts of airlines selling air

transportation and carrying persons traveling in air com-

merce. See 464 U.S. at 18-14. The Court held that

§ 1513(a) preempted such a tax. See id. at 14.

The Virgin Islands tax on Travel Services’ commissions

is distinct from the tax at issue in Aloha Airlines. The

tax at issue in this case is a tax on income derived from

services provided. It is not analogous to the property tax

measured by airline gross receipts, which the Supreme

Court held was preempted in Aloha Airlines.

Travel Services also argues that the Virgin Islands

tax on travel agents’ commissions is not a tax on income

derived from services permitted under 49 U.S.C.A.

§ 1513(b). In support of this argument, Travel Services

relies on State ex rel. Arizona Dep’t of Revenue v.

Cochise Airlines, 128 Ariz. 482, 626 P.2d 596 (Ariz. Ct.

App. 1980), and Ohio Op. Atty. Gen. No. 73-117 (1978).

In Cochise Airlines, Arizona had imposed directly on an

airline a privilege tax based on the volume of business.

The Court of Appeals of Arizona held that § 1513(a)

preempted the tax insofar as it related to the transporta-

tion of airline passengers. See 626 P.2d at 601. The

Ohio Attorney General’s opinion similarly concluded that

§ 1513(a) preempted an Ohio excise tax on _ airlines.

Here, the territorial government of Virgin Islands is not

imposing a privilege tax or an excise tax on airlines, but

a tax on the commissions earned by a travel agent for

providing services. In our view, the authorities Travel

Services relies on are not controlling.

Because the tax at issue is a tax on commissions de-

rived from services provided to airlines and not a tax on

gross receipts from the sale of air transportation,

§ 1513(a) does not preclude the Virgin Islands from

levying and collecting such a tax on Travel Services’

commissions.

8a

IV.

For the reasons stated above, we hold that § 1513(a)

does not preempt the application of V.I. Code Ann. tit.

33, § 43(a) to impose a tax on the commissions earned

by travel agents for the sale of airline tickets. We will

affirm the judgment of the district court.

A True Copy:

Teste:

Clerk of the United States Court of Appeals

for the Third Circuit

9a

APPENDIX B

IN THE DISTRICT COURT OF THE VIRGIN ISLANDS

DIVISION OF SAINT CROIX

APPELLATE DIVISION

D.C, Civil No. 1988-264

T.C. Civil No. 204-1987

TRAVEL SERVICES, INC.,

Plaintiff / Appellant,

vs.

GOVERN MENT OF THE VIRGIN ISLANDS

and ANTHONY OLIVE, Director of

V.I. BUREAU OF INTERNAL REVENUE,

Defendants/ Appellees.

ELLEN G. DONOVAN, Esa.

55 Kings Alley

Christiansted, St. Croix

U.S. Virgin Islands 00820

—Atty. for Plaintiff-Appellant

GODFREY R. DE CASTRO, Esq.

Attorney General

ROSALIE SIMMONDS BALLENTINE

Solicitor General

JOSEPH E. WILLIAMS, Esq.

Assistant Attorney General

Department of Justice

#46 Norre Gade

St. Thomas, Virgin Islands 00801

—Attys. for Defendants/ Appellees

10a

On Appeal from the

Territorial Court of the Virgin Islands *

BEFORE: O’BRIEN,** Presiding Judge; McGLYNN,

U.S. District Judge ***, and SMOCK, Ter-

ritorial Court Judge

OPINION

The issue presented is whether 49 U.S.C.A. § 1513

(Supp. 1988) permits the Government of the Virgin

Islands to tax the commissions earned by travel agents

on the sale of airline tickets. The Territorial Court con-

cluded that it does. We affirm.

I,

The Government of the Virgin Islands assessed plain-

tiff-appellant Travel Services, Inc., doing business as

Southerland Tours (hereafter “Southerland”), a defi-

ciency for failure to pay gross receipts taxes' on com-

* This matter was submitted on the briefs of the parties, pursuant

to V.I. Code Ann. tit. 5, App. VII R. 12(6) (Supp. 1988).

** The Honorable David V. O’Brien has recused himself from

consideration of this appeal.

*** The Honorable Joseph L. McGlynn is sitting by designation

from the U.S. District Court of Pennsylvania.

1 V.1. Code Ann. tit. 83, § 43 (Supp. 1988) provides:

(a) Every individual and every firm, corporation, and other

association doing business in the Virgin Islands shall report

their gross receipts and pay tax of four percent (4%) on the

gross receipts of such business... .

(b) The term “gross receipts,” as used in this title shall mean

all receipts, cash or accrued, of the taxpayer for services or

derived from trade, business, commerce or sales, and the value

accruing from the sale of tangible personal property or services,

or both, including rentals, fees and other involvements, how-

ever,” designated . . . .

* So in original.

lla

missions earned on the sale of airline tickets. Souther-

land maintained that federal iaw, 49 U.S.C.A. § 1513(a),

prohibits defendants from taxing those commissions. The

parties entered into a stipulation of facts and both moved

for summary judgment. The Territorial Court denied

Southerland’s motion, granted defendants’ motion, and

entered judgment in favor of defendants. Southerland

appeals from that judgment.

49 U.S.C.A. § 1513 provides in pertinent p--t:

(a) No state ({or Territory] including . . . the

Virgin Islands . . .) shall levy or collect a tax, fee,

head charge, or other charge, directly or indirectly,

on persons traveling in air commerce or on the car-

riage of persons traveling in air commerce or on the

sale of air transportation or on the gross receipts

derived therefrom. .. .

(b) [Nlothing in this section shall prohibit a

State ({or Territory] including . . . the Virgin

Islands . . .) from the levy or collection of taxes

other than those enumerated in subsection (a) of

this section, including property taxes, net’ income

taxes, franchise taxes, and sales or use taxes on the

sale of goods or services... .

Id. (emphasis added). Southerland contends that its com-

missions are proceeds derived “from the sale of air trans-

portation” and, as such, cannot be taxed by the defend-

ants 49 U.S.C.A. §1513(a). Defendants, however,

claim that the tax on commissions is a tax on services

and is explicitly permitted by 49 U.S.C.A. § 1513(b).

II.

Southerland is a full service travel agency which,

among other things, sells air transportation for approxi-

mately sixty airlines. Pursuant to an agreement with

the Agent Reporting Plan (ARP), a corporation, all pro-

12a

ceeds from the sale of air transportation are deposited

into Southerland’s account. These proceeds belong to the

airlines and are nxt property of Southerland. ARP draws

from that account all amounts except those representing

commissions earned by Southerland.

The Territorial Court focused on the purpose of the

income and the parties involved. It concluded that the

commission income is derived from the sale of a service

and is, therefore, taxable. The court explained that

careful scrutiny of Southerland’s business operations

reveals that it performs two activities with one act.

It undeniably sells air transportation, and by so

doing, it performs a service to airlines for a fee.

Both activities, though related, are separate and dis-

tinct for tax purposes. The Virgin Islands seek to

tax only one—the sale of a service.

. .. [T]he character or classification of income for

tax purposes, changes depending on its purpose and

the parties involved. Southerland admits that the

gross receipts which it collects from passengers are

the property of the airlines. In this respect, Souther-

land is merely a conduit for payment of airline

tickets. The purpose of the payment is for travel.

Accordingly, these receipts represent a transaction

between the airlines and its passengers. Such re-

ceipts represents the sale of air transportation—the

activity sought to be pre-empted by § 1513(a).

The fact that Southerland is paid from the same

account which the gross receipts from the sale of

air transportation are deposited is irrelevant. Those

receipts are not the property of Southerland. The

instant that a portion of those receipts is assigned,

or paid to Southerland, the character of that portion

is altered. It no longer represents “gross receipts

derived from the sale of air transportation.” It is

13a

now commissions for services rendered. This is so

because its purpose is not for travel, but to com-

pensate Southerland for services rendered. The air-

lines, by paying commissions, surely are not purchas-

ing air transportation. Obviously, this is not a trans-

action between an airline and a passenger, but rather

it is a transaction between an airline and its travel

agent.

Travel Services, Inc. v. Government of the Virgin Islands,

Civ. No. 204-87 at 5-7 (Terr. Ct. St. Croix June 23,

1988).

We agree with this conceptual analysis of the issue

presented and will, consequently, affirm the Territorial

Court’s decision.

DATED this 18th day of Aug., 1989.

l4a

IN THE DISTRICT COURT OF THE

VIRGIN ISLANDS

DIVISION OF SAINT CROIX

APPELLATE DIVISION

D.C. Civil No. 1988-264

T.C. Civil No. 204-1987

TRAVEL SERVICES, INC.,

Plaintiff /Appellant,

vs.

GOVERNMENT OF THE VIRGIN ISLANDS

and ANTHONY OLIVE, Director of

V.I. BUREAU OF INTERNAL REVENUE,

Defendants/Appellees.

ELLEN G. DoNOVAN, Es@Q.

55 Kings Alley

Christiansted, St. Croix

U.S. Virgin Islands 00820

—Atty. for Plaintiff-Appellant

GopFREY R. DE CASTRO, Esq.

Attorney General

ROSALIE SIMMONDS BALLENTINE

Solicitor General

JOSEPH E. WILLIAMS, EsqQ.

Assistant Attorney General

Department of Justice

#46 Norre Gade

St. Thomas, Virgin Islands 00801

—Attys. for Defendants/ Appellees

15a

On Appeal from the

Territorial Court of the Virgin Islands*

BEFORE: O’BRIEN, ** Presiding Judge; McGLYNN,

U.S. District Judge***, and SMOCK, Terri-

torial Court Judge

JUDGMENT

Having considered the issue presented on appeal and

having filed an opinion of even date herewith, it is

hereby ORDERED and ADJUDGED:

THAT the judgment of the Territorial Court is AF-

FIRMED.

DATED this 18th day of Aug., 1989.

FOR THE COURT:

/s/ David V. O’Brien

DAVID V. O’BRIEN

Chief Judge

ATTEST: ORINN ARNOLD

Clerk

by: Margaret Richards

Deputy Clerk

* This matter was submitted on the briefs of the parties, pursuant

to V.I. Code Ann. tit. 5, App. VII R. 12(6) (Supp. 1988).

** The Honorable David V. O’Brien has recused himself from con-

sideration of this appeal.

*** The Honorable Joseph L. McGlynn is sitting by designation

from the U.S. District Court of Pennsylvania.

16a

APPENDIX C

IN THE TERRITORIAL COURT OF THE

VIRGIN ISLANDS

DIVISION OF ST. CROIX: KINGSHILL

Civil No. 204/87

ACTION FOR DETERMINATION OF TAX

TRAVEL SERVICES, INC.,

Plaintiff,

V.

GOVERNMENT OF THE VIRGIN ISLANDS

and ANTHONY P. OLIVE, Director of the

Virgin Islands Bureau of Internal Revenue,

Defendants.

ELLEN G. DONOVAN, ESQUIRE

#55 Kings Alley

Christiansted, St. Croix

U.S. Virgin Islands 00820

(809) 773-0397

(Attorney for Plaintiff)

RICHARD L. MARLAR, ESQUIRE

Assistant Attorney General (Tax)

Department of Justice

#46 Norre Gade

Charlotte Amalie, St. Thomas

U.S. Virgin Islands 00801

(809) 774-5666

(Attorney for Government)

PETERSEN, Judge

17a

MEMORANDUM OPINION AND ORDER

June 23, 1988

This matter is before the Court on motions for sum-

mary judgment filed by both parties on June 1, 1988.

These motions present this Court with a novel issue:

Whether 49 USC § 1513(a) pre-empts the Virgin Islands

Gross Receipts Tax Statute, to the extent that it imposes

a tax on the gross receipts of travel agencies. For the

reasons mentioned below, this Court concludes that the

territorial statute is not pre-empted.

FACTS

Plaintiff, Travel Services, Inc., is a corporation doing

business in the Virgin Islands under the trade name of

Southerland Tours (hereinafter referred to as Souther-

land). Southerland is a full service travel agency whose

activity includes arranging and selling air transporta-

tion, hotel accommodations, land tours, cruises, land

transportation, and car rentals. Pursuant to agreements

with International Airlines Travel Agent Network

(IATAN) and Agent Reporting Plan (ARP, Souther-

land sells tickets for approximately sixty airlines. The

ticket stock, travel documents, and airline plates given to

travelers are the property of the airlines. Southerland

does not own or operate aircrafts. IATAN and the vari-

ous airlines impose certain standards, terms, and condi-

tions to which Southerland must adhere when arranging

and selling air transportation. Southerland, for example,

cannot alter the price of an airline ticket. It also cannot

give refunds without written instructions from the air-

lines. Employees of Southerland are trained by the air-

lines in the same fashion as airline employees. This in-

sures that air transportation is sold to the public at the

same fares and under the same terms, conditions, and

restrictions whether purchased directly from an airline

or through a travel agency.

18a

Under Southerland’s agreement with ARP, all pro-

ceeds from the sale of air transportation are deposited

in Southerland’s account. These proceeds belong to the

airlines and are not the property of Southerland. ARP

draws all amounts from this account, except an amount

which represents commissions earned by Southerland.

Title 33 of the Virgin Islands Code imposes a tax of

four percent on the gross receipts of all corporations

doing business in the Virgin Islands. 33 V.I.C. § 41 and

§ 43. In 1973, Congress enacted 49 USC § 1518(a)

which prohibited the Virgin Islands from collecting a

gross receipts tax on the sale of air transportation, or on

the gross receipts derived from such sale. Consequently,

defendant, Director of Internal Revenue Bureau, took

the position that the Bureau will not collect gross re-

ceipts taxes from airlines, but will continue to collect

such taxes from travel agencies. Thus, if an agency sells

a ticket for $100 and earns a commission of $10 the Di-

rector will tax the $10. |

Pursuant to 33 V.I.C. § 43, plaintiff filed monthly gross

receipts tax returns for the period of June 1983 through

April 1986. Upon conducting an examination of these

returns, the Director determined that Southerland had

omitted a total of $1,655,026.16 from its monthly gross

receipts. This amount, derived from a profit and loss

statement, represented commissions earned for selling air

transportation. The Director assessed a deficiency in

Southerland’s gross receipts tax for the periods men-

tioned of $44,377.02 and $10,399.43 as interest. Souther-

land objected to the tax and filed the instant action alleg-

ing that the Virgin Islands tax was pre-empted by 49

USC § 1513(a). Both parties filed motions for summary

judgment and thoroughly briefed the relevant issues.

DISCUSSION

These motions for summary judgment require the

Court to decide whether 49 U.S.C. § 1513(a) pre-empts

19a

the Virgin Islands Gross Receipts Tax Statute to the ex-

tent that it imposes a tax on the gross receipts of travel

agencies.

This Court must commence its analysis with the lan-

guage employed by Congress as the legislative purpose is

generally reflected in the ordinary meaning of the words

used. American Tobacco Co. v. Patterson, 102 S.Ct. 1534,

1537 (1982). The relevant statute, 49 USC § 1513(a),

reads as follows:

No state (. . . including the Virgin Islands) shall

levy or collect a tax, fee, head charge, or other

charge, directly or indirectly, on persons traveling

in air commerce or on the sale of air transportation

or on the gross receipts derived therefrom; ...

This statute is alleged to pre-empt 33 V.I.C. § 43(a)

which reads as follows:

(a) Every individual and every firm, corporation,

and other association doing business in the Virgin

Islands shall report their gross receipts and pay a

tax of four percent (4%) on the gross receipts of

such business...

It is evident that 49 U.S.C. § 1513(a) prohibits the Vir-

gin Islands from taxing, directly or indirectly, the sale

of air transportation or the gross receipts derived from

such sale. The narrow, yet critical, issue, however, is

whether the commissions received by a ti avel agency can

properly be classified as gross receipts derived from the

sale of air transportation.

This Court will proceed, bearing in mind the well set-

tled rule that statutory exemptions are a matter of legis-

lative grace and as such, are narrowly and strictly con-

strued. Bingler v. Johnson, 89 S.Ct. 1439, 1445 (1969) ;

King Christian Enterprises, Inc. v. Government, 5 V.I.

170, 178 (8rd Cir. 1965). The aim of any taxing scheme

is to tax activities or events. In this case the activity

20a

sought to be taxed is veiled. On its face, Southerland’s

activities appear to be protected by § 1513 (a). However,

careful scrutiny of its business operations reveals that it

performs two activities with one act. It undeniably sells

air transportation, and by so doing, it performs a service

to airlines for a fee. Both activities, though related, are

separate and distinct for tax purposes. The Virgin Is-

lands seek to tax only one—the sale of a service.

Southerland argues that its commissions represent a

portion of collected airfares and, therefore, the commis-

sions are part of “gross receipts derived from the sale of

air transportation.” If this were true, a surtax on the

gross salary of airline ticket agents would be prohibited,

so long as the agents were paid from the airlines’ sales

account. Unfortunately, escape from taxation is not that

simple. It is interesting to note that the collected air-

fares, which represent “gross receipts derived from the

sale of air transportation,” are not the property of South-

erland. Surely, Southerland would not report as income,

gross receipts which are not theirs. But the unreported

gross receipts discovered by the Director came from

Southerland’s books and records. Thus, shouldn’t these

receipts represent something else?

It is true that all receipts from the sale of air trans-

portation by Southerland are deposited in a central APR

account and that Southerland’s commission is paid there-

from. What Southerland fails to recognize, however, is

that the character or classification of income for tax pur-

poses, changes depending on its purpose and the parties

involved. Southerland admits that the gross receipts

which it collects from passengers are the property of the

airlines. In this respect, Southerland is merely a conduit

for payment of airline tickets. The purpose of the pay-

ment is for travel. Accordingly, these receipts represent

a transaction between the airlines and its passengers.

Such receipts represent the sale of air transportation—

the activity sought to be pre-empted by § 1513 (a).

Zla

The fact that Southerland is paid from the same ac-

count in which the gross receipts from the sale of air

transportation are deposited is irrelevant. Those receipts

are not the property of Southerland. The instant that a

portion of those receipts is assigned, or paid to Souther-

land, the character of that portion is altered. It no

longer represents “gross receipts derived from the sale

of air transportation.” It is now commissions for serv-

ices rendered. This is so because its purpose is not for

travel, but to compensate Southerland for services ren-

dered. The airlines, by paying commissions, surely are

not purchasing air transportation. Obviously, this is not

a transaction between an airline and a passenger, but

rather it is a transaction between an airline and its

travel agent. This Court cannot consider this transac-

tion as the activity sought to be pre-empted by § 1513(a).

The statute “pre-empts state taxes imposed on or meas-

sured by the gross receipts of airlines,” not state taxes

imposed on travel agencies whose income doesn’t represent

such receipts. Aloha Airlines v. Director of Taxation of

Hawaii, 104 §.Ct. 291, 295 n.10 (1983).

The cases cited by Southerland in support of its posi-

tion are inapposite. They involve attempts to tax an

airline of its sale of air transportation. Here the Virgin

Islands is taxing the sale of a service provided by travel

agencies.

This Court’s distinction between the sale of air trans-

portation. and the sale of services is not unique. The

United States District Court in Salem Transportation Co.

v. Port Authority of N.Y. & N.J., 611 F. Supp. 254, 257

(D.C.N.Y. 1985) distinguished between the activity of

carrying passengers in air transportation and that of

selling ground transportation services. It said, ‘“Con-

gress passed § 1513(a) to deal primarily with local head

taxes on airline passengers. (citations omitted) The sec-

tion was not passed to prohibit the imposition of fees on

ground transportation service.” Jd. at 257. Though these

activities are very much related, the Court recognized

their distinction for tax purposes. Similarly, in Wardair

Canada, Inc. vy. Florida Dept. of Revenue, 106 S.C. 2369,

2372 (1986), the Supreme Court upheld a tax on an air-

line for fuel consumed. The Court stated that Congress

did not intend to preclude state sales taxation of airline

fuel. Thus the Court recognized that an activity, though

indispensable to the sale of air transportation or the

carriage of persons therein, was nevertheless sufficiently

distinct to be taxable.

Congress itself manifested an intent to distinguish

between the sale of air transportation and the sale of

other goods and services when it enacted § 1514(b). That

statute reads as follows:

Nothing in this section shall prohibit a State (...

including the Virgin Islands) from the levy or col-

lection of taxes other than those enumerated in sub-

section (a) of this section, including property taxes,

net income taxes . .. sales taxes . . . on the sale of

goods or services; ...

Clearly, “sale of goods or services” as used in § 1513(b)

is not intended to include the sale of air transportation

(i.e. a service). If it did, §1513(b) would contradict

§ 1518(a). See State v. Cochise Airlines, 626 P.2d 596,

601 (Ariz. App. 1980). Thus, Congress itself has made

it clear that it is onlv the sale of a particular service,

that being air transportation, that is pre-empted. Related

services remain taxable.

It is rather vivid to this Court that the plain language

of § 1513(a), strictly construed, does not prohibit the

imposition of gross receipts taxes on the commissions

earned by travel agencies. This reading becomes even

more apparent when one examines the Virgin Islands tax

in light of the history and purpose of § 1513(a). In 1970,

Congress passed the Airport and Airway Development

Act in order to provide for needed improvements in the

23a

national air transportation system. A Trust Fund was

established as a conduit to channel federal resources to

local airport improvement and expansion projects. See

1973 U.S. Code Cong. & Admin. News, pgs. 1434-1437.

The Fund was financed through federal aviation taxes,

including a 8% charge on domestic passengers, and a $3

per person charge on international trips. Jd. at 1450.

In 1972, the Supreme Court upheld passenger head

taxes imposed by the states of New Hampshire and In-

diana. Evansville-Vanderburgh Airport Authority Dis-

trict v. Delta Airlines, Inc., 92 S.Ct. 13849 (1972). The

decision invited state and local governments to impose

similar taxes on air travelers. U.S. Code Cong. & Admin.

News, supra, at 1446. Congress later concluded that “the

proliferation of local taxes burdened interstate air trans-

portation, and when coupled with the federal Trust Fund

review, imposed double taxation on air travelers.” Aloha,

104 §.Ct. at 293. To rectify this problem, Congress

passed 49 USC § 1513(a).

Section 1513(a) was passed “to deal primarily with

local head taxes on airline passengers.” 104 S.Ct., at 294.

It also sought to “pre-empt state taxes on the gross re-

ceipts of airlines.” (Emphasis supplied). Jd. at 294.

Congress was concerned with the increase in airfares

which would occur for example, if an airline was taxed

on its sales. The airline would simply increase its fares.

U.S. Code Cong. & Admin. News, supra, at 1451. South-

erland is powerless to pass on gross receipts by increas-

ing airfares. The tax, therefore, is not at odds with the

purpose of § 1513(a). Conspicuously absent from the

legislative history of § 1513(a) is any intent to pre-empt

taxation of travel agencies. The history abounds with

references to airlines and air passengers. The activity

performed by travel agencies was never mentione’. As

the Supreme Court in Wardair stated:

Where a congressional statute does not expressly

declare that a staté law is to be pre-empted, and

Wardair, supra, at 2372. No such conflict or congres-

sional intent exists here.

For the foregoing reasons, this Court holds that 49

USC §$1513(a) does not preempt the Virgin Islands

Gross Receipts Tax Statute with respect to commissions

earned by travel agencies. The Government’s Motion for

Summary Judgment will be granted, and the Plaintiff's

Motion for Summary Judgment will be denied.

/s/ Eileen R. Petersen

EILEEN R. PETERSEN

Judge

25a

APPENDIX D

IN THE TERRITORIAL COURT OF THE

VIRGIN ISLANDS

DIVISION OF SAINT CROIX

Civil No. 204/87

ACTION Por DETERMINATION OF TAX

TRAVEL SERVICES, INC.,

Plaintiff,

vs.

GOVERNMENT OF THE VIRGIN ISLANDS

and ANTHONY P. OLIVE, Director of Virgin Islands

Bureau of Internal Revenue,

Defendants.

STIPULATION OF FACTS

stipulated that, for the purpose of this

the following statements may be accepted as facts

exhibits referred to herein and attached hereto

incorporated in this stipulation and made a part

; provided, however, that either party may intro-

and further evidence not inconsistent with

“eo stipulated. Either party hereby expressly

the right to object to the admission in evidence

any of the following facts or exhibits, however, on the

grounds or materiality and relevancy.

1. Travel Services, Inc. (hereinafter Plaintiff), is a

corporation duly organized and exiting under the laws

of the United States Virgin Islands.

2. Plaintiff operates a travel agency known as Souther-

land Tours located at #55 Kings Alley, Christiansted,

Croix, United States Virgin Islands.

en Ett.

eB ese

:

att

fe

26a

8. Plaintiff’s principal place of business is located in

Christiansted, St. Croix, United States Virgin Islands.

4. Plaintiff filed its monthly gross receipts tax returns

(Form 720 V.I.) for the periods June 1988 through April

1986 with the Virgin Islands Bureau of Internal Revenue

at St. Croix.

5. Plaintiff’s employer identification number (EIN)

is 67-025714.

6. On January 30, 1987, the Director of the Virgin

Islands Bureau of Internal Revenue assessed gross receipts

taxes and interest on the commissions earned by Plaintiff

from the sale of airline tickets for the months of June

1983 through April 1986 in the amounts of $44,377.02

and $10,399.43 respectively.

7. Plaintiff is engaged in business as a travel agency.

8. As a travel agency, Plaintiff’s services include pro-

viding airline tickets for sale.

9. Plaintiff has an arrangement with certain airline

carriers whereby Plaintiff will issue an airline ticket for

a customer to his or her place of destination.

10. The price of the airline ticket cannot be lowered

or increased by Plaintiff under any circumstances.

11. Plaintiff remits the entire ticket fare to an ac-

count in Plaintiff’s name from which the airline reporting

plan draws checks for all fares less the balance of com-

mission owed which remains in Plaintiff’s account.

12. In the sale of tickets, Plaintiff acts as the agent

of airline.

13. The fares for airline tickets collected by Plaintiff

are not the property of the Plaintiff.

14. Plaintiff holds the collected air fares in trust for

the various air carriers.

27a

15. In filing its monthly gross receipts tax returns for

the months of June 1983 through April 1986, Plaintiff

did not report as gross receipts these amounts earned as

commissions from the sale of airline tickets.

16. In examining Plaintiff's monthly gross receipts

tax returns, Defendant determined that Plaintiff had

excluded from its monthly gross receipts for the months

of June 1983 through April 1986, all commissions earned

during said periods from the sale of airline tickets.

17. Attached hereto as Exhibit A is a summary of

gross receipts and taxes prepared by Revenue Agent

Bernadette Williams and corrected by Plaintiff.

DATED:

Government of the

Virgin Islands

GODFREY R. DE CASTRO

Attorney General

By: /s/ Eddie L. Gibson

EDDIE L. GIBSON

Assistant Attorney General

(Tax)

Toro Building

Estate Golden Rock

Christiansted, St. Croix

00820

(809) 773-0295

/s/ Ellen G. Donovan

ELLEN G. DONOVAN

Attorney for Plaintiff

55 Kings Alley

Christiansted, St. Croix

00820

(809) 773-0397

Dated: 3/14/88

EXHIBIT A 28a

TRAVEL SERVICES, INC.

Gross Receipts

A B C D

Commission on Total Current Gross

Period Per Gross VI Tax Paid Ticket Sale Gross Receipt Exemption Rate Receipt Tax Difference

June 1983 $ 6,849.90 37.00 46,189.00 53,038.90 -0- 2% 1,060.77 1,023.78

July 1983 12,540.56 150.81 35,257.00 47,797.56 -0- 2% 955.95 805.14

Aug. 1983 5,388.94 7.77 46,209.00 51,597.94 -0- 2% 1,031.95 1,024.18

Sept. 1983 4,143.17 -0- 34,233.00 38,376.17 © -0- 2% 767.52 767.52

Oct. 1983 11,608.91 132.18 25,284.00 36,892.91 -0- 2% 737.85 605.68

Nov. 1983 6,140.57 31.37 32,779.00 38,919.57 -0- 2.75% 924.33 901.52

Dec. 1983 12,119.25 195.78 39,503.00 51,622.25 -0- 2.75% 1,419.61 1,223.84

Jan. 1984 8,500.00 96.25 25,365.00 33,865.00 -0- 2.75% 931.28 835.03

Feb. 1984 8,836.73 105.51 29,305.00 38,141.73 -0- 2.75% 1,048.89 943.38

March 1984 9,300.00 118.25 33,900.00 43,200.00 -0- 2.75% 1,188.00 1,069.75

April 1984 10,827.74 160.26 38,650.00 49,477.74 -0- 2.75% 1,360.63 1,200.37

May 1984 10,464.59 150.27 36,682.00 47,146.59 -0- 2.75% 1,296.53 1,146.26

June 1984 11,165.53 169.55 50,472.00 61,637.53 -0- 2.75 1,695.03 1,525.48

July 1984 8,077.76 84.63 50,633.00 58,710.76 -0- 2.75% 1,614.54 1,529.91

Aug. 1984 6,121.51 30.84 42,875.00 48,996.51 -0- 2.75% 1,347.40 1,316.56

Sept. 1984 6,654.37 45.50 26,983.00 33,637.37 -0- 2.75% 925.03 879.54

Oct. 1984 4,292.48 -0- 34,878.00 39,170.48 -0- 3% 1,126.14 1,126.14

Nov. 1984 5,496.36 14.89 40,568.00 46,064.36 -0- 3% 1,381.93 1,367.04

Dec. 1984 6,267.63 38.03 48,028.00 54,295.63 -0- 3% 1,628.86 1,590.84

Jan. 1985 5,159.25 4.77 34,490.00 39,649.25 -0- 3% 1,189.47 1,184.70

Feb. 1985 10,073.63 152.21 27,722.00 37,795.68 -0- 3% 1,133.86 981.66

March 1985 4,568.24 -0- 34,878.00 39,446.24 -0- 3% 1,183.38 1,183.38

Apr. 1985 $ 8,572.66 107.18 35,282.00 43,854.66 -0- 3% 1,315.63 1,208.46

May 1985 17,168.75 365.06 46,224.00 63,392.75 -0- 3% 1,901.78 1,536.72

June 1985 11,785.46 202.66 52,377.00 64,132.46 -0- 3% 1,923.97 1,721.31

July 1985 18,613.05 408.39 53,622.00 72,235.05 -0- 3% 2,167.05 1,758.66

Aug. 1985 9,037.27 151.40 53,778.00 62,815.27 -0- 3.75% 2,120.00 1,968.61

Sept. 1985 7,048.61 76.82 29,889.00 36,937.61 -0- 3.75% 1,385.16 1,308.34

Oct. 1985 12,663.77 287.39 34,145.00 46:808.71 -0- 3.75% 1,755.32 1,467.94

Nov. 1985 4,769.57 -0- 41,452.00 46,401.57 -0- 3.75% 1,733.30 1,733.30

Dec. 1985 4,520.07 -0- 43,420.00 47,940.07 -0- 3.75% 1,797.75 1,797.75

Jan. 1986 7,573.08 96.49 33,100.00 40,673.08 -0- 3.75% 1,525.24 1,428.75

Feb. 1986 17,822.61 480.85 27,830.00 45,652.61 -0- 3.75% 1,711.97 1,231.13

Mar. 1986 7,164.38 81.16 37,219.00 44,383.38 -0- 3.75% 1,644.37 1,583.21

Apr. 1986 18,132.82 492.48 42,366.00 50,498.82 -0- 3.75 1,893.70 1,401.22

BORED ccncks $319,439.16 $4,467.09 $1,335,587.00 $1,655,026.16 $48,844.19 $44,377.10

/s/ Bernadette C. Williams

BERNADETTE C. WILLIAMS

Internal Revenue Agent