Petition for Writ of Certiorari — Zantop International Airlines, Inc. v. Michigan Department of Treasury

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In The

Supreme Court of the United States

ZANTOP INTERNATIONAL AIRLINES, INC.,

Petitioner,

REVENUE DIVISION, DEPARTMENT OF TREASURY,

STATE OF MICHIGAN,

Respondent.

On Petition For Writ Of Certiorari

To The Court Of Appeals Of

The State Of Michigan

PETITION FOR WRIT OF CERTIORARI

Patrick R. VAN TIFLIN

Counsel of Record

BRIGHAM Cook SMITH

HONIGMAN MILLER SCHWARTZ AND

Coun LLP

The Phoenix Building

222 Washington Square, Suite 400

Lansing, Michigan 48933-1800

(517) 484-8282

COCKLE LAW BRIEF PRINTING CO., (800) 225-6964

OR CALL COLLECT (402) 342-2831

\ baer

gle

See REA NIE

QUESTIONS PRESENTED

1. May a state, consistent with the Commerce Clause of

the United States Constitution, assess a use tax on inter-

state commercial air freight carriers for 100 per cent of

the value of parts used in their aircraft when those air-

craft spend nearly 100 per cent of their time outside that

state?

2. May a state, consistent with the Equal Protection

Clause of the Fourteenth Amendment of the United States

Constitution, subject only certain instrumentalities of

commerce to a use tax, while exempting other similarly

situated instrumentalities?

LIST OF PARTIES

Pursuant to Rule 14.1(b) and Rule 29.6, the following

list identifies all of the parties to the appellate proceeding

in the Michigan Court of Appeals, whose decision below

is sought to be reviewed.

Zantop International Airlines, Inc., Appellant below.

Petitioner is not a subsidiary or affiliate of a publicly-

owned corporation.

Revenue Division, Department of Treasury, State of

Michigan, Appellee below.

Ramee wt me

tachi Pas

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TABLE OF CONTENTS

Page

QUESTIONS PRESENTED ............----eeeeeeees i

RE Ge PPMEEED fice ccscasvoccnccscvcccsaceccesn ii

TABLE OF AUTHORITIES ...............-0--eeeee: Vv

OPINIONS BELOW... ......sscccccccccccccccccnces 1

JURISDICTION .... 0.22222 ce cccccccccscccccccccccces 2

CONSTITUTIONAL, STATUTORY, AND REGULA-

TORY PROVISIONS INVOLVED..............--- 3

STATEMENT OF THE CASE..........-.--0s-eeeee: 3

REASONS FOR GRANTING THE WRIT .........-. 8

I. THE STATE OF MICHIGAN HAS VIOLATED

THE COMMERCE CLAUSE BY ASSESSING

“USE” TAXES ON AIRCRAFT PARTS THAT

WERE NOT USED IN-STATE ...........-..-. 9

A. The Parts Have No Substantial Nexus

With The State Because They Are Merely

Components Of Aircraft Whose Presence

In-State Is, At Best, De Minimis.......... 10

B. The “Use” Tax Is Not Fairly Apportioned

Because The State Collects 100 Per Cent Of

The Taxes For Parts That Spend Almost 100

Per Cent Of Their Time Out-Of-State ...... 13

1. The State’s “Use” Tax Is Not Internally

Consistent, And Therefore Is Not

Fairly Apportioned.............-+-++ 14

2. The State’s “Use” Tax Is Likewise Not

Externally Consistent, And Is Also

Therefore Not Fairly Apportioned.... 17

TABLE OF CONTENTS - Continued

Page

C. The “Use” Tax Discriminates Against

Interstate Commerce Because It Prevents

Interstate Businesses From Freely Entering

The State’s Marketplace ...............0. 21

D. The State’s Imposition Of A “Use” Tax Is

Not Fairly Related To The Services It Pro-

vides Because The State Provides No Ser-

vices Whatsoever With Respect To These

PUA 6 bdsewhahccbccbensevhsesyusataenss 23

II. BECAUSE IT RESTS ENTIRELY ON ARBI-

TRARY AND IRRATIONAL DISTINCTIONS

BETWEEN SIMILARLY SITUATED TAX-

PAYERS, THE STATE’S PRACTICE OF

ASSESSING “USE” TAX ON SOME TYPES OF

COMMERCIAL CARRIERS BUT NOT

OTHERS VIOLATES THE EQUAL PROTEC-

TION CLAUSE OF THE FOURTEENTH

TEE, bake Neck a bade ee caeawedayaneesa 24

eke | Pe Pr ere rrr rTP rer Tren ry re 30

TABLE OF AUTHORITIES

Page

Cases

Allegheny Pittsburgh Coal Co. v. County Comm. of

Webster County, 488 U.S. 336 (1989) ............... 26

Allied Stores of Ohio, Inc. v. Bowers, 358 U.S. 522

(ROO 8 kis seh cs veetsadnakorksy Jaks eekeapiasedadens 26

Amcast Indus. Corp. v. Detrex Corp., 45 F.3d 155 (7th

GAR TOWED co sinciévisediecdpuadsnapieiakabesescrias 8

Boston Stock Exchange v. State Tax Comm., 429 U.S.

Ee CEPI F) hij in aesak cb case eua genase 22

Central Greyhound Lines, Inc. v. Mealey, 334 U.S. 653

te | POPPE TTT ToT ere Terr erry es eer ee rere 19, 20

Central R.R. Co. v. Pennsylvania, 370 U.S. 607 (1962) .... 14

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

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

CLD. Boe (ROGGE 6 osc deascudhs seeuuswbesstaudes eee 14

Douglas v. California, 372 U.S. 353 (1963) ............. 3

F.S. Royster Guano Co. v. Virginia, 253 U.S. 412

CRPROR 6 Th 4p 905 420K en nnaeeu wks chene eines bear 30

Fargo v. Michigan, 121 U.S. 230 (1887)............... 20

Goldberg v. Sweet, 488 U.S. 252 (1988) ........... passim

Holloway v. McElroy, 632 F.2d 605 (5th Cir. 1980) ..... 8

Louisville Gas & Elec. Co. v. Coleman, 277 U.S. 32

(EPEEE «8 en cniavecianed tance ntpase dense 27

Michigan-Wisconsin Pipeline Co. v. Calvert, 347 U.S.

Be CEN nabs censendevas Uke eee feos a

Nordlinger v. Hahn, 505 U.S. 1 (1992)................ 30

TABLE OF AUTHORITIES - Continued

Page

Oklahoma Tax Comm. v. Jefferson Lines, Inc., 514 U.S.

EFS (EPOUD s cocccccdcccceunssegbeseseceuauuunune 18, 22

Romer v. Evans, 517 U.S. 620 (1996) ................. 26

Smith v. Cahoon, 283 U.S. 553 (1931).............. 27, 28

Trinova Corp. v. Dept. of Treasury, 498 U.S. 358

(2ODE) . sccccccccocecscccceseudewtes eanseeeuunbanee 14

Tyler Pipe Industries, Inc. v. Washington State Dept.

of Revenue, G5 UG. FIR GGG i cic ccvccusctensces: 14

United States Railroad Retirement Bd. v. Fritz, 449

US. 166 (URGED oc cccnscccceccsectecsccavsseucauass 26

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

US. 1 GROGED cs cccsactcccdcvccepasbetescunesbenaess 22

Westinghouse Electric Corp. v. Tully, 466 U.S. 388

(TOGE) oc nnccdiccustdoveccndsqéaseuensaneennaneaanuna 22

Williams v. Vermont, 472 U.S. 14 (1985) ............ 7, 26

CONSTITUTIONAL PROVISIONS

US. Comet. GOR: Ailes © Oiccscccccccuagesadanses 3, 6, 24

US. Const. ont. E OG, G. Bc csevncccctcnauaswassenen 3,9

STATUTES

2B UBL. & TAD vvcccccécccscctutuschscasseeunee 3

Mich. Comp. Laws § 205.91........ccccccccccees 3, 4, 7

Mich. Comp. Lawes & BUDGE, oc ccccscsvceceeccsccaccan 3

Dich. Comp. Laws § SUGGS, csecccscsccsccodestons 3, 12

Mich. Comp. Laws § 205.94............. coed, 9 15,

Vii

TABLE OF AUTHORITIES - Continued

Page

OTHER AUTHORITIES

Arthur R. Miller & Edward H. Cooper, Federal

POOe | PVOCOMEM S GEOG 2 occ cccccccccccccscccce 8

House Legislative Analysis Section, First Analysis

to House Bill 5801 (Nov. 20, 1994)................ 29

Lawrence H. Tribe, American Constitutional Law

> Ge Gee Gis. EE Sab cc ctdaunvesdadedcckenenaees 21

Michigan Department of Treasury Letter Ruling

PETITION FOR WRIT OF CERTIORARI

TO: THE HONORABLE CHIEF JUSTICE AND THE

ASSOCIATE JUSTICES OF THE UNITED STATES

SUPREME COURT

Petitioner Zantop International Airlines, Inc. (“Zan-

top”) respectfully requests the Court to issue a writ of

certiorari to review the opinion of the Michigan Court of

Appeals endorsing the State’s practice of subjecting inter-

state air freight carriers, and only interstate air freight

carriers, to a use tax for parts they cannot be fairly said to

“use” in the State of Michigan (the “State”).

OPINIONS BELOW

This petition seeks review of two opinions of the

Michigan Court of Appeals. The first and most recent

opinion is an unpublished April 24, 2001 decision of the

Michigan Court of Appeals finding against Zantop on its

Commerce Clause challenge, set forth at App. 1-5. The

November 30, 2001 order of the Michigan Supreme Court

denying leave to appeal is reported at 465 Mich. 912

(2001), and is set forth at App. 6. The unpublished Janu-

ary 26, 1999 opinion and order entered by the Michigan

Court of Claims is set forth at App. 7-16. These decisions

followed prior rulings of a non-final nature with respect

to Zantop’s Equal Protection challenge.

The second and previous opinion of the Michigan

Court of Appeals, which reversed and remanded the case,

is an unpublished decision dated May 26, 1995 and is set

forth at App. 17-23. The Court of Appeals’ November 28,

1995 denial of Zantop’s timely motion for rehearing is set

forth at App. 24. The September 27, 1996 order of the

Michigan Supreme Court denying leave to appeal is

reported at 453 Mich. 893 (1996), and is set forth at App.

25. This Court’s February 18, 1997 denial of certiorari on

these non-final rulings is set forth at App. 26. The

unpublished February 26, 1992 opinion of the Michigan

Court of Claims is set forth at App. 27-32.

JURISDICTION

Zantop first challenged the taxation practices of the

State of Michigan on both Commerce Clause and Equal

Protection grounds in a June 7, 1991 complaint in the

Michigan Court of Claims. See App. 33-44. In a February

26, 1992 opinion, the Court of Claims granted summary

disposition to Zantop on the Equal Protection Clause

challenge. See App. 27-32. In a May 26, 1995 split deci-

sion, the Michigan Court of Appeals reversed and

remanded the Court of Claims decision. See App. 17-23.

Zantop then moved for rehearing with the Court of

Appeals, which denied the motion in a split decision on

November 28, 1995. See App. 24. Zantop next applied to

the Michigan Supreme Court for leave to appeal the

Court of Appeals’ decision. The Michigan Supreme Court

denied such leave on September 27, 1996. See App. 25.

Zantop then petitioned this Court for a writ of certiorari,

which was denied on February 18, 1997. See App. 26.

While the Equal Protection challenge was on appeal,

no adjudication of the Commerce Clause challenge

occurred. Following denial of certiorari on the Equal

Protection challenge, the Michigan Court of Claims

issued a January 26, 1999 opinion and order adverse to

Zantop on the Commerce Clause challenge. See App. 7-16.

Zantop then appealed this decision to the Michigan Court

of Appeals, which issued its unpublished opinion on

April 24, 2001, upholding under the Commerce Clause

the State’s practice of assessing a use tax. See App. 1-5.

Zantop filed an application for leave to appeal with the

Supreme Court of the State of Michigan, which entered

an order denying such leave on November 30, 2001, thus

prompting Zantop to file this petition. See App. 6.

Zantop brings both its Commerce Clause challenge

and its Equal Protection challenge to the Court in this

petition because both are now ripe for review. The Equal

Protection challenge is not barred from review because

the earlier petition was not based on a final order. Now

that a final order has been entered, it is appropriate for

the Court to grant certiorari on both Commerce Clause

and Equal Protection grounds.

The jurisdiction of the Court is properly invoked

pursuant to 28 U.S.C. § 1257(a). See Douglas v. California,

372 U.S. 353 (1963).

CONSTITUTIONAL, STATUTORY, AND

REGULATORY PROVISIONS INVOLVED

This case involves consideration of the following:

U.S. Const. art. I, § 8, cl. 3, set forth at App. 45; U.S.

Const. am. XIV, § 1, set forth at App. 45; Mich. Comp.

Laws § 205.91, set forth at App. 46; Mich. Comp. Laws

§ 205.92, set forth at App. 46-49; Mich. Comp. Laws

§ 205.93, set forth at App. 49-52; Mich. Comp. Laws

§ 205.94, set forth at App. 52-53; Michigan Department of

Treasury Letter Ruling 89-48, set forth at App. 54-55.

STATEMENT OF THE CASE

This petition seeks review of two Michigan Court of

Appeals decisions denying Zantop, an interstate air

—————————————————————

freight carrier, relief from the State of Michigan’s assess-

ment of a use tax on the full value of aircraft parts Zantop

used almost exclusively outside the state-of-Michigan.

This assessment is part of a practice of unconstitutional

taxation by the Michigan Department of Treasury (the

“Department”) and subsequent ratification by the Michi-

gan courts. This practice violates both the Commerce

Clause of the United States Constitution and the Equal

Protection Clause of the United States Constitution’s

Fourteenth Amendment.

The Department assesses use taxes pursuant to the

Michigan Use Tax Act, 1937 P.A. 94, codified as amended

at Mich. Comp. Laws § 205.91, et seq. (the “Act”). See App.

46-53. The Act imposes use tax on the privilege of using,

storing, or consuming tangible personal property in

Michigan. The dispute forming the basis of this petition

arose when the Department, in effect, assessed Zantop

use taxes on labor and aircraft components Zantop

acquired outside the State contained in certain “rotable”

parts for its fleet of aircraft (the “parts”). Rotable parts

are major aircraft parts such as engines, compressors and

propellers. Like all air carriers, Zantop was required by

Federal Aviation Administration (FAA) regulations to

periodically remove these rotable parts from its aircraft

for overhaul or replacement. See February 25, 1992 . artial

Stipulation at {{ 7-8, App. 56-60. During the taxable

period at issue, October 1, 1986 through March 31, 1990,

Zantop arranged for some of these rotable parts to be

repaired out-of-state. The Department audited Zantop for

the period at issue and, on March 11, 1991, issued to

Zantop Bill for Taxes Due (Final Assessment) E763576. See

Partial Stipulation at I 14, App. 56-60.

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dat a?

Essentially, the Department taxed Zantop for the

labor and ancillary parts used by out-of-state vendors in

refurbishing the rotable parts of its aircraft — rotable parts

that Zantop, of course, already owned. In its Final Assess-

ment, the Department assessed Zantop $541,329 in tax,

$54,134 in penalties, and $161,812.72 in interest. Thus, the

Department levied over three-quarters of a million dol-

lars in “use” taxes on Zantop for parts it already owned

and merely had repaired - as mandated by federal law —

by out-of-state vendors.

Although these parts were not “used,” “stored,” or

“consumed” in Michigan, as required under the Act, the

Department has nonetheless levied use taxes on Zantop

for their full value. In fact, the repaired or replaced parts

were shipped in interstate commerce from out-of-state

vendors to Michigan and immediately re-installed on

Zantop’s aircraft, which then continued operating in

interstate and international commerce. Zantop, a Michi-

gan corporation, operates its fleet out of Michigan’s Wil-

low Run Airport (the “ Airport”). See Partial Stipulation,

{7 1, 6, App. 56-60. The actual time the fleet spends at the

Airport is de minimis. The Airport is merely a hub from

which planes are quickly loaded and dispersed to as

many as 50 out-of-state airports. See Partial Stipulation,

q 12, App. 56-60. For the vast majority of the time, the

Airport is empty, and only if a passerby were there at the

right moment would Zantop’s presence be noticeable.

In short, the fleet (and therefore the parts at issue

here) spend nearly 100 per cent of their time outside the

State of Michigan, and yet the State of Michigan has taxed

those parts at fully 100 per cent. Indeed, only 4/100 of one

per cent of Zantop’s flight hours occur within the State, and

only 2/100 of one per cent of its flight miles are within the

ata iain aataeie

State. See App. 61-63. The State’s taxation practice not

only defies logic, it violates the Commerce Clause of the

United States Constitution and the Equal Protection

Clause of the Fourteenth Amendment.

The actions of the Michigan Department of Treasury,

ratified by the Michigan courts, clearly violate the Com-

merce Clause of the United States Constitution. The

Department’s assessment of a use tax against Zantop flies

in the face of this Court’s seminal decision in Complete

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

announced the test for measuring whether a state tax

violates the Commerce Clause (the “Complete Auto Transit

Test” or the “Test”). Under the Complete Auto Transit Test,

a state tax on interstate commerce is constitutional only if

it meets each of four requirements. Those requirements

are that: (1) the tax is applied to an activity with a

substantial nexus with the taxing state; (2) the tax is fairly

apportioned; (3) the tax does not discriminate against

interstate commerce; and (4) the tax is fairly related to

services provided by the state. See id; see also Complaint,

{ 27, App. 33-44. Because the parts at issue cannot fairly

be said to be “used,” “stored,” or “consumed” in Michi-

gan, while the Department nonetheless taxes them at full

value, the State has violated all four requirements of the

Complete Auto Transit Test.

In addition to violating the Commerce Clause, the

State’s actions have deprived Zantop of Equal Protection

of the laws, in violation of the Fourteenth Amendment to

the United States Constitution. Put simply, the State of

Michigan has made arbitrary and irrational distinctions

in its use tax laws by taxing air freight carriers on repair

parts but exempting from taxation other commercial car-

riers, including commercial passenger air carriers, and

cargo carriers moving via water or by land. See Mich. Comp.

Laws § 205.91, et seq., App. 46-53; Michigan Department of

Treasury Letter Ruling 89-48, App. 54-55. Indeed, the State

has granted exemptions to commercial passenger air carriers

even though they, too, carry cargo, and often in substantial

amounts. These arbitrary and irrational distinctions violate

Zantop’s right to equal protection of the laws. See Williams v.

Vermont, 472 U.S. 14, 22 (1985).

Zantop comes to this Court seeking redress of these

constitutional grievances and having exhausted its state

remedies. Zantop first raised these challenges based on

the Commerce Clause and Equal Protection Clause in its

June 7, 1991 complaint in the Court of Claims for the

State of Michigan. See App. 33-44.

In a February 26, 1992 opinion, the Court of Claims

granted summary disposition in favor of Zantop on

Count III of its Complaint, the Equal Protection chal-

lenge. See App. 27-32. In an unpublished per curiam opin-

ion, two members of the Michigan Court of Appeals

reversed and remanded this decision, while a third mem-

ber dissented on the grounds that “a rational basis for the

unequal use tax treatment” of Zantop “wholly escaped”

him. App. 17-23. The Court of Appeals denied rehearing,

and the Michigan Supreme Court later denied leave to

appeal the Equal Protection challenge. See App. 24-25. On

February 18, 1997 this Court denied certiorari on this

aspect of the case. See App. 26.

Zantop incorporates its Equal Protection challenge

into this petition because, when it petitioned the Equal

Protection claim to this Court in 1997, no final order had

been entered in this case on the issue of Equal Protection.

The Equal Protection decision was reversed and

remanded for further consideration in the Court of

Claims. Now that Zantop’s case in its entirety has been

determined at the state level, the Equal Protection claim

is part of a final state court order. Moreover, this Court is

not precluded from granting certiorari on this petition

merely because it denied certiorari with respect to the

Equal Protection challenge in a prior petition. “The denial

of certiorari indicates no view on the merits.” Holloway v.

McElroy, 632 F.2d 605, 636 n.50 (5th Cir. 1980). Accord-

ingly, “[a] denial of certiorari from one of these non-final

decisions [of a Court of Appeals] does not preclude a

grant of certiorari to review the identical issue at a later

stage in the case.” Arthur R. Miller & Edward H. Cooper,

Federal Practice & Procedure § 4004.1 (citing Amcast Indus.

Corp. v. Detrex Corp., 45 F.3d 155, 160 (7th Cir. 1995)).

Thus, now that the Equal Protection issue has been pre-

sented at a later stage in this case, this Court should con-

sider it in concert with the Commerce Clause issue.

Following remand of Zantop’s Equal Protection chal-

lenge, the Court of Claims found for the State on the

Commerce Clause challenge, upholding the constitu-

tionality of the use taxes. See App. 7-16. In an

unpublished per curiam opinion, the Michigan Court of

Appeals held that Zantop was subject to use tax because

it re-installed in the State the rotable parts of its aircraft

repaired outside the State. See Op. at 2, App. 1-5. The

Michigan Supreme Court denied leave to appeal, see App.

6, thus disposing of all claims in state level courts.

Accordingly, Zantop now files this petition for certiorari.

REASONS FOR GRANTING THE WRIT

This Court should grant the writ in order to provide

much needed guidance to state courts in general, and to

courts of the State of Michigan in particular, whose decisions

with respect to this area of taxation on interstate com-

merce remain stubbornly in conflict with well-settled

decisions of this Court. The steadfast refusal of Michigan

courts to recognize the unconstitutionality of this part of

the Michigan Use Tax Act should not be surprising

because Michigan revenue is at stake. This is the latest in

a long line of aggressive taxation practices, carried out by

the State’s Department of Treasury and condoned by its

courts. Where, as here, those within a system have no

incentive to change the system (and in fact have every

incentive not to), change must come from outside that

system. Zantop respectfully requests that this Court make

that change, and restore constitutional decorum to the

State’s taxation practices.

I. THE STATE OF MICHIGAN HAS VIOLATED THE

COMMERCE CLAUSE BY ASSESSING “USE”

TAXES ON AIRCRAFT PARTS THAT WERE NOT

USED IN-STATE.

The Michigan Use Tax Act exempts from taxation

“[p]lroperty, the storage, use, or other consumption of

which, this state is prohibited from taxing under the

constitution or laws of the United States, or under the

constitution of this state.” Mich. Comp. Laws

§ 205.94(1)(b).1 In this case, imposition of a use tax on the

aircraft parts Zantop sends out-of-state for repair violates

the Commerce Clause, U.S. Const. art. I, § 8, cl. 3. Viola-

tions of the Commerce Clause based on taxation of inter-

state commerce are measured under this Court’s well-

1 During the taxable period at issue, this provision was

codified as Mich. Comp. Laws § 205.94(b). While the

designation has changed, the text remains identical.

established Complete Auto Transit Test, supra. In order to

pass constitutional muster, a state tax must meet all four

prongs of the Test: (1) the tax must be applied to an :

activity with a substantial nexus with the taxing state, (2)

the tax must be fairly apportioned, (3) the tax may not

discriminate against interstate commerce, and (4) the tax

must be fairly related to services provided by the state.

Complete Auto Transit, supra. Here, not only is the tax

unable to meet all of these prongs, it is unable to meet any

of them. Because the tax fails all four prongs of the

Complete Auto Transit Test, the Constitution of the United

States prohibits the State from assessing Zantop for- the

“storage,” “use,” or “consumption” of the parts at issue.

A. The Parts Have No Substantial Nexus With The

State Because They Are Merely Components Of

Aircraft Whose Presence In-State Is, At Best, De

Minimis.

In order for a tax to be constitutional, the activity it

seeks to tax must have a “substantial nexus” with the

taxing state; here, no such nexus exists between Zantop’s

periodic repair of its aircraft parts and the State of Michi-

gan. Simply put, the “activity” being taxed is, at most, de

minimis, but is in no case “substantial.” Zantop’s aircraft,

and hence its aircraft parts, spend only 4/100 of one per

cent of their flight hours, and only 2/100 of one per cent

of their flight miles in the State of Michigan.

This would not be good enough for Ivory soap, and it

certainly is not good enough for the United States Consti-

tution. It is simply impossible, in good conscience, to

claim that such a miniscule percentage is “substantial,”

let alone that it provides the State with the constitutional

right to tax the parts at full value, and, indeed, the courts

below went out of their way to avoid making such a

disingenuous claim.

The Michigan courts completely mishandled the criti-

cal issue of whether Zantop’s procurement of repaired or

replaced parts had a “substantial nexus” with Michigan,

and instead replaced this constitutionally required stan-

dard with an ad hoc standard for whether this procure-

ment constituted a “use” under a Michigan statute. Both

the Court of Claims and the Court of Appeals correctly

identified the Complete Auto Transit Test as controlling

their analysis. See Court of Claims Op. at 6, App. 12-13;

Court of Appeals Op. at 2, App. 3. Both the Court of

Claims and the Court of Appeals also correctly inquired

(but incorrectly answered) whether the tax at issue was

fairly apportioned, non-discriminatory, and fairly related

to state services. See Court of Claims Op. at 7-9, App.

13-14; Court of Appeals Op. at 2-3, App. 3-4. And, inex-

plicably, both the Court of Claims and the Court of

Appeals completely failed to address whether the activity at

issue had a substantial nexus with the State. See Court of

Claims Op. at 6, App. 14-15; Court of Appeals Op. at 2,

App. 4-5. Rather than address, as the Constitution

requires, whether the activity had such a substantial

nexus, the Court of Claims and the Court of Appeals

essentially replaced the first prong of the Complete Auto

Transit Test with the test for whether an activity consti-

tutes a “use” under Michigan law.

The courts below held that the activity in question “is

the use .. . of the parts,” but did not examine, as they

were required to, whether this use was substantial. Court

of Claims, Op. at 7, App. 13 (“The activity in this matter

being taxed is the use . . . of the aircraft parts”); Court of

Appeals, Op. at 2, App. 4 (“The activity in question is the

use of the parts.”). Both courts analyzed whether Zan-

top’s acquisition of repaired or replaced parts was a

“use” under the state law,? and both pointed to an “iden-

tifiable” exchange of services within Michigan borders as

establishing, ostensibly, a “use” sufficient to meet the

substantial nexus test, but neither examined the extent of

that “use.”3 Just because something is “identifiable” does

not mean it is “substantial.”

Indeed, even if the courts below were somehow not

flagrantly disregarding this Court’s Commerce Clause

jurisprudence in focusing on whether a “use” was “iden-

tifiable,” the courts below “identified” the wrong “use”

for purposes of taxable activity. The courts below held

that “it is the plane not the parts that are in interstate

commerce for purposes of this case.” Court of Claims Op.

at 7, App. 13. This, of course, is gibberish. An airplane

consists of its constituent parts. The parts are coter-

minous with the plane; to the extent one travels in inter-

state commerce, so does the other. Wrenching some

difference of alleged constitutional significance from this

2 Under Michigan law, “ ‘Use’ means the exercise of any

right or power over tangible personal property incident to the

ownership of that property including transfer thereof in any

transaction where possession is given.” Mich. Comp. Laws

§ 205.92, App. 46-47.

3 See Court of Appeals, Op. at 2, App. 3-4:

As the Court of Claims observed, plaintiff seeks to

focus on the interstate character of the planes in

which the parts were installed, rather than the

installation of the parts themselves. The activity in

question is the use of the parts. Where the parts are

shipped to Michigan and installed in Michigan, there

is a discrete and identifiable use of the parts in

Michigan that has a substantial nexus with the state.

logical fallacy, the courts below went on to imply that

somehow the installation of the parts themselves, no

matter how quickly that occurs and no matter how little

time those parts actually spend in Michigan, constitutes a

substantial nexus with the State. Although this case

might be different if Zantop had been providing a repair

service to another air carrier, and acquired the parts for

purposes of making such repairs, Zantop is not in the

business of repairing airplanes for others in Michigan.

Rather, it operates an air freight airline, and to the extent

it “uses” parts, it uses them only as that - parts of the

aircraft it uses to fly cargo to and from destinations

almost entirely outside the State of Michigan and in the

stream of interstate commerce.

Although the parts are installed immediately onto

Zantop’s planes, and although those planes (and, per

force, their parts) spend nearly all of their time outside the

State of Michigan, the State nonetheless taxes those parts

at full value. Because this tax is levied upon an activity

not having substantial nexus with the state, it is uncon-

stitutional under the first prong of the Complete Auto

Transit Test. In fact, this gross disparity also forces the

conclusion that the use tax at issue is not fairly appor-

tioned and is, therefore, likewise unconstitutional under

the second prong of the Complete Auto Transit Test.

B. The “Use” Tax Is Not Fairly Apportioned

Because The State Collects 100 Per Cent Of The

Taxes For Parts That Spend Almost 100 Per Cent

Of Their Time Out-Of-State.

The fair apportionment requirement exists to “ensure

that each State taxes only its fair share of an interstate

transaction.” Goldberg v. Sweet, 488 U.S. 252, 261 (1988).

Here, Michigan is receiving a 100 per cent share of taxes

for parts that spend nearly 100 per cent of the time

outside Michigan. This clearly violates the fair apportion- -__—

ment prong of the Complete Auto Transit Test, and subse-

quent decisions, which require a tax to be both internally

and externally consistent. See Trinova Corp. v. Dept. of

Treasury, 498 U.S. 358 (1991). The use tax at issue here is

neither internally nor externally consistent.

1. The State’s “Use” Tax Is Not Internally Con-

sistent, And Therefore Is Not Fairly Appor-

tioned.

A tax is internally consistent if it is structured so that

if every state were to impose an identical tax, no multiple

taxation would result. Container Corp. of America v. Fran-

chise Tax Bd., 463 U.S. 159, 169 (1983). To demonstrate a

lack of internal consistency, a taxpayer need not prove

that specific interstate transactions were, in fact, sub-

jected to multiple taxation. See, e.g., Tyler Pipe Industries,

Inc. v. Washington State Dept. of Revenue, 483 U.S. 232, 247

(1987); Central R.R. Co. v. Pennsylvania, 370 U.S. 607, 614

(1962). Instead, the mere existence of a possibility that

imposition of an identical tax would result in multiple

taxation supports a determination that a tax is internally

inconsistent. See id.

The use tax at issue here is not internally consistent

because it fails to fully avoid the threat of the multiple

taxation that would arise if every state taxed Zantop the

way Michigan has. Assuming that the other 49 states

adopted taxing statutes identical to Michigan’s Use Tax

Act, multiple taxation could occur with respect to each

state’s individualized interpretation of what “use,” “stor-

age” or “consumption” of the parts is properly subject to

taxation. For example, while Michigan asserts that it can

assess use tax upon the entire purchase price of the parts

because the parts were installed in Michigan, another

state might decide through its interpretation of an identi-

cally-worded statute that it, too, can assess a use tax on

the entire purchase price of the parts because of a different

activity (e.g., the airplane is hangared in that state or

spends proportionately more time there).

The Court of Appeals below incorrectly held that

Michigan’s Use Tax Act was internally consistent because

of the presence of a “credit provision” in the Act.

Although a properly worded credit provision within a tax

enactment might alleviate the threat of burdensome multi-

ple taxation, see Goldberg, supra, the provision at issue

here does not do so because the credit it provides is

conditional. That provision grants an exemption from use

tax only for:

Property the sale or use of which was already

subjected to a sales tax or use tax equal to, or in

excess of, that imposed by this act under the law

of any other state or a local governmental unit

within a state if the tax was due and paid on the

retail sale to the consumer and the state or local

governmental unit within a state in which the tax

was imposed accords like or complete exemption on

property the sale or use of which was subjected

to the sales or use tax of this state... .

Mich. Comp. Laws § 205.94(1)(e) (emphasis added).*

Thus, in order to avoid multiple taxation, the other state

taxes must be: (1) already paid, (2) due on the retail sale

4 This provision was designated Mich. Comp. Laws

§ 205.94(e) instead of § 205.94(1)(e) during the taxable period at

issue, but the text of the provision itself remains unchanged.

to the consumer, and (3) imposed by a governmental

entity with a similar reciprocal credit provision.

In short, with all of these hurdles, Michigan’s credit

provision cannot eliminate the possibility of multiple tax-

ation. A use tax imposed by another state would most

likely be imposed after Michigan’s imposition of use tax,

thereby causing the first condition of Michigan’s credit

provision to fail. Moreover, a use tax previously or subse-

quently imposed by another state would never receive

credit under this provision because the second condition

of Michigan’s credit provision could not be met. The

parts at issue here were simply not involved in a retail

sale to the consumer, thus making the other tax fail to

meet the second condition of Michigan’s credit provision.

An example will illustrate the flaw in the statute. Assume

the state of Arkansas decides to impose a use tax upon

Zantop’s use of the parts when flying the aircraft into and

out of that state. The Arkansas use tax would be subse-

quent, and not previous, to the Michigan tax, so the

Arkansas tax could. not be “already” paid. Likewise, it

would not be due “on the retail sale” to Zantop, the

consumer, because the Arkansas tax would not have been

imposed on the retail sale. Instead, it would have been

imposed on the use of the parts in an instrumentality of

interstate commerce that comes into contact with the

State of Arkansas. Because Michigan would still impose

its use tax in addition to the use tax imposed by

Arkansas, the credit provision championed by the courts

below fails to save the Michigan tax from internal incon-

sistency, and therefore fails to save it from unconstitu-

tionality.

2. The State’s “Use” Tax Is Likewise Not Exter-

nally Consistent, And Is Also Therefore Not

Fairly Apportioned.

A corollary to the internal consistency requirement,

the external consistency requirement demands that the

state tax only that portion of the interstate activity that

reasonably correlates to the in-state component of the

activity being taxed. Goldberg, supra. The use tax at issue

here fails the external consistency test because, consider-

ing the predominant out-of-state character of Zantop’s

parts and planes, it is readily apparent that the Depart-

ment does not seek to tax only the in-state component of

the use of the parts. Instead, the use tax assessed to

Zantop represents an exaction measured by the full pur-

chase price of the parts, including both the in-state and

out-of-state components of use. Indeed, Zantop, an inter-

national airline purchasing the parts for use almost solely

in interstate commerce, pays the same quantum of use tax

as the Department would demand from a business that

acquires parts for use solely in Michigan. In sum then,

Michigan unlawfully seeks to tax the entire use of prop-

erty when that use occurs only minimally within the

state, and then solely as an adjunct to an activity in interstate

commerce. Such a situation is irrational and unconstitu-

tional and must no longer be endorsed by the Michigan

courts.

The courts below incorrectly focused entirely on Zan-

top’s installation of the parts in Michigan, and found that

this installation satisfied the external consistency test. In

essence, the courts below relied on a kind of constitu-

tional alchemy, by which the parts lose their interstate

character simply because they are in Michigan for the

briefest of moments before being immediately re-incorpo-

rated into Zantop’s aircraft and returned to their over-

whelmingly out-of-state usage. And that is the key: the

usage at issue is not the installation of the parts for the

brief time the planes are on the ground in Michigan, it is

the continuous out-of-state operation of the flights them-

selves made possible through those parts. The parts

themselves are overhauled solely in order to comply with

federally mandated regulations that enable Zantop to

return to its entire reason for being - the interstate and

international transport of air cargo.

: Moreover, substantial support exists for the proposi-

tion that, if any tax is to be imposed in use tax cases

involving physical movement of large objects over identi-

fiable routes where it is feasible to account for distance,

external consistency standards require exaction of a tax

measured by some fairly applied apportionment formula.

As this Court has noted:

It should not be overlooked, moreover, that the

external consistency test is essentially a practical

inquiry. In previous cases we have endorsed

apportionment formulas based upon the miles a

bus, train, or truck traveled within the taxing

State. But those cases all dealt with the move-

ment of large physical objects over identifiable

routes, where it was practicable to keep track of

the distance actually traveled within the taxing

State.

Goldberg, supra at 264 (internal citations omitted).> The

Goldberg case itself declined to find a Commerce Clause

5 Although a recent case decided by this Court might

superficially be read to limit this proposition, the proposition

itself remains valid. In Oklahoma Tax Comm. v. Jefferson Lines,

Inc., 514 U.S. 175, 180-83 (1995), this Court upheld the

violation where a state taxed interstate telecommunica-

tions on a flat rate instead of apportioning the rate based

on the number of miles the electronic signals traveled

within the state as a portion of the total miles such

signals traveled. Id. at 260. The Court failed to find a

Commerce Clause violation, in large measure, because

the electronic signals at issue in that case were so differ-

ent from the large physical objects with identifiable

routes involved in the prior cases.

For cases in which large physical objects are moving

over identifiable routes, making it possible to account for

the distance actually traveled within the state, fair appor-

tionment requires that a state make such an accounting

and that it apportion its tax accordingly. See Goldberg,

supra; see also Central Greyhound Lines, Inc. v. Mealey, 334

U.S. 653 (1948) (prohibiting the State of New York from

taxing 100% of the receipts for transportation between

two points in New York when 43% of the transportation

mileage occurred in New Jersey and Pennsylvania); Mich-

igan-Wisconsin Pipeline Co. v. Calvert, 347 U.S. 157 (1954)

imposition of an unapportioned sales tax on bus tickets sold in

Oklahoma for interstate travel. There, the Court found a

sufficient safeguard against the risk of impermissible multiple

taxation of a sale because a sale is consummated in only one

state. Here, the State of Michigan does not seek to impose a sales

tax for a transaction taking place in the State of Michigan but

rather seeks to impose a “use” tax based on the purported use,

storage or consumption of property within the State of

Michigan. Where, as here, the sale takes place outside the State

of Michigan and, thereafter, in the course of the interstate nature

of business operations, some use or consumption allegedly

occurs in the State, with the use tax being imposed on the full

value of the parts so “used,” the law cannot be said to satisfy the

internal and external consistency requirements of the Complete

Auto Transit Test.

(finding unconstitutional a tax based on the total volume

of gas taken, where the taking was inextricably inter-

twined with interstate commerce and the assessment of

the taking could result in multiple taxation); Fargo v.

Michigan, 121 U.S. 230 (1887) (striking down a Michigan

law taxing railroad freight at full value instead of appor-

tioning the tax based on the distance traveled within the

State of Michigan).

The present case is firmly in line with the teachings

of Goldberg and its predecessors —- it deals with “the

movement of large physical objects over identifiable

routes, where it [is] practicable to keep track of the dis-

tance actually traveled within the taxing State.” Goldberg,

supra at 264. The aircraft at issue here are no different

than the buses at issue in Central Greyhound — both are

large physical objects moving in identifiable routes.

Moreover, here, as in Central Greyhound, it is practicable

to keep track of the distance actually traveled within the

taxing state. Indeed, not only has the State of Michigan

stipulated to the number of miles Zantop’s planes and

parts spend in the State, it has stipulated to amount of

time that those planes and parts spend in the State. See

App. 61-63. Under any measure, then, be it time or dis-

tance, the State can determine the percentage of alleged

use of the parts that occurs within its borders. Because it

can do so, it must do so, and because it has not done so,

the tax at issue is unfairly apportioned and unquestiona-

bly unconstitutional.

C. The “Use” Tax Discriminates Against Interstate

Commerce Because It Prevents Interstate Busi-

nesses From Freely Entering The State’s Mar-

ketplace.

Perhaps the most basic prong of the Complete Auto

Transit Test, the Test’s prohibition on discrimination

requires just that - a state may not discriminate against

interstate commerce. The discrimination need not be bla-

tant. State taxes are unconstitutional if “though non-

- discriminatory on their face,” they “impose economic

burdens on interstate enterprises that are not in fact

imposed on local competitors.” Lawrence H. Tribe, Ameri-

can Constitutional Law § 6-16 (3d ed. 2000). This principle

is particularly apparent where, as here, a state prevents

interstate businesses from coming into the state because

of the ramifications of its unconstitutional tax policy.

In this case, the State of Michigan is discriminating

against interstate commerce by building a wall of eco-

nomic isolationism that prevents interstate businesses

from entering Michigan and competing with its native

businesses. For example, suppose that Michigan’s neigh-

boring states offer an exemption for the activity on which

Michigan has taxed Zantop. Suppose further that several

interstate air freight carriers are contemplating where to

build facilities from which they will fly their aircraft and

make the federally mandated repairs using parts acquired

out-of-state. In such a case, the interstate air freight car-

riers would likely build facilities in any state other than

Michigan because only Michigan would deny them a tax

exemption — a tax exemption that is constitutionally

required given the ephemeral connection between the

parts at issue and the taxing state.

In effect, Michigan’s tax policy forecloses interstate

businesses from making “tax neutral decisions,” and

therefore unconstitutionally discriminates against inter-

state commerce. Boston Stock Exchange v. State Tax Comm.,

429 U.S. 318, 331 (1977). Similarly, in Westinghouse Electric

Corp. v. Tully, 466 U.S. 388 (1984), this Court struck down

a state tax credit for domestic international sales corpora-

tions based on how substantial their in-state shipping

activities were. Where a tax policy has the forbidden

effect of “foreclosing tax neutral decisions,” it is uncon-

stitutional. Id. at 406. Here, Michigan is preventing inter-

state businesses from making a tax neutral decision about

where to locate. The end result is economic Balkanization,

in which interstate businesses avoid Michigan and seek

harbor by locating in its neighboring states.

Under this Court’s well-settled jurisprudence, this

type of economic Balkanization is constitutionally imper-

missible. The purpose of the Commerce Clause is “pre-

venting a state from retreating into economic isolation or

jeopardizing the welfare of the Nation as a whole.” Jeffer-

son Lines, Inc., supra note 5 at 180. In essence, then, the

Commerce Clause “reflect[s] a central concern of the

Framers that was an immediate reason for the calling of

the Constitutional Convention: the conviction that in

order to succeed, the new Union would have to avoid...

tendencies toward economic Balkanization ...” Id. (quot-

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

U.S. 1, 7 (1986). By putting up a wall through its use tax

policies that other states in the Union do not, Michigan is

encouraging the very economic Balkanization the Com-

merce Clause was designed to avoid. As such, the State’s

discriminatory tax policy stands in direct violation of the

Commerce Clause and must be struck down.

D. The State’s Imposition Of A “Use” Tax Is Not

Fairly Related To The Services It Provides

Because The State Provides No Services What-

soever With Respect To These Parts.

Finally, under the fourth prong of the Complete Auto

Transit Test, the tax at issue is unconstitutional because it

is not fairly related to services provided by the State of

Michigan. While the services provided by a state need not

measure directly up to the taxable activity in order to be

“fairly related,” there must be at least some services provided.

Here, Michigan provides no services with respect to the

aircraft or the parts. The payment of use tax based on the

full purchase price of the parts fails to reflect the reality

that the parts are used in interstate commerce and spend

all of their useful lives outside the state of Michigan.

The courts below said that Zantop receives services

from the State fairly related to the taxation on its parts,

but neither court even attempted to support this state-

ment. They did not - and could not - identify any bene-

fits Zantop receives from the State, let alone benefits that

bear a fair relation to the full taxation of the interstate

parts at issue here. The courts below attempted to claim

that the tax was “fairly related” to services provided by

the State of Michigan because Zantop operates a “sub-

stantial repair facility” in Michigan. Court of Claims Op.

at 8-9, App. 15, Court of Appeals Op. at 3, App. 4. In fact,

Zantop operates no such facility and no such facility is

apparent in the record. At best, the record merely reflects

that Zantop has a facility in Michigan where “major air-

craft repair” is conducted. Partial Stipulation, { 13, App.

59. Even assuming that this facility is “substantial,” as the

courts below claim, this does nothing to support the

conclusion that there is a fair relation between services

provided by the State and the taxable activity targeted by

the State. This is because the activity being taxed is not

the operation of a repair facility but rather the alleged use

in Michigan of the rotable parts of Zantop’s aircraft. This

alleged use is, in turn, the furthest thing from “substan-

tial.” The dubious connection between this supposedly

taxable activity and the hypothetical services provided by

the State is insufficient to withstand constitutional scru-

tiny. Thus, under the fourth prong of the Complete Auto

Transit Test, as under the previous three prongs, the State

of Michigan is in violation of the Commerce Clause of the

United States Constitution. It is no less in violation of the

Equal Protection Clause of the United States Constitu-

tion’s Fourteenth Amendment.

II. BECAUSE IT RESTS ENTIRELY ON ARBITRARY

AND IRRATIONAL DISTINCTIONS BETWEEN

SIMILARLY SITUATED TAXPAYERS, THE

STATE’S PRACTICE OF ASSESSING “USE” TAX

ON SOME TYPES OF COMMERCIAL CARRIERS

BUT NOT OTHERS VIOLATES THE EQUAL PRO-

TECTION CLAUSE OF THE FOURTEENTH

AMENDMENT.

The crux of Zantop’s Equal Protection challenge is

that the State of Michigan taxes some types of commercial

freight carriers but not other types. Although states are

free to make distinctions in their systems of taxation -

provided those distinctions are rational - in this case,

there is no rational basis for the distinction the State of

Michigan makes. Specifically, during the taxable period at

issue, Michigan’s Use Tax Act granted exemptions on

taxation for vessels “designed for commercial use of reg-

istered tonnage of 500 tons or more. . . and repairs for the

exclusive use of a vessel . . . engaged in interstate com-

merce.” Use Tax Act § 4(j), Mich. Comp. Laws § 205.94(j),

App. 52.° A similar exemption applied to “[t]he storage,

use, or consumption of any aircraft owned or used by a

domestic passenger air carrier . . . if the aircraft is used

primarily in the regularly-scheduled commercial trans-

port of passengers.” Use Tax Act § 4(x), Mich. Comp.

Laws § 205.94(x), App. 52-53. Similarly, in Michigan

Department of Treasury Letter Ruling 89-48, the Depart-

ment made clear that it would also recognize an exemp-

tion for rolling stock purchased outside of Michigan

which is then placed in the stream of interstate com-

merce, until such time as the rolling stock is converted to

an intrastate application. See Letter Ruling 89-48, App.

54-55. During the taxable period at issue, no such exemp-

tion applied to commercial air freight carriers like Zan-

top.

The presence of an exemption for one type of freight

carrier and the absence of such an exemption for another

type is entirely arbitrary and fails the rational basis test

for measuring violations of the Equal Protection Clause.

Under the rational basis test, a law that “neither burdens

a fundamental right nor targets a suspect class,” will be

upheld provided it “bears a rational relation to some

§ 205.94(k) instead of § 205.94(j) during the taxable period at

issue, but the text of the provision itself remains largely

unchanged. The only difference between the prior and present

iterations is that, during the taxable period at issue, the text

provided exemptions for vessels “when produced upon special

order of the purchaser,” and the text now provides such

exemptions “if produced upon special order of the purchaser.”

Id. (emphasis added)

legitimate end.” Romer v. Evans, 517 U.S. 620 (1996). While

this test is deferential, it nonetheless requires that the

State disclose some identifiable interest served by its regu-

lation. See Allied Stores of Ohio, Inc. v. Bowers, 358 U.S. 522,

528-529 (1959).

In this case, the State has identified no such interest,

because no such interest is available to be identified. See,

e.g., Allegheny Pittsburgh Coal Co. v. County Comm. of Web-

ster County, 488 U.S. 336 (1989) (finding ar: Equal Protec-

tion violation where the government handles assessments

for real properties that had recently been sold in a differ-

ent manner than assessments for properties that had not

changed hands); United States Railroad Retirement Bd. v.

Fritz, 449 U.S. 166, 181 (1980) (Stevens, J., concurring) (“If

the adverse impact on the disfavored class is an apparent

aim at the legislature, its impartiality would be sus-

pect.”). Even assuming that some legitimate interest were

identified, the State’s tax assessment practices must bear

a rational relation to it, and here no such relation exists

because the distinctions on which the State relies are

completely arbitrary.

Where a state taxation scheme makes “arbitrary dis-

tinctions,” it violates the Equal Protection Clause. Wil-

liams, supra at 22. The Williams decision struck down a

use tax assessed upon recently arrived residents of Ver-

mont who registered motor vehicles purchased outside of

Vermont for which a sales tax had been paid at the time

of acquisition. According to the Williams Court, “[t]o free

one group and not the other from the otherwise applica-

ble tax burden violates the Equal Protection Clause.” Id.

at 27. Where, as here, “[d]iscriminations of an unusual

character” exist, they “especially suggest careful consid-

eration to determine whether they are obnoxious” to

Equal Protection guarantees. Louisville Gas & Elec. Co. v.

Coleman, 277 U.S. 32, 37-38 (1928).

Under any measure, the State’s discriminatory use

tax practices are arbitrary and irrational. The only differ-

ence between a freight carrier like Zantop, which receives

no exemption from use tax, and other freight carriers who

do, is the mode of transportation. Carriers who transport

by water or land are exempted from use tax, while car-

riers who transport by air are not, and even then air

carriers who transport passengers instead of or along

with freight still receive favorable use tax treatment.

Finding a difference of constitutional significance eluded

the Court of Claims, which was “strained to understand

the difference afforded these [different] modes of inter-

state commerce that warrant one form to receive use tax

relief with respect ‘provisions, supplies, maintenance,

and repairs’ while the other is not.” Court of Claims Op.

at 5, App. 31. Indeed, as the dissent in the Court of

Appeals noted, “in this taxation scheme, the rational

basis test gives way to Orwellian analysis, wherein all of

the similarly situated are equal, but some of the similarly

situated are more equal than others.” App. 22.

An appropriate constitutional distinction is elusive

because it is impossible. This Court recognized this futil-

ity in a similar context in its 1931 decision in Smith v.

Cahoon, 283 U.S. 553 (1931). In Smith, the Court struck

down, on Equal Protection grounds, a regulation exempt-

ing transportation carriers hauling certain types of prod-

ucts from a bonding requirement but imposing the

requirement on other carriers. As the Smith Court put it,

“in establishing such a regulation, there does not appear

to be the slightest justification for making a distinction

between those who carry for hire farm products, or milk

or butter, or fish or oysters, and those who carry for hire

bread or sugar, or tea or coffee, or groceries in general, or

other useful commodities.” Id. at 566-567. The Smith

Court concluded that “the [regulatory] discrimination

... between the private carriers which are relieved of the

necessity of obtaining certificates and giving security, and

a carrier such as the appellant, was wholly arbitrary and

constituted a violation of the appellant’s constitutional

right. ‘Such a classification is not based on anything

having relation to the purpose for which it is made.’ ” Id.

The present case is no different than the Smith case.

Instead of arbitrary distinctions based on the cargo

hauled by motor vehicles at issue in the Smith case, in the

present case we are confronted with arbitrary distinctions

based on the cargo hauled by aircraft. The arbitrariness of

this distinction begs for an explanation, but no sufficient

explanation is forthcoming.

Because the Michigan Legislature provided no justi-

fication for the exemption at issue in this case, the Michi-

gan courts have had to fabricate a post hoc rationalization;

unfortunately, this rationalization prompts as many ques-

tions as it provides answers. The only rationale the Mich-

igan Court of Appeals offered was that the Michigan

Legislature might have decided to exempt parts for cer-

tain carriers but not others because of its “desire to

_ promote that industry to locate in Michigan.” This propo-

sition finds support in the legislative history for another

part of the Michigan Use Tax Act, but unfortunately for

the State, that support merely strengthens Zantop’s claim

of unconstitutional discrimination. It seems that, in large

part, commercial air passenger carriers are exempted

from use tax, while their counterpart commercial air

freight carriers are not, because a passenger air carrier

was able to mount a successful lobbying effort in the

Michigan Legislature, benefiting its business while put-

ting businesses like Zantop at a competitive disadvan-

tage. The legislative history behind the use tax exemption

for passenger air carriers shows that this provision was

unabashedly designed to benefit a single former Michi-

gan airline company. See House Legislative Analysis Sec-

tion, First Analysis to House Bill 5801 (Nov. 20, 1994),

App. 64-65. While this may go a long way in explaining

the distinction between passenger air carriers and freight

air carriers in a practical sense, it does nothing to justify

the distinction in a constitutional sense. Indeed, it goes

quite a long way in the opposite direction - it confirms

that the Legislature intended to codify an arbitrary dis-

tinction. The only basis for this distinction was admitted

discrimination against one class of participant in inter-

state commerce in favor of another. Where the only basis

for a distinction is discrimination, the distinction itself is

unconstitutional.

In the end, while the State is free to structure its own

tax system to encourage intrastate commerce, that free-

dom ends where discrimination against interstate com-

merce begins. The State of Michigan’s discriminatory use ©

tax practices have created a competitive disadvantage for

some, but not all, similarly situated carriers in interstate

commerce. This is not per se unconstitutional, and the

State may even go so far as to subject similarly situated

taxpayers to outright unequal treatment, but while it

needs only a rational reason for treating them on a

unequal basis, it needs at least a reason. Here, there is

none. The State’s arbitrary discrimination among sim-

ilarly situated taxpayers clearly violates the Equal Protec-

tion Clause, which is meant to prevent “governmental

decision-makers from treating differently persons who

are in all relevant respects alike.” Nordlinger v. Hahn, 505

U.S. 1 (1992), citing F.S. Royster Guano Co. v. Virginia, 253

U.S. 412, 415 (1920). Unless this Court acts now, Zantop,

and all other similarly situated commercial freight car-

riers in Michigan, will suffer a competitive disadvantage

in their businesses - a competitive disadvantage that

may, ultimately, prevent them from operating their busi-

nesses at all.

CONCLUSION

For the foregoing reasons, the Petition for a Writ of

Certiorari should be granted.

Respectfully submitted,

Patrick R. VAN TIFLIN

Counsel of Record

BRIGHAM Cook SMITH

HONIGMAN MILLER SCHWARTZ AND

Coun LLP

The Phoenix Building

222 Washington Square, Suite 400

Lansing, Michigan 48933-1800

(517) 484-8282

App. 1

APPENDIX

STATE OF MICHIGAN

COURT OF APPEALS

ZANTOP UNPUBLISHED

INTERNATIONAL April 24 2001

AIRLINES, INC., No. 217513

Plaintiff-Appellant, Court of Claims

~ LC No. 91-013365-CM

DEPARTMENT OF

TREASURY,

Defendant-Appellee.

Before: Griffin, P.J., and Neff and White, JJ.

PER CURIAM.

Plaintiff appeals as of right the Court of Claims’

order granting defendant summary disposition in this use

tax dispute. We affirm.

Plaintiff brought this action seeking a refund of use

taxes paid under protest on parts that were delivered in

Michigan and installed on planes used in interstate com-

merce. The Court of Claims granted summary disposition

to defendant, finding that the parts were used or stored

in Michigan, and the imposition of the tax did not violate

the Commerce Clause.

The use tax is complementary to the sales tax and is

designed to cover those transactions not covered by the

General Sales Tax Act, MCL 205.51 et seq.; MSA 7.551(1) et

seq. Honeywell, Inc v Dep't of Treasury, 167 Mich App 446;

App. 2

423 NW2d 223 (1988). The Use Tax Act provides in perti-

nent part:

There is levied upon and there shall be col-

lected from every person in this state a specific

tax for the privilege of using, storing, or con-

suming tangible personal property in this state.

... For the purpose of the proper administration

of this act and to prevent the evasion of the tax,

it is presumed that tangible personal property

purchased shall be subject to the tax if brought

into the state within 90 days of the purchase

date and is considered as acquired for storage,

use, or other consumption in this state. [MCL

205.93(1); MSA 7.555(3)(1)].

The terms use and storage are defined in § 2 of the

act:

(b) ‘Use’ means the exercise of a right or

power over tangible personal property incident

to the ownership of that property including

transfer of the property in a transaction where

possession is given.

in this state for any purpose after losing its

interstate character. [MCL 205.92; MSA 7.555(2)].

Where items are brought into the state within ninety

days of purchase, it is presumed that they are subject to

the use tax, Kellogg Co v Dept of Treasury, 204 Mich App

489, 493; 516 NW2d 108 (1994), and the taxpayer has the

burden of overcoming the presumption of taxation, or

showing that an exemption applies. Id.

Initially, we observe that we are in agreement with

defendant that plaintiff is barred from relitigating the

issue whether the parts were “used” within the meaning

App. 3

of the act. This issue was decided adversely to plaintiff in

prior litigation involving virtually identical facts. While

plaintiff argues that it has tightened up its “just in time”

scheduling so that the parts are installed as quickly as

possible upon arrival, this change would apply to the

“storage” issue, rather than the “use” issue.

Moreover, we agree with defendant that the Court of

Claims was correct in its conclusion that the parts were

used in Michigan. For the purpose of the statute, the

parts were used when plaintiff exercised its right and

power over them by taking possession of them and

installing them in plaintiff’s planes. This occurred in

Michigan.

The question, then, is whether taxation under the act

violates the Commerce Clause of the United States Con-

stitution, art I, § 8, cl 3. A taxpayer is exempt from the use

tax if the imposition of the tax would violate the Com-

merce Clause, which forbids the burdening through taxa-

tion of interstate commerce. MCL 205.94(b); MSA

7.555(4)(b). The four-part test of Complete Auto Transit, Inc

v Brady, 430 US 274; 97 S Ct 1076; 51 L Ed 2d 326 (1977),

has replaced the taxable moment test for purposes of

constitutional analysis. Kellogg, supra at 494. The four

factors are: (1) the activity taxed must have a substantial

nexus to the taxing state; (2) the tax must be fairly appor-

tioned; (3) it may not discriminate against interstate com-

merce; and (4) it must be fairly related to services

provided by the state. Id. at 495.

As the Court of Claims observed, plaintiff seeks to

focus on the interstate character of the planes in which

the parts were installed, rather than the installation of the

App. 4

parts themselves. The activity in question is the use of the

parts. Where the parts are shipped to Michigan and

installed in Michigan, there is a discrete and identifiable

use of the parts in Michigan that has a substantial nexus

with the state.

A tax is not unfairly apportioned where it is inter-

nally and externally consistent. Goldberg v Sweet, 488 US

252; 109 S Ct 582; 102.L Ed 2d 607 (1988). A tax is

internally consistent if structured so that if every state

were to impose an identical tax, no multiple taxation

- would result. Id. at 260. Here, if every other state had an

identical act, no other state would impose the use tax

because the parts were installed (used) in Michigan alone.

The only other state that had a relationship to the parts

did not collect a sales tax, and if it had, the act would

have afforded plaintiff a credit. MCL 205.94(e); MSA

7.555(4)(e). A tax is externally consistent if it taxes only

revenue that reasonably reflects the in-state component of

the activity being taxed. Goldberg, supra at 262. Here, the

tax is only imposed on the parts delivered and installed

or stored in Michigan. No interstate activity is taxed.

Plaintiff does not contest the third factor. The use tax

applies equally to intrastate and interstate commerce and

does not discriminate against interstate commerce. The

fourth factor focuses on the wide range of benefits pro-

vided to the taxpayer, not just the precise activity con-

nected to the activity at issue. Goldberg, supra at 266.

Plaintiff operates a substantial repair facility at Willow

Run airport. It receives benefits from services provided

by the state, satisfying the fourth requirement of the test.

The trial court did not err in its application of the four-~

part Complete Auto test.

App. 5

Plaintiff further asserts that notwithstanding Com-

“plete Auto, supra, and Kellogg, supra, the “taxable moment”

test still applies in determining whether the statutory

nexus is satisfied. Assuming this test is still viable as a

matter of state law, we are satisfied that the test is satis-

fied. The parts came to rest in Michigan where their

interstate journey as parts came to an end. They were

then used by plaintiff when they were installed in plain-

tiff’s aircraft in Michigan. Thereafter, they became part of

the aircraft, the taxation of which is not at issue. We do

not agree that defendant’s levy of the use tax on the use

of the new parts in Michigan through their installation in

the aircraft is the equivalent of taxing the aircraft. The

parts were separate from the aircraft until plaintiff used

them by installing them in the aircraft. The Court of

Claims did not err in granting summary disposition to

defendant.

Affirmed.

/s/ Richard Allen Griffin

/s/ Janet T. Neff

/s/ Helene N. White

App. 6

Michigan Supreme Court

Lansing, Michigan

[Name Omitted In Printing]

Order

Entered: November 30, 2001

119238

ZANTOP INTERNATIONAL

AIRLINES, INC., SC: 119238

are COA: 217513

Plaintiff-Appellant, nia tk hide

V 91-013365-CM

DEPARTMENT OF TREASURY,

Defendant-Appellee.

On order of the Court, the delayed application for

leave to appeal from the April 24, 2001 decision of the

Court of Appeals is considered, and it is DENIED,

because we are not persuaded that the questions pre-

sented should be reviewed by this Court.

dmb: 1127

[SEAL]

I, CORBIN R. DAVIS, Clerk of the Michigan

Supreme Court, certify that the foregoing is a true

and complete copy of the order entered at the direc-

tion of the Court.

November 30, 2001

/s/ Corbin P. Davis

App. 7

STATE OF MICHIGAN

IN THE COURT OF CLAIMS

=o File No. 91-13365-CM

AIRLINES INC., Hon. Thomas L. Brown

Plaintiff, Opinion and Order

MICHIGAN

DEPARTMENT OF

TREASURY, REVENUE

DIVISION,

Defendant.

This matter is before the Court on Plaintiff Zantop

International Airline’s, Inc. (Zantop), a Michigan corpora-

tion, motion for Summary Disposition pursuant MCR

2.116(C)(10). Zantop alleges that Defendant Michigan

Department of Treasury (Department) wrongfully taxed

aircraft parts purchased from out of state vendors pur-

suant to the Michigan Use Tax MCL 205.93; MSA 7.555(3).

The aircraft parts were installed on Zantop’s planes while

grounded in Ypsilanti, Michigan at Willow Run Airport.

In turn, the Department asks this Court to grant Sum-

mary Disposition in its favor pursuant to MCR 2.116(I)(2).

STATEMENT OF FACTS

Zantop is a Michigan corporation in the business of

transporting air cargo in interstate commerce. Zantop

App. 8

flies to 40-50 airports. One of Zantop’s two repair facili-

ties is based at Willow Run Airport in Michigan.

This case is the result of Zantop being taxed by the

Michigan Department of Treasury on parts purchased out

of state and installed in Zantop planes hangered in Michi-

gan between October 1, 1986 and March 11, 1991. How-

ever, this Court notes that in Zantop International Airlines

Inc v Michigan Dep't of Treasury, (Docket No. 95728,

December 15, 1997) the Michigan Tax Tribunal deter-

mined that Zantop was liable for use tax on parts pur-

chased between April 1, 1980 and March 31, 1983. In

support of its decision to apply a use tax, Hearing Officer

James R. Neuman stated on page 7 of his Proposed Judge-

ment that:

The parts are stored, used or consumed, for

purpose of the Michigan use tax, when they are

delivered in Michigan for the purpose of being

installed in the aircraft. They have reached their

final destination prior to installation. They are

no longer in interstate commerce. The aircrafts

are in interstate commerce. If the parts were to

continue on to some other destination for sale,

then they would be continuing in interstate

commerce.

Finally, the Hearing Officer concluded on page 8 of his

Proposed Judgment that a taxable moment or event

occurs when the parts reach their destination prior to

installation.

Because of the Hearing Officer’s determination that

use tax is applicable to parts purchased out of state and

installed in Michigan, Zantop asks this Court to deter-

mination [sic] whether the use tax is applicable where out

App. 9

of state parts are immediately installed in aircrafts which

are flown predominantly outside the State of Michigan.

ANALYSIS

A motion for summary disposition pursuant to MCR

2.116(C)(10) tests the factual support of a legal claim.

Ashworth v Jefferson Screw, 176 Mich App 737, 741; 440

NW2d 101 (1989). The moving party must establish that

there is no genuine issue as to any material fact and that

the moving party is entitled to judgment as matter of law.

‘In so ruling, the trial court must consider affidavits,

pleadings, depositions, admissions, and documentary

evidence filed in the action or submitted by the parties in

a light most favorable to the party opposing the motion.

Quinto v Cross & Peters, 451 Mich 358, 362; 547 NW2d 317

(1996). In granting a motion for summary disposition, a

court must be satisfied that it is impossible for the claim

or defense to be supported at trial because of some defi-

ciency as to an essential element which cannot be over-

come. Rizzo v Kretschmer, 389 Mich 363, 371-72; 207 NW2d

316 (1973).

Under MCR 2.116(I)(1), a court may order summary

disposition if the pleadings show that a party is entitled

to judgment as a matter of law, or if the affidavits or other

proofs show that there is no genuine issue as to any

material fact. Further, if it appears to the court that the

opposing party, rather than the moving party, is entitled

to judgment, the court may render judgment in favor of

the opposing party. MCR 2.116(I)(2). See Residential Rate-

payer Consortium v Public Service Commission, 168 Mich

App 476, 480; 425 NW2d 98 (1987).

App. 10

Resolution of this appeal requires application of the

pertinent provisions of the Use Tax Act prior to amend-

ment which took effect January 1, 1984. Specifically, MCL

205.93; MSA 7.555(3) of the Use Tax Act provides:

(1) There is levied upon and there shall be

collected from every person in this state a speci-

fic tax for the privilege of using, storing or

consuming tangible personal property in this

state, which tax shall be equal to 4% of the price

of such property, or services specified in section

3a, and to such tax there shall be added penal-

ties and interest where applicable as hereinafter

provided. For the purpose of the proper admin-

istration of this act and to prevent the evasion of

the tax, it shall be presumed that tangible per-

sonal property purchased shall be subject to the

tax if brought into the state within 90 days of

the purchase date and shall be considered as

acquired for storage, use or other consumption

in this state.

A use tax is a tax on the privilege of using, storing and

consuming tangible property brought from out of state

after it has come to rest. Honeywell Inc v Dep’t of Treasury,

167 Mich App 446; 423 NW2d 223 (1988). The intent of the

tax is to reach purchases by consumers not reached by the

Sales Tax Act. National Bank of Detroit v Dep't of Revenue,

334 Mich 132; 54 NW2d 278 (1952). Further, since the use

tax does not apply to the operations of interstate com-

merce, but rather applies to the privilege of using tang-

ible personal property after commerce has come to rest in

this state, the power of Congress to regulate interstate

commerce is not transgressed by the Use Tax Act. Banner

Laundering Co v State Board of Tax Administration, 297 Mich

419; 298 NW 73 (1941).

App. 11

This case involves aircraft parts which were first

purchased out of state. Next, those parts where [sic]

transported to Michigan. While in Michigan, the part’s

final destination, the parts were installed by Zantop into

its planes. Zantop does not dispute that the parts were

brought into the State of Michigan within 90 days of

purchase. Thus, it is presumed that the parts are subject

to use tax. Kellogg Co v Dep’t of Treasury, 204 Mich App

489; 516 NW2d 108 (1984). Zantop has the burden of

overcoming the presumption of taxation, or establishing

that an exemption applies. Kress v Dep't of Revenue, 326

Mich 15; 39 NW2d 235 (1949).

Necessary in determining whether Zantop can over-

come the presumption of taxation are definitions of the

terms of “use” and “storage”. The terms are defined in

§ 2 of the act as follows:

(b) “Use” means the exercise of a right or

power over tangible personal property incident

to the ownership of that property including

transfer of the property in a transaction where

possession is given.

this state for any purpose after losing its inter-

state character.

In this matter, Zantop exercised ownership rights

over the aircraft parts when it installed the parts after

they were shipped to Michigan. Although Zantop main-

tains that the aircraft rotable parts were immediately

installed in Zantop’s aircrafts and thus remained instru-

mentalities of interstate commerce, this Court finds that

the parts came to rest in the State of Michigan. Since the

App. 12

aircraft parts were no longer instrumentalities of inter-

state commerce, any keeping or retention of the parts in

this state constitutes storage under the Use Tax Act. The

Court also notes that the legislative intent behind the Use

Tax Act was to reach tangible personal property that does

not fall within the parameters of the state sales tax. If

Zantop had purchased these items within the State of

Michigan, the items would have been subject to the state

sales tax. Clearly, Zantop maintains power over the air-

craft parts, uses the parts within the State of Michigan,

and stores the items, however minimal that storage time

is alleged to be. The aircraft parts in question are the type

of personal property contemplated by the Use Tax Act.

Zantop has failed to overcome the presumption of taxa-

tion as provided for under the Act. Master Craft Engineer-

ing Inc v Dep't of Treasury, 141 Mich App 56; 366 NW2d

235 (1985).

Since Zantop has failed to overcome the presump-

tion, it must establish that an exemption applies in order

to avoid the use tax. MCL 205.94(b); MSA 7.555(2) states

that use tax does not apply to “[p]roperty, the storage,

use, or consumption of which this state is prohibited from

taxing under the constitution or laws of the United States,

or under the constitution of this state.”

The Commerce Clause of the United States Constitu-

tion, US Const, art I, § 8 cl 3, forbids burdening interstate

commerce through taxation. Thus, a tax that violates the

Commerce Clause is void. The test used in Michigan for

determining whether a state tax is constitutional was first

set out by the United States Supreme Court in Complete

Auto Transit Inc v Brady, 430 US 274; 97 S CT 1076; 51 L Ed

2d 326 (1977). The elements of the Complete Auto test are:

a =

oe eer

App. 13

(1) the activity taxed must have a substantial nexus to the

taxing state; (2) the tax must be fairly apportioned; (3) it

may not discriminate against interstate commerce; and (4)

it must be fairly related to services provided by the state.

First, the activity being taxed involves the installa-

tion of parts by Zantop on its planes. Zantop installs

parts at one of two locations - either at its facility in

Michigan or in Georgia. True, the parts were in interstate

commerce, however, Zantop’s assertion that the parts

themselves are still in interstate commerce, after being

installed, does not fly with this Court. After installation,

it is the plane not the parts that are in interstate com-

merce for purposes of this case. The activity in this matter

being taxed is the use and storage of the aircraft parts

and not the interstate freight delivery. Thus, since the

parts are shipped to Michigan and installed in Michigan,

there is an :dentifiable exchange of services within the

Michigan borders, which is sufficient to establish a sub-

stantial nexus with the State of Michigan. Kellog, supra at

495.

Second, Zantop argues that the use tax is not fairly

apportioned to meet the requirements of the Commerce

Clause. The fair apportionment test requires that the tax

meet a two prong test — the internal and external consis-

tency tests. Goldberg v Sweet, 488 US 252, 261; 109 S Ct

582; 102 L Ed 2d 21 (1988). To be internally consistent, a

tax must be structured so that if every state imposed the

same tax, multiple taxation would not arise. Id. In the

case at hand, Michigan provides a credit for sales or use

taxes paid to other states. MCL 205.94(e); MSA 7.555(4e).

Thus if every state imposed the same tax, a credit would

App. 14

be applied under the Michigan statute in those situations

where multiple taxation arises.

The external consistency test inquires whether the

state has taxed only that portion of the revenues from the

interstate activity which reasonably reflects the in-state

component of the activity being taxed. Goldberg, 488 US at

262. The in-state activity which triggers the tax must be

examined and the effect that the tax has on interstate

activity. Id. In this matter, the activity which is being

taxed is the use and storage of aircraft parts which are

purchased outside of Michigan to be later installed on

aircrafts hangered at a Michigan airport. The interstate

activity which Zantop is engaged in is the transport of

freight throughout the country as well as abroad. Michi-

gan’s use tax has no effect on this interstate activity.

The third consideration under the Complete Auto test

is whether the tax discriminates against interstate com-

merce. Once again, Zantop has failed to establish any

disparaging treatment under the use tax. The activity

which is subject to the use tax involves aircraft parts

which have come to rest in Michigan. A business engaged

in a similar intrastate activity would be subject to the

Michigan sales tax. The Michigan use tax does not dis-

criminate against interstate commerce.

Finally, the fourth prong of the Complete Auto test

focuses on whether the tax is fairly related to the pres-

ence and activities of the taxpayer within the state. The

Goldberg Court stated:

The purpose of this test is to ensure that a

State’s tax burden is not placed upon persons

who do not benefit from services provided by

By.

Ne ERS? aaa Rp cava rea ge

App. 15

the State. The tax which may be imposed on a

particular interstate transaction need not be lim-

ited to the cost of the services incurred by the

State on account of that particular activity. On

the contrary, “interstate commerce may be

required to contribute to the cost of providing

all governmental services, including those ser-

vices from which it arguably receives no direct

benefit.”

Goldberg, 488 US at 266-67 (quoting Commonwealth Edison,

453 US at 627). Clearly as a Michigan corporation with a

substantial repair facility located in the state, Zantop

receives several direct and indirect benefits from the State

of Michigan.

THEREFORE, IT IS HEREBY ORDERED that the

Plaintiff’s Motion for Summary Disposition pursuant to

MCR 2.116(c)(10) is DENIED.

IT IS FURTHER ORDERED that Defendant’s Motion

for Summary Disposition pursuant to MCR 2.116(I)(2) is

GRANTED.

Thomas L. Brown

Date: 1-26-99 /s/ Thomas L. Brown

Thomas L. Brown

Circuit Court Judge

Proof of Mailing

I do certify that I have served a copy of the attached

order upon each attorney of record by placing a copy of

the same in a sealed envelope, addressed to each, with

full postage prepaid thereon, and placing said envelope

App. 16

in the United States mail at Lansing, Michigan on 1-27,

1999.

/s/ Michael M. Shoudy

Michael M. Shoudy

Research Clerk

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App. 17

STATE OF MICHIGAN

-COURT OF APPEALS

;

® .

vee SLAM LENS LOSIE SALA LY NHN Gy | PLEAGPELE ALI DALMEA Fo ten irs Balt

ZANTOP INTERNATIONAL UNPUBLISHED

AIRLINES, INC., May 26, 1995

| Plaintiff-Appellee, No. 152381

Vv L.C. No. 91-013365

DEPARTMENT OF TREASURY,

Defendant-Appellant.

Before: Fitzgerald, P.J., and Brennan, and Batzer,* JJ.

PER CURIAM.

Defendant appeals from an order of summary dispo-

sition in favor of plaintiff. We reverse and remand.

Defendant’s sole claim on appeal is that the trial

court erred in finding that the use tax exemption con-

tained in MCL 205.94(k); MSA 7.555(4)(k), was arbitrary

and violated the equal protection clauses of the United

States and Michigan Constitutions. We agree.

Equal protection of the law is guaranteed by both the

federal and the state constitutions. US Const, Am XIV;

Const 1963, art 1, § 2. Both guarantees afford similar

protection. Doe v Dep’t of Social Services, 439 Mich 650,

670-671; 487 NW2d 166 (1992). The equal protection guar-

antee requires that all persons under similar circum-

stances be treated alike. El Souri v Dep’t of Social Services,

* Circuit judge, sitting on the Court of Appeals by

assignment.

App. 18 ©

429 Mich 203, 207; 414 NW2d 679 (1987). Equal protection

does not require that persons in different circumstances

be treated the same. Thompson v Merritt (Amended Opin-

ion), 192 Mich App 412, 424; 481 NW2d 735 (1991). When

a legislative classification is challenged as violative of the

equal protection guarantee, the test to determine its val-

idity depends on the kind of classification and the nature

of the interest affected. Id. at 424-425.

Social and economic legislation is examined under

the traditional “rational basis” test. People v Perlos, 436

Mich 305, 331; 462 NW2d 310 (1990); Rouge Parkway Asso-

ciates v City of Wayne, 423 Mich 411, 421-422; 377 NW2d

748 (1985). Under the rational basis test, legislation is

presumed to be constitutional and must be sustained if

the classification is rationally related to a legitimate gov-

ernmental purpose or interest. Doe, supra at 662; Bissell v

Kommareddi, 202 Mich App 578, 580; 509 NW2d 542

(1993). The burden of proof is on the person attacking the

legislation to show that the state failure to tax similarly

situated enterprises uniformly was arbitrary, intentional,

and knowing rather than a mistake or the result of an

inadvertence. Kellogg Co v Dep’t of Treasury, 204 Mich App

489, 496; 516 NW2d 108 (1994); Orion Twp v State Tax

Commission, 195 Mich App 13, 17; 489 NW2d 120 (1992). A

rational basis for legislation exists when any set of facts

can be reasonably conceived to justify the discrimination.

Kellogg, supra at 496; Wartella v East Detroit, 161 Mich App

552, 556; 411 NW2d 751 (1987).

The Use Tax Act, MCL 205.91 et seq; MSA 7.555(1) et

seq, provides in pertinent part for the following exemp-

tions:

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App. 19

(k) A vessel designed for commercial use

of registered tonnage of 500 tons or more, if

produced upon special order of the purchaser,

and bunker and galley fuel, provisions, sup-

plies, maintenance, and repairs for the exclusive

use of a vessel of 500 tons or more engaged in

interstate commerce.

* * +

(x) The storage, use, or consumption of

any aircraft owned or used by a domestic pas-

senger air carrier operating under a certificate

issued by the United States department of trans-

portation pursuant to section 401 of title IV of

the federal aviation act of 1958, Public Law

85-726, 49 U.S.C. 1371, if the aircraft is used

primarily in the regularly scheduled commercial

transport of passengérs. [MCL 205.94(k), (x);

MSA 7.555(4)(k), (x).]

Despite plaintiff's arguments to the contrary, we are

convinced that the legislature’s failure to exempt air

freight plane parts from the use tax, in a manner consis-

tent with commercial vessels of 500 tons or more, was not

a violation of equal protection. Plaintiff has failed to

negate every conceivable basis that might support the

§ 4(k) exemption. The Legislature could rationally have

decided to exempt parts for vessels exceeding five hun-

dred tons from the use tax because of desire to promote

that industry to locate in Michigan. We would add that

our conclusion is not affected by the exemption contained

in § 4(x) because that exemption is limited to the storage,

use, or consumption of a domestic passenger aircraft.

App. 20

Reversed and remanded.

/s/ E. Thomas Fitzgerald

/s/ Thomas J. Brennan

BATZER, J. (dissenting).

Plaintiff Michigan corporation is an interstate and

foreign carrier of air cargo. Plaintiff conducts its inter-

state and foreign air freight delivery business among and

between approximately forty-five to fifty airports includ-

ing Willow Run Airport in Ypsilanti. As an air carrier

subject to Federal Aviation Administration Rules and

Regulations, plaintiff is required to repair and replace on

a periodic basis and schedule specified by the FAA cer-

tain critical parts to its aircraft called “rotable parts.”

These “rotable parts” important to the context of this case

include engines, engine components, propellers, and

other critical operating parts.

The engines, propellers, and components are peri-

odically removed from plaintiff’s aircraft pursuant to

FAA maintenance schedules, and sent to repair facilities

outside the State of Michigan where they undergo routine

and specified repair, replacement, overhaul, and upgrad-

ing. When the repair and overhaul are completed, they

are returned to plaintiff, reinstalled on the aircraft, and

the aircraft are placed back into service hauling air

freight.

The State of Michigan imposes a use tax on plaintiff's

costs incurred in the repair and replacement of these

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App. 21

“rotable parts” on the theory that plaintiff is using, stor-

ing, or consuming the parts in Michigan, separate and

apart from its operations in interstate commerce.

On the other hand, the maintenance and repair of

vessels of 500 tons or more engaged in interstate on the

Great Lakes is exempt from Michigan’s use tax to which

plaintiff is subject. Plaintiff claims that this different use

tax treatment violates its constitutional right to the equal

protection of the laws.

In 1990, defendant conducted a sales and use tax

audit on plaintiff. As a result of the audit, defendant

determined that plaintiff owed use taxes on these “rota-

ble parts” in the amount of $757,275.72, including interest

and penalties.

Both plaintiff and businesses with vessels of 500 tons

or more engaged in Great Lakes shipping are involved in

interstate commerce and shipping freight. As the trial

judge observed in his well-considered opinion below:

The main different [sic] between the two,

not taking into account superficial differences, is

that one utilizes a ship while the other aircraft.

The Court is strained to understand the differ-

ences afforded these two modes of interstate

commerce that warrant one form to receive use

tax relief with respect to “provisions, supplies,

maintenance and repairs” while the other is not.

I, too, am strained to understand the difference.

Defendant at argument offered that perhaps airports pui

a strain on state resources in terms of connecting high-

ways and such. I had thought that there were significant

App. 22

federal subsidies for such highways to alleviate the bur-

den on state resources, but in any event, do not dock

facilities for the loading and unloading of waterborne

cargo and its accompanying land transportation to its

ultimate markets also place such burdens on highways

and other infrastructures? As to which places the greater

burden would likely, in my view, be measured in cargo

tonnage loaded and unloaded - a figure of which this

Court knows little - and, with all due deference, was, I

suspect, far from the legislative mind.

A legislative intent to foster the shipping industry is

propounded. Perhaps, but why was the shipping industry

entitled to such state fostering over the interstate air

freight industry? Self-evident reasons do not jump out.

And why is the interstate air freight industry now being

fostered through subseqwent legislation which tempo-

rarily has abrogated the tax? If there were an explicit

legislative finding on these issues, I would defer to any

such remotely rational finding. In the absence of such, I

can only conclude that when it comes to equal protection -

in this taxation scheme, the rational basis test gives way

to Orwellian analysis, wherein all of the similarly situ-

ated are equal, but some of the similarly situated are

more equal than others. In my view there is an equal

protection violation here. Williams v Vermont, 472 US 14,

22; 105 S Ct 2465; 86 L Ed 2d 11 (1865); Allegheny Pitts-

burgh Coal Co v Co Comm of Webster Co, 488 US 336; 109 S

Ct 633; 102 L Ed 2d 688 (1989); Racchus Imports Ltd v Dias,

468 US 263; 104 S Ct 3049; 82 L Ed 2d 200 (1984). See also

MCI Telecomm Corp v Dep’t of Treasury, 136 Mich App 38;

355 NW2d 627 (1984).

App. 23

In the absence of any legislative finding, the prof-

fered “rational basis” for the legislative exemption for the

maintenance and repair of ships of 500 tons or more, but

not for air freight haulers, strike me not as genuine

rational reasons, but as mere pillows held up by defen-

dant to absorb the attack of plaintiff, until plaintiff, in

frustration and exhaustion, ultimately submits.

If there is a rational basis for the unequal use tax

treatment here, it wholly escapes me. I would affirm.

/s/ James M. Batzer

App. 24

Court of Appeals, State of Michigan

ORDER

ZANTOP INTERNATIONAL AIRLINES v

DEPT OF TREASURY

Docket # 152381 E. Thomas Fitzgerald

L.C. # 91-13365-CM Presiding Judge

Thomas J. Brennan

James M. Batzer

Judges

The Court orders that the motion for rehearing is

DENIED.

Judge Batzer would grant rehearing.

[SEAL] A true copy entered and certified by

Ella Williams, Chief Clerk, on

NOV 28 1995 /s/ Ella Williams

Date Chief Clerk

App. 25

Michigan Supreme Court

Lansing, Michigan

Order

Entered: September 27, 1996

[Names Omitted In Printing]

105137

ZANTOP INTERNATIONAL

AIRLINES, INC.,

Plaintiff-Appellant,

SC: 105137

v COA: 152381

REVENUE DIVISION, CC: 91-013365

MICHIGAN

DEPARTMENT OF TREASURY,

Defendant-Appellee.

On order of the Court, the application for leave to

appeal is considered, and it is DENIED, because we are

not persuaded that the questions presented should be

reviewed by this Court.

60924 I, CORBIN R. DAVIS, Clerk of the

[SEAL] Michigan Supreme Court, certify that

the foregoing is a true and complete

copy of the order entered at the

direction of the Court.—

September 27,1996 Jacqueline B. MacKinnon

App. 26

SUPREME COURT OF THE UNITED STATES

OFFICE OF THE CLERK

WASHINGTON, D. C. 20543

February 18, 1997

Mr. Patrick R. Van Tiflin | ‘

Howard & Howard - Suite 500 i

222 Washington Square, North

Lansing, MI 48933-1817

Re: Zantop International Airlines, Inc.

v. Michigan Department of Treasury, Revenue

Division

No. 96-1030

Dear Mr. Van Tiflin:

The Court today entered the following order in the

above entitled case:

The petition for a writ of certiorari is denied.

Sincerely,

' /s/ William K. Suter

William K. Suter, Clerk

Pirin me

$8 CODD DET RARITY EE MERE CAE RNA GENE PARMAR OS REE IN GE MIS

App. 27

STATE OF MICHIGAN

COURT OF CLAIMS

ZANTOP INTERNATIONAL

AIRLINES, INC., File No. 91-13365-CM

Plaintiff, Hon. Thomas L. Brown

V OPINION AND

REVENUE DIVISION, ORDER

DEPARTMENT OF TREASURY,

STATE OF MICHIGAN

Defendant.

Plaintiff in this action moves the Court for summary

disposition pursuant to MCR 2.116(C)(10) on Count III of

its complaint in that except as to the amount of damages,

there is no genuine issue as to any material fact, and the

moving party is entitled to judgment as a matter of law.

Plaintiff, a Michigan corporation, operates a fleet of

aircraft in the conduct of an interstate and foreign air

freight delivery business. In the course of its business,

Plaintiff is required by the Federal Aviation Administra-

tion (FAA) to replace, repair or rebuild certain parts,

referred to as “rotable parts”. To comply with the FAA,

Plaintiff shipped these “rotable parts” to vendors outside

of Michigan for repair during the taxable period in ques-

tion. When these “rotable parts” were repaired the parts

were sent back to Plaintiff who reinstalled them on its

aircraft.

App. 28

In 1990, Defendant conducted a sales and use tax

audit on Plaintiff. As a result of this audit, Defendant

determined that Plaintiff owed use taxes on these “rota-

ble parts” in the amount of $757,275.72 including interest

and penalties. |

In Count III of its complaint, Plaintiff alleges that the

Michigan Use Tax, 137 PA 94, as amended, MCL 205.91 et

seq; MSA 7.555(6) et seq; violates Plaintiff's right to equal

protection of the law as guaranteed by the United States

Constitution under the Fourteenth Amendment and the

Michigan Constitution of 1963, Article 1, Section 2. Speci-

fically, Plaintiff contends that the legislature’s action of

creating classifications of modes of interstate commerce

which are exempt and Defendant’s issuance of a Letter

Ruling concerning the exemption of rolling stock, are

evidence of its alleged equal protection claim.

The exemptions at issue cited by Plaintiff arise pur-

suant to MCL 205.94; (k) and (x); MSA 7.555, (4) (k) and

(x) which states in pertinent:

The tax levied shall not apply to:

(k) A vessel designed for commercial use of .

registered tonnage of 500 tons or more, when

produced upon special order of the purchaser,

and bunker and galley fuel, provisions, sup-

plies, maintenance, and repairs for exclusive use

of a vessel of 500 tons or more engaged in

interstate commerce.

(x) The storage, use, or consumption of any

aircraft owned or used by a domestic passenger

air carrier operating under a certificate issued

by the civil aeronautics board pursuant to sec-

tion 401 of title IV of the federal aviation act of

App. 29

1958, 49 U.S.C. 1371, if the aircraft is used pri-

marily in the regularly scheduled commercial

transport of passengers.

Further, the Letter Ruling cited by Plaintiff in sup-

port of its position states in pertinent part:

4 aR A RNY SSNS A MPI THR BS LI ot OTR TOMO COE es “Pay

Soy aa Ree

89-48. Interstate versus Intrastate Rolling stock

You inquire regarding the taxability of rolling

stock purchased out of state and placed into

interstate commerce outside of Michigan. The

vehicles subsea’ ently are converted to use in

intrastate comrn -rce in Michigan.

* * +

... [I]t is the Department’s position that rolling

stock purchased and placed into interstate com-

merce in another state but subsequently con-

verted in Michigan is subject to use tax at the

time of conversion.

The Michigan Court of Appeals in American Amuse-

ment Company Inc. v Department of Treasury, 91 Mich App

573; 283 NW2d 800 (1979), addressed the issue of equal

protection violations with regards to a state’s taxation

scheme. The Michigan Court of Appeals quoting an ear-

lier case stated at 577:

[T]here is a point beyond which the State cannot

go without violating the Equal Protection

Clause. The state must proceed upon a rational

basis and may not resort to a classification that

is palpably arbitrary. The rule often has been

stated to be that the classification must rest

upon some ground of difference having a fair

and substantial relation to the object of the legis-

lation ... That statute may discriminate in favor

of a certain class does not render it arbitrary if

App. 30

the discrimination is founded upon a reasonable

distinction, or difference in state policy.

In applying this rational basis test the Court must

determine whether there is a rational relationship

between the object of the legislation and the classifica-

tion. After review of the proofs in this case the Court is of

the opinion that there is no rational classification.

The Court agrees with the Defendant’s averment as

to the exemption applicable to aircraft owned by a

domestic airline as set forth by MCL 205.95(x); MSA

7.555(4)(x). Clearly, this exemption only pertains to the

storage, use, or consumption of aircraft owned and uti-

lized in the commercial transportation of passengers.

There is no mention, either expressly or impliedly, that

said exemption applies to parts of the aircraft. In fact,

according to the affidavit of Jesse Weaver, Defendant

does tax those parts. Moreover, Plaintiff's own aircraft

are not subject to taxation under the Michigan Sales or

the Michigan Use Tax.

Furthermore, the Court concedes that the subject of

the Letter Ruling, that being rolling stock, is remotely

similar factually to Plaintiff’s situation. The Court takes

notice that Letter Rulings are issued by the Department in

response to specific questions and fact situations pre-

sented by a taxpayer and that they are not to be relied on

by other taxpayers. However, Letter Rulings do provide

some guidance regarding the Department’s position in a

given situation. This point is important in the context of

this case.

However, the Court finds that the exemption applica-

ble to commercial vessels of 500 tons or m re set forth in

App. 31

MCL 205.94(k); MSA 7.555(4)(k) more closely parallels

Plaintiff's situation. Both Plaintiff and businesses which

fall under this exemption are involved in interstate com-

merce and shipping freight. The main difference between

the two, not taking into account superficial differences, is

that one utilizes a ship while the other utilizes aircraft.

The Court is strained to understand the differences

afforded these two modes of interstate commerce that

warrant one form to receive use tax relief with respect to

“provisions, supplies, maintenance, and repairs” while

the other is not.

The United States Supreme Court in Williams v Ver-

mont, 472 US 14; 105 S Ct 2465; 86 L Ed 2d 11 (1985),

quoting an earlier case held at page 19 that “the states

have large leeway in making classifications and drawing

lines which in their judgment produce reasonable sys-

tems of taxation”.

In determining whether a particular taxation scheme

is rationally based, the Michigan Court of Appeals in

American Amusement supra, quoting an earlier case dis-

cussed the application of the equal protection clause

within the context of a state’s taxation scheme. The Mich-

igan Court of Appeals held at 577 that the equal protec-

tion clause:

“impose no iron rule of equality, prohibiting the

flexibility and variety that are appropriate to

reasonable scheme of state taxation. The state

may impose different specific taxes upon differ-

ent trades and professions and may very [sic]

the rate of excise upon various products. It is

not required to resort to close distinctions or to

maintain a precise, scientific uniformity with

App. 32

reference to composition, use or value. [citation

omitted]

The Court finds that when read individually, Plain-

tiff’s averments as to the applicability of the.exemptions

available under the Michigan Use Tax and the Letter

Ruling at issue are weakened by their differences to

Plaintiff’s situation.

However, it is the opinion of the Court that, when

read as a whole the exemptions to the Michigan Use Tax

evidence an arbitrary approach by Defendant as it applies

to the taxation of different instrumentalities of interstate

commerce in violation of equal protection.

Therefore, the Court finds that Plaintiff’s allegations

7 in Count III have merit. Thus, Plaintiff’s motion for sum-

mary disposition as to Count III is GRANTED.

Date: 2-26-92 /s/ Thomas L. Brown

Thomas L. Brown,

Circuit Judge

App. 33

STATE OF MICHIGAN

COURT OF CLAIMS

ZANTOP INTERNATIONAL

AIRLINES, INC.,

Plaintiff, Docket No.

vs. 99-13365-CM

REVENUE DIVISION, HON. JUDGE

DEPARTMENT OF TREASURY, PHOMAS L. BROWN

STATE OF MICHIGAN,

Defendant.

PATRICK R. VAN TIFLIN (P26119)

ELLEN M. HARVATH (P42170)

HOWARD & HOWARD

ATTORNEYS, P.C. _

Attorneys for Plaintiff

The Phoenix Building, Suite 500

222 Washington Square, North

Lansing, Michigan 48933

(517) 485-1483

COMPLAINT FOR REFUND OF USE TAX

NOW COMES the Plaintiff, Zantop International Air-

lines, Inc., by and through its attorneys Howard & How-

ard Attorneys, P.C., and for its Complaint against the

Defendant herein, alleges as follows:

1. Plaintiff is a Michigan corporation with its Michi-

gan office located at Willow Run Airport in Ypsilanti,

Michigan.

App. 34

2. Defendant Revenue Division of the Department

of Treasury, State of Michigan, is the statutorily desig-

nated collection agent for the Michigan Use Tax imposed

pursuant to MCL §205.91, et seq.; MSA §7.555 et seq.,

(hereinafter “the Act”).

3. The taxes involved are Michigan Use Taxes for

the period beginning October 1, 1986 to March 31, 1990

relating to the acquisition of airplane parts (hereinafter

referred to as “the parts”) which are required by the

Federal Aviation Administration to be replaced, repaired,

rebuilt or overhauled for aircraft operated by Plaintiff in

interstate and foreign commerce.

4. During the period in question, Plaintiff operated

a fleet of aircraft (hereinafter referred to as “the aircraft”)

in its interstate and foreign air freight delivery business

conducted between approximately 45 to 50 airports in the

United States, including Willow Run Airport.

5. The aircraft are not subject to taxation under the

Michigan Sales or the Michigan Use Tax.

6. In Plaintiff’s experience, and due to the financial

expediency of avoiding excessive investment of working

capital in idle parts, the acquisition date and installation

date of the parts in question have generally been in close

proximity.

7. Parts such as engines, propellers, and compo-

nents thereof are and have been serviced by overhauling

companies located outside of Michigan.

8. Generally, when such parts are needed, the parts

are shipped to the required location for preparation and

App. 35

installation on the aircraft, thereby eliminating the need

for storage in Michigan.

9. On March 11, 1991 Defendant issued to Plaintiff

Bill for Taxes Due (Final Assessment) E763576 for Michi-

gan Use tax relating to the acquisition of the parts in the

amount of $541,329 together with a penalty in the amount

of $54,134 and interest in the amount of $161,812.72. A

copy of the Bill for Taxes Due is attached hereto as

Exhibit 1.

10. On April 8, 1991 Plaintiff paid to Defendant

under protest the entire amount of tax, penalty and inter-

est claimed to be due under Bill for Taxes Due (Final

Assessment) E763576. A copy of the letter transmitting

the payment under protest is attached hereto as Exhibit 2.

11. Plaintiff hereby sues for refund of Michigan Use

Tax, penalty and interest paid with respect to parts in the

aggregate amount of $757,725.72 plus statutory interest,

costs, and attorney fees.

dines

COUNT I

NON-TAXABLE USE

12. Plaintiff incorporates by reference the allega-

tions contained in paragraphs 1 through 11 of this Com-

plaint, as if more fully set forth herein.

13. The Michigan Use Tax is imposed upon the priv-

ilege of using, storing, or consuming tangible personal

property within the State of Michigan.

App. 36

14. For purposes of the Michigan Use Tax, it is

presumed that tangible personal property purchased out-

side the State of Michigan is subject to the tax if the

property is brought into the state within 90 days of the

purchase date as having been acquired for storage, use or

other consumption within Michigan.

15. The presumption set forth in the Act is not a

conclusive presumption and can be overcome by showing

the use to which the aircraft parts were actually put.

16. The initial and continuing use of the aircraft and

its constituent parts are interstate in character.

17. The aircraft and its constituent parts were not

acquired for use in Michigan, but were acquired for initial

and continual use in interstate and foreign commerce.

18. Plaintiff has not exercised a privilege of use of

the aircraft parts in Michigan separate and distinct from

its use of the aircraft and its constituent parts in interstate

commerce.

19. The sole and exclusive purpose for bringing the

aircraft parts into Michigan is to become an integral part

of interstate commerce.

20. Under these circumstances, no presumption can

arise that Plaintiff acquired the aircraft parts for use in

the State of Michigan or, in the alternative, if such a

presumption does arise, it cannot be sustained, since the

continuous and uninterrupted interstate and foreign use

of the aircraft and its constituent parts adequately rebuts

the presumption. ;

App. 37

WHEREFORE, Plaintiff prays that this Court find and

determine as follows:

(a)

(b)

(d)

That the aircraft parts, as integral parts of

instrumentalities of interstate commerce, —

were not used in a taxable use in the State

of Michigan, and therefore, are not within

the scope of taxation imposed by the Michi-

gan Use tax, and

That the aircraft parts may not be pre- ~

sumed to have been acquired for use within

the State of Michigan, or if such presump-

tion arises, the facts alleged adequately

rebut the presumption, and

That Plaintiff is entitled to a refund of Use

Tax, interest and penalty paid in relation to

the acquisition of the aircraft parts in the

amount of $757,725.72 together with statu-

tory interest, court costs and attorney fees,

and

That Plaintiff shall have such other and

further relief to which this Court shall find

Plaintiff to be justly entitled.

COUNT II

TAXABLE MOMENT

21. Plaintiff incorporates by reference the allega-

tions contained in paragraphs 1 through 20 of this Com-

plaint as if more fully set forth herein.

22. Under standards adopted by the United States

Supreme Court, in order for a state to impose a tax on the

privilege of the use of property within its borders, it must

establish that there was a “taxable event or moment”

upon the initial entry of the property into the state, or, in

the alternative, that there was a taxable moment after the

initial entry into the state.

23. Michigan law employs the “taxable moment”

test in determining whether Michigan Use Tax may be

imposed upon an aircraft and its constituent parts

acquired outside the State of Michigan which have been

transported into the state and have not lost their inter-

state character due to continual movement in interstate

commerce.

24. Whether an object has “come to rest” is impor-

tant for determining whether a “taxable moment” has

occurred under Michigan law.

25. No “taxable moment” has occurred because the

aircraft and its constituent parts in question have never

“come to rest” in Michigan and have never lost their

interstate commerce character and have been continually

used in interstate commerce since Plaintiff acquired them.

26. The Commerce Clause of the United States Con-

stitution forbids the undue burdening of interstate com-

merce or its instrumentalities by state taxation.

27. A state tax upon interstate commerce satisfies

the Commerce Clause where (1) the tax is applied to an

activity with a substantial nexus with the taxing state, (2)

the tax is fairly apportioned, (3) the tax does not discrimi-

nate against interstate commerce, and (4) the tax is fairly

related to services provided by the state.

28. As the aircraft and its constituent parts were

and are used continually in interstate commerce, the

Michigan Use Tax which is the subject of this proceeding

Ann 20

does not relate to an activity with substantial nexus with

Michigan.

29. As the use of the aircraft and its constituent

parts in interstate commerce results in a predominant use

of the aircraft and its constituent parts occurring outside

the borders of the State of Michigan, the Use tax is not

fairly apportioned in relation to the use of the aircraft in

Michigan and other states since the entire amount of the

Use tax relating to these aircraft parts was paid to the

State of Michigan. |

30. The aircraft and its constituent parts acquired by

Plaintiff and continually used in interstate commerce are

not so clearly and uniquely connected to Michigan that

Michigan has the right to impose an unapportioned use

tax on the entire value of the parts.

31. As the predominant use of the aircraft and its

constituent parts by Plaintiff occurs outside of the bor-

ders of the State of Michigan, the Use tax collected by

Defendant with respect to the aircraft parts is not fairly

related to services provided by Defendant to Plaintiff

with respect to the aircraft parts.

32. The Equal Protection, Due Process and Com-

merce Clauses of the United States Constitution have

been interpreted and applied to prohibit a state from

taxing activities or values which occur or exist beyond

the borders of the taxing state.

33. The United States Constitution has been inter-

preted and applied so as to require that the tax base

~ subject to tax in any state, including Michigan, must bear

a reasonable relation to the activity proposed to be taxed.

4 trp: 4D

34. The United States Supreme Court has held that

there must exist a rational relationship between the tax

base attributed to the taxing state and the intrastate

values being taxed.

35. The imposition of Michigan Use Tax on the air-

craft and its constituent parts constitutes an undue bur-

den and therefore is an impermissible taxation on

interstate commerce and is in violation of the Commerce

Clause of the United States Constitution and Michigan

law because no taxable moment or event has occurred

which can legally support such taxation.

WHEREFORE, Plaintiff prays that this Court find and

determine as follows:

(a) That the imposition of Michigan Use Tax

upon the aircraft parts which have not lost

their interstate character is contrary to the

United States Constitution and the law of

the State of Michigan, and

(b) That Plaintiff is entitled to a refund of Use

Tax, penalty and interest paid in relation to

its acquisition of the aircraft parts in the

amount of $757,275.72 together with statu-

tory interest, court costs and attorney fees,

and

further relief to which this Court shall find

Plaintiff to be justly entitled.

App. 41

COUNT III

EQUAL PROTECTION OF THE LAWS

36. Plaintiff incorporates by reference the allega-

tions contained in paragraphs 1 through 35 of this Com-

plaint as if more fully set forth herein.

37. The Equal Protection Clauses of the Fourteenth

Amendment to the United States Constitution and the

Michigan Constitution, Const 1963, art I, §2, prohibit

arbitrary classifications, not rationally based, which dis-

criminate between classes of taxpayers.

38. Section 94(k) of the Use Tax Act, MCL 205.93(k);

MSA 7.555(4)(k), excludes from taxation thereunder a

vessel designated for commercial use of registered ton-

nage of 400 tons or more, when produced upon special

order of the purchaser, and bunker and galley fuel, provi-

sions, supplies, maintenance, and repairs for the exclu-

sive use of a vessel engaged in interstate commerce.

39. Section 94(x) of the Use Tax Act, MCL

205.94(3)(x); MSA 7.555(4)(x), excludes from taxation

thereunder aircraft owned or used by domestic passenger

air carriers operating under a certificate issued by the

Civil Aeronautics Board pursuant to the Federal Aviation

Act, if the aircraft is used primarily in the regular sched-

uled commercial transport of passengers.

40. In Department of Treasury Letter Ruling 89-47

then Commissioner of Revenue Louis W. Duncan ruled in

response to a taxpayer request for a ruling that “rolling

stock” purchased out of state and placed into interstate

commerce is not taxable by Michigan under the Use Tax

Act unless and until the rolling stock is removed from

App. 42

interstate commerce and is converted to an intrastate use,

and becomes taxable only at the time of conversion.

41. Neither the Act itself or the implementation of

the Act by the Revenue Division makes a similar exclu-

sion for an aircraft or its constituent parts used to trans-

port freight as is provided for waterborne vessels,

passenger aircraft and rolling stock. ¢

42. The creation of such a classification of instru-

mentalities of interstate commerce and the granting of

favorable tax status to certain classes and the withholding

of favorable tax status from another is palpably arbitrary

and no rational basis exists for such a system of classifica-

tion.

43. Such disparate treatment constitutes a violation

of Plaintiff’s right to equal protection under the Four-

teenth Amendment of the United States Constitution and

the Michigan Constitution, Const 1963, art. I, §2.

44. The implementation of such an arbitrary and

capricious classification has resulted in a Use Tax penalty

and interest liability of Plaintiff of $757,275.72 in excess of

its legal liability.

‘WHEREFORE, Plaintiff prays that this Court find and

determine as follows:

(a) That the statutory classification and dis-

crimination made for purposes of Michigan

Use Tax, between waterborne vessels

domestic aircraft or rolling stock and an

aircraft and its constituent parts used to

transport freight, all operating in interstate

App. 43

commerce, constitutes a violation of Plain-

tiff’s right to equal protection of the law,

and

(b) That Plaintiff is entitled to a refund of

Michigan Use Tax, penalty and interest in

the amount of $757,725.72 plus statutory

interest, costs and attorney fees, and

further relief to which this Court shall find

Plaintiff to be justly entitled.

Respectfully submitted,

HOWARD & HOWARD

ATTORNEYS, P.C.

Attorneys for Plaintiff

Dated: June 7, 1991

By /s/

Patrick R. Van Tiflin

(P26119)

Ellen M. Harvath (P42170)

ZANTOP INTERNATIONAL

AIRLINES, INC.

By: /s/

Robert C. Dillon

Its: Vice President-Finance

App. 44

VERIFICATION

STATE OF MICHIGAN _)

)

COUNTY OF INGHAM _)

SS.

On this 7th day_of June, 1991, personally appeared

before me Robert C. Dillon, Vice President-Finance for

Zantop International Airlines, Inc., the Plaintiff in the

within cause, and stated that he has read the foregoing

Complaint for Refund of Use Tax and that he believes the

contents thereof to be true to the best of his knowledge,

information and belief.

/s/

Peggy A. Hicks

Notary Public, Ingham

County, MI

My commission expires:

1-23-95

App. 45

UNITED STATES CONSTITUTION |

ARTICLE I, SECTION 8, CLAUSE 3

REGULATION OF COMMERCE

The Congress shall have Power . . . to regulate

Commerce with foreign Nations, and among the several

States, and with the Indian Tribes... .

UNITED STATES CONSTITUTION

AMENDMENT XIV - CITIZENSHIP; PRIVILEGES

AND IMMUNITIES; D*"E PROCESS; EQUAL PROTEC-

TION; APPORTIONMENT OF REPRESENTATION;

DISQUALIFICATION OF OFFICERS; PUBLIC DEBT;

ENFORCEMENT

Section 1. All.persons born or naturalized in the

United States and subject to the jurisdiction thereof, are

citizens of the United States and of the State wherein they

reside. No State shall make or enforce any law which

shall abridge the privileges or immunities of citizens of

the United States; nor shall any State deprive any person

of life, liberty, or property, without due process of law;

nor deny to any person within its jurisdiction the equal

protection of the laws.

App. 46

As codified during the taxable period at issue, the

Michigan Use Tax Act provided, in pertinent part, as

follows -

MICHIGAN COMPILED LAWS

The People of the State of Michigan enact:

205.91. Short title

Sec. 1. This act may be cited as the “Use Tax Act”.

205.92. Definitions ¥

Sec. 2. As used in this act:

(a) “Person” means an individual, firm,

partnership, joint venture, association, social club,

fraternal organization, municipal or private corporation

whether or not organized for profit, company, estate,

trust, receiver, trustee, syndicate, the United States, this

state, county, or any other group or combination acting as

a unit, and the plural as well as the singular number,

unless the intention to give a more limited meaning is

disclosed by the context.

(b) “Use” means the exercise of a right or power

over tangible personal property incident to the

App. 47

ownership of that property including transfer of the

property in a} transaction where possession is given.

state for any purpose losing its interstate character.

(d) “Seller” means the person from whom a

purchase is made and includes every person selling

tangible personal property or services for storage, use, or

other consumption in this state. If, in the opinion of the

department, it is necessary for the efficient admin-

istration of this act to regard a salesperson, repre-

sentative, peddler, or canvasser as the agent of a dealer,

distributor, supervisor, or employer under whom the

person operates or from whom he or she obtains tangible

personal property or services sold by him or her for

storage, use, or other consumption in this state,

irrespective of whether or not he or she is making the

sales on his or her own behalf or on behalf of the dealer,

distributor, supervisor, or employer, the department may

so consider him or her, and may consider the dealer,

distributor, supervisor, or employer as the seller for the

purpose of this act.

_ (e) “Purchase” means acquired for a consideration,

whether the acquisition was effected by a transfer of

title,2 of possession, or of both, or a license to use or

consume; whether the transfer was absolute or

conditional, and by whatever means the transfer was

effected; and whether consideration is a price or rental in

money, or by way of exchange or barter.

1 1987 P.A. 260, effective December 28, 1987, substituted “of

the property in a” for “thereof in any.”

2 Prior to the passage of 1988 P.A. 506, effective December

29, 1988, the word “or” preceded the phrase “of possession.”

App. 48

(f) “Price” means the aggregate value in money of

anything paid or delivered, or promised to be paid or

delivered, by a consumer to a seller in the consummation

and complete performance of the transaction by which

tangible personal property or services were purchased or

rented for storage, use, or other consumption in this state,

without a deduction for? the cost of the property sold,

cost of materials used, labor or service cost, interest or

discount paid, or any other expense.

* * *

(g) “Comsumer” means the person who has

purchased tangible personal property or services for

storage, use, or other consumption in this state and

includes a person acquiring tangible personal property

when engaged in the business of constructing, altering,

repairing, or improving the real estate of others.

(h) “Business” means all activities engaged in by a

person or caused to be engaged in by a person with the

object of gaim, benefit, or advantage, either direct or

indirect.

(i) “Department” means the revenue division of the

department of treasury.

(j) “Tax” includes all taxes, interest, or penalties

levied under this act.

(k) “Tangible personal property” includes*

computer software offered for general use by the public

3 Prior to the pasage of 1987 P.A. 260, this phrase was

“without any deduction on account of.”

#1988 P.A. 506, effective December 28, 1987, inserted “,

beginning December 28, 1987,” prior to the phrase “computer

software.”

App. 49

or software modified or adapted to the user’s needs or

equipment by the seller, only if the software is available

from a seller of software on an as is basis or as an end

product without modification or adaptation. Tangible

personal property does not include computer software

originally designed for the exclusive use and special

needs of the purchaser. As used in this subdivision,

“computer software” means a set of statements or

instructions that when incorporated in a machine usable

medium is capable of causing a machine or device having

information processing capabilities to indicate, perform,

or achieve a particular function, task, or result.

205.93. ~Rate; presumption

Sec. 3. (1) Levy; presumption. There is levied upon

and there shall be collected from every person in this

state a specific tax for the privilege of using, storing, or

consuming tangible personal property in this state, which

tax shall be equal to 4% of the price of the property, or

services specified in section 3a,* and to the tax there shall

be added penalties and interest where applicable as

provided in this act. For the purpose of the proper

administration of this act and to prevent the evasion of

the tax, it is presumed that tangible personal property

purchased is subject to the tax if brought into the state

within 90 days of the purchase date and is considered as

* Section 205.93a.

App. 50

acquired for storage, use, or other consumption in this

state.>

(2) Vehicles, ORV’s, mobile homes, aircraft,

snowmobiles, watercraft; collection of tax, price tax

base. The tax imposed by this section for the privilege of

using, storing, or consuming a vehicle, ORV, mobile

home, aircraft, snowmobile, or watercraft shall be

collected before® the transfer of the vehicle, ORV, mobile

home, aircraft, snowmobile, or watercraft, except a

transfer to a licensed dealer or retailer for purposes of

resale, that arises by reason of a transaction made by a

person who does not transfer vehicles, ORV’s, mobile

homes, aircraft, snowmobiles, or watercraft in the

ordinary course of his or her business done in this state.

* * - *

The tax on an aircraft shall be collected by the

department of treasury. Notwithstanding any limitation

contained in section 2,+ the price tax base of any vehicle,

ORV, mobile home, aircraft, snowmobile, or watercraft

subject to taxation under this act” shall be not less than its

5 1990 P.A. 86, effective June 6, 1990, substituted “is” for

“shall be” in the second sentence.

6 1990 P.A. 86 substituted “before” for “prior to,” and made

several other nonsubstantive changes to this subsection.

+ Section 205.92.

7 Prior to the enactment of 1990 P.A. 86, the phrase ”, except

as authorized by section 2(f) on and after January 1, 1984 and

until the effective date of this 1984 amendatory act, for a motor

_ vehicle, trailer coach, or titled watercraft,” followed the phrase

“under this act.”

App. 51

retail dollar value at the time of acquisition thereof as

fixed pursuant to rules promulgated by the department.

(3) The following transfers or purchases are not

subject to use tax:§

(a) When the transferee or purchaser is the spouse,

mother, father, brother, sister, child, stepparent, stepchild,

stepbrother, stepsister, grandparent, grandchild, legal

ward, or a legally appointed guardian with a certified

letter of guardianship, of the transferor.

(b) When the transfer is a gift to a beneficiary in the

administration of an estate.

snowmobile, or watercraft that has once been subjected to

the Michigan sales or use tax is transferred in connection

with the organization, reorganization, dissolution, or

partial liquidation of an incorporated or unincorporated

business and the beneficial ownership is not changed.

(d) When an insurance company licensed to

conduct business in this state acquires ownership of a late

model distressed vehicle as defined in section 12a of the

Michigan vehicle code, Act No. 300 of the Public Acts of

1949, being section 257.12a, of the Michigan Compiled

Laws, through payment of damages in response to a

claim or when the person who owned the vehicle before

the insurance company reacquires ownership from the

company as part of the settlement of a claim.

8 Prior to the passage of 1990 P.A. 86, this paragraph read:

“No use tax shall be payable in cases of transfer or purchase:”

1990 P.A. 86 also substituted “that” for “which” in subsection

(3)(c), and added subsection (3)(d).

App. 52

(4) The department may utilize the services,

information, or records of any other department or

agency of state government in the performance of its

duties under this act, and other departments or agencies

of state government are required to furnish those

services, information, or records upon the request of the

department.

205.94 Exemptions.

Sec. 4. The tax levied shall not apply to:

Commercial vessels of 500 tons or

more, supplies, repairs.

(k) A vessel designed for commercial use of

registered tonnage of 500 tons or more, when produced

upon special order of the purchaser, and bunker and

galley fuel, provisions, supplies, maintenance, and

repairs for the exclusive use of a vessel of 500 tons or

more engaged in interstate commerce.

205.94. Exemptions

Sec. 4. The tax levied shall not apply to:

* 7 *

Storage, use, or consumption of aircraft.

(x) The storage, use, or consumption of any aircraft

owned or used by a domestic passenger air carrier

App. 53

operating under a certificate issued by the civil

aeronautics board pursuant to section 401 of title IV of

the federal aviation act of 1958, 49 U.S.C. 1371, if the

aircraft is used primarily in the regularly scheduled

commercial transport of passengers.

App. 54

MICHIGAN DEPARTMENT OF

TREASURY LETTER RULING 89-48

89-48. Interstate Versus Intrastate Rolling Stock

You inquire regarding the taxability of rolling stock

purchased out of state and placed into interstate

commerce outside of Michigan. The vehicles

subsequently are converted to use in intrastate commerce

in Michigan.

In Complete Auto Transit, Inc. v. Charles R. Brady, Jr., 430

US 274 (1977), the United States Supreme Court rejected

the view that the states cannot tax interstate commerce

but did impose limits on state taxation of interstate

commerce. In Complete Auto Transit, the Court determined

that a state’s tax would be constitutionally valid provided

it meets the following four-prong test:

1. It applies to an activity with a substantial

nexus within the taxing state,

2. it is fairly apportioned,

3. it does not discriminate against interstate

commerce, and

4. itis fairly related to the services provided by

the state.

Using the four prong test, the following conclusions can

be made:

1. In the instant case, the taxpayer clearly has

substantial nexus with Michigan due to its

intrastate trucking activity. _

2. The Michigan use tax is fairly apportioned.

No other state will tax the vehicles as the

use is entirely within Michigan.

App. 55

3. The Michigan use tax does not discriminate

against interstate commerce because the

property has become a part of the mass of

property within this state.

4. The taxpayer receives the benefits of

services such as police and fire protection,

-and particularly use of the roads in this

state.

It appears that all four prongs of the Complete Auto Transit

test are satisfied under the facts you present. Therefore, it

is the Department's position that rolling stock purchased

and placed into interstate commerce in another state but

subsequently converted to intrastate commerce in

Michigan is subject to use tax at the time of conversion.

See MCL 205.91 et seq.

August 15, 1989 Louis W. Duncan

LR 89-48 Acting Commissioner of

Revenue

App. 56

STATE OF MICHIGAN

COURT OF CLAIMS

ZANTOP INTERNATIONAL

AIRLINES, INC.,

Plaintiff,

REVENUE DIVISION,

DEPARTMENT OF TREASURY,

STATE OF MICHIGAN,

Defendant.

Patrick R. Van Tiflin (P26119)

Michele L. Halloran (P29973)

Attorneys for Plaintiff

HOWARD & HOWARD

The Phoenix Building, Suite 500

222 Washington Square, North

Lansing, MI 48933

(517) 485-1483

Daniel M. Greenberg (P28843)

Assistant Attorney General

Attorney for Defendant

First Floor, Treasury Building

Lansing, MI 48922

(517) 373-3203

Docket No.

91-13365-CM

Hon. Thomas L.

Brown

PARTIAL STIPULATION OF FACTS

NOW COME Zantop International Airlines, Inc., the

Plaintiff herein, by and through its attorneys, Howard &

App. 57

Howard Attorneys, P.C., and the Revenue Division,

Department of Treasury, state of Michigan, by and

through its attorneys, Frank J. Kelley, Attorney General,

and Russell E. Prins and Daniel M. Greenberg, Assistant

Attorneys General, and present the following partial stip-

ulation of facts in the above-captioned matter, which

partial stipulation may be supplemented by evidence

adduced at trial:

1. Plaintiff is a Michigan corporation with its Michi-

gan office located at Willow Run Airport in Ypsilanti,

Michigan.

2. Defendant, the Revenue Division, Department of

Treasury, state of Michigan, is the statutorily-designated

collection agent for the Michigan use tax imposed by 1937

PA 94, as amended, MCL 205.91 et seq.; MSA 7.555(1) et

seq.

3. The taxes involved in this matter are Michigan

use taxes for the period beginning October 1, 1986 and

ending March 31, 1990.

4. Subsequent to an audit, on March 11, 1991,

Defendant issued to Plaintiff Bill for Taxes Due (Final

Assessment) E763576 for Michigan use tax in the amount

of $541,329, penalty in the amount of $54,134, and interest

in the amount of $161,812.72, a total alleged liability of

$757,725.72.

5. On April 8, 1991, Plaintiff paid to Defendant

under protest the entire amount of tax, penalty and inter-

est claimed by Defendant to be due under Bill for Taxes

Due (Final Assessment) E763576.

App. 58

6. Throughout the audit period, Plaintiff operated a

fleet of aircraft in an air freight delivery business it

conducts in interstate commerce.

7. The use tax assessed relates in part to Plaintiff's

acquisition of aircraft parts, including engines, com-

pressors and propellers, and components of engines,

compressors, and propellers, which are required by the

Federal Aviation Administration (FAA) to be periodically

removed from the aircraft and repaired, replaced or over-

hauled.

8. After they are removed from Plaintiff’s aircraft,

the parts which require repair or overhaul are sent to

repair shops located outside of Michigan for the requisite

work, and are then returned to Michigan for installation

on Plaintiff’s aircraft.

9. Throughout the audit period, Plaintiff, motivated

by the financial expediency of avoiding an excessive

investment of working capital in idle parts, adhered to a

system which was intended to align as closely as possible

the date upon which repaired or overhauled parts were

delivered to Plaintiff’s location in Ypsilanti to the date

upon which the parts were installed on Plaintiff’s aircraft.

10. The state of Michigan did not seek to impose a

tax with respect to Plaintiff’s cargo aircraft for the audit

period in issue under the Michigan Sales Tax Act, 1933 PA

167, as ameded, MCL 205.51 et seg.; MSA 7.521 et seq., or

the Michigan Use Tax Act, 1937 PA 94, as amended, MCL

205.91 et seg.; MSA 7.555(1) et seq.

11. During the audit period, Plaintiff, in the conduct

of the freight transport business it operated in interstate

App. 59

commerce, did not engage in any wholly intrastate

flights, except for approximately ten flights which were

mandated by the Federal Aviation Administration to

assure the governmental agency that Plaintiff’s pilots

were equipped with the technical expertise to fly Plain-

tiff’s aging fleet.

12. During the audit period, Plaintiff conducted its

air freight delivery business between 45 to 50 airports

within the United States.

13. During the audit period, Plaintiff maintained

two facilities for major aircraft repair, one at Willow Run

airport in Ypsilanti, Michigan, the other in Macon, Geor-

gia.

14. During the audit period, Plaintiff undertook

numerous interstate flights to and from its airport facility

in Ypsilanti, Michigan.

15. Plaintiff has not paid a sales or use tax with

respect to any of the parts taxed pursuant to Bill For

Taxes Due (Final Assessment) E763576 (as paid under

protest by Plaintiff) to any state other than Michigan.

16. For the calendar years 1987, 1988 and 1989,

Plaintiff had the following numbers of full-time system

employees:

Year Full-Time System Employees

1987 1,663

1988 1,517

1989 1,398

App. 60

For the calendar years 1987, 1988 and 1989, Plaintiff had

the following numbers of full-time employees assigned to

work locations in Michigan:

Year - Michigan Location Employees

1987 812

1988 750

1989 645

Respectfully submitted,

HOWARD & HOWARD

Attorneys for Plaintiff

Dated: February 25, 1992

By: /s/ Michele L. Halloran

Patrick R. Van Tiflin

(P26119)

Michele L. Halloran

(P29973)

FRANK J. KELLEY

Attorney General

Russell E. Prins (P19110)

Daniel M. Greenberg (P28843)

Dated: February 25, 1992

By: /s/ Daniel M. Greenberg

Daniel M. Greenberg

Assistant Attorney General

Attorney for Defendant

App. 61

STATE OF MICHIGAN

IN THE COURT OF CLAIMS

ZANTOP INTERNATIONAL

AIRLINES, INC., Case No.

Plaintiff, 91-13365-CM

~ HON. THOMAS L.

BROWN

REVENUE DIVISION,

DEPARTMENT OF TREASURY,

STATE OF MICHIGAN,

Defendant.

Patrick R. Van Tiflin (P26119)

Daniel L. Stanley (P57052)

HONIGMAN MILLER

SCHWARTZ AND COHN

Attorneys for Plaintiff

The Phoenix Building

222 N. Washington Square,

Suite 400

Lansing, MI 48933

517/377-0702

ROSS H. BISHOP (P25973)

Assistant Attorney General

Attorney for Defendant

First Floor, Treasury Building

Lansing, MI 48922

517/373-3203

PARTIAL STIPULATION OF FACTS

The parties stipulate to the following facts:

App. 62

1. Plaintiff and Defendant stipulate to the accuracy

of the content of Exhibit 5. This exhibit summarizes infor-

mation contained in Aircraft Activity Reports and reports

submitted to the U.S. Department of Transportation by

Plaintiff regarding the use of Plaintiff’s aircraft for calen-

dar years 1986 through 1990.

2. The parties, by entering into this stipulation of

facts, are not precluded from asserting facts that are not

inconsistent with the facts set forth above or from enter-

ing into additional! stipulations.

HONIGMAN, MILLER, SCHWARTZ

AND COHN, Attorneys for Plaintiff

By: /s/ Patrick R. Van Tiflin (P26119)

Dated: 10-15-98

FRANK J. KELLEY, Attorney General,

Attorney for Defendant

By: /s/ Ross H. Bishop

Ross H. Bishop (P25973)

Assistant Attorney General

Dated: 10-26-98

App. 63

ZANTOP INTERNATIONAL AIRLINES, INC.

MICHIGAN INTRASTATE STATISTICS

TOTAL FOR

1986 1987 1988 1989 1990 5 YEAR PERIOD

MICHIGAN INTRASTATE FLIGHT MILES: 1444 1,696 3,304 1.202 1,233 8.879

TOTAL FLIGHT MILES: 12,157,499 12,964,282 9,491,870 7,248,077 8,609,826 50,471,554

RATIO: 0.0001 0.0001 0.0003 0.0002 0.0001 0.0002

MICHIGAN INTRASTATE AIRBORNE HOURS: 11.9 16.2 20.1 11.4 16.9 76.5

TOTAL AIRBORNE HOURS: 41,421 42,728 33,684 26,224 31,432 175,489

RATIO: 0.0003 0.0004 0.0006 0.0004 0.0005 0.0004

MICHIGAN INTRASTATE DEPARTURES AND ARRIVALS: 88 80 96 58 80 402

TOTAL DEPARTURES AND ARRIVALS: 50,990 50,810 36,470 31,952 39,598 209,820

RATIO: 0.0017 0.0016 0.0026 0.0018 0.002 0.0019

TOTAL COMPANY WIDE DEPARTURES: 25,495 25,405 18,235 15,976 19,799 104,910

MICHIGAN INTRASTATE DEPARTURES: 44 40 48 29 40 201

TOTAL DEPARTURES LESS MI INSTRASTATE DEPARTURES: 25,451 23,365 18,187 15,947 19,759 104,709

AIRCRAFT ON HAND AT DECEMBER 31: 44 43 36 34 31

AVERAGE NUMBER OF NON MICHIGAN 16 16 14 13 17

DEPARTURES PER DAY PER AIRCRAFT:

SOURCES:

MICHIGAN INTRASTATE DATA: ZANTOP INTERNATIONAL AIRLINES, INC. AIRCRAFT ACTIVITY REPORT CRP492

TOTAL SYSTEM DATA: U.S. DEPT. OF TRANSPORTATION R.S.P.A. FORM 41, SCHEDULE T-8.

App. 64

[LOGO] House Legislative Analysis Section

650 Roosevelt Building

Phone: 517/373-6466

NO USE TAX ON SIMMONS AIRCRAFT

HOUSE BILL 5801 with committee amendments First

Analysis (11-20-84)

Sponsor: Rep. Dominic Jacobetti

Committee: Taxation

THE APPARENT PROBLEM:

Due to the vagaries of federal and state laws, an airline

must pay the Michigan use tax on its aircraft only if it

introduces the planes into service here. Simmons is the

only regularly scheduled interstate airline whose head-

quarters are in Michigan, and prepares its planes for

service in Marquette. In or‘’*r to avoid being the only

airline in the country liable for the Michigan use tax,

Simmons must undergo the inconvenience and expense

of flying its new planes from company headquarters to an

airport outside the state for introduction into interstate

service. The company suggests that requiring it to pay the

tax when no other airline must is unfair to a Michigan

business, and discourages the establishment of other air-

lines here.

THE CONTENT OF THE BILL:

The bill would exempt from the use tax the storage, use,

or consumption of any aircraft owned or used by a

domestic passenger carrier operating under a certificate

issued by the Civil Aeronautics Board if the aircraft is

App. 65

used primarily in the regularly scheduled commercial

transportation of passengers.

FISCAL IMPLICATIONS:

According to the Department of Treasury, the bill would

cost the state nothing, since Simmons already avoids the

tax by introducing its planes into service outside the

state.

ARGUMENTS:

For:

The bill would, be exempting aircraft used by regularly

scheduled airlines from the use tax, remove potential

liability and present inconvenience for Simmons airlines

and encourage the establishing of other commercial car-

riers in Michigan.

POSITIONS:

Simmons Airlines supports the bill. (11-14-84)

The Department of Treasury does not oppose the bill.

(11-14-84)

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.