Flying Tiger Line, Inc. v. County of Los Angeles , 51 Cal. 2d 314 ( 1958 )

TRAYNOR, J.

I dissent.

Migratory property not subject to taxation elsewhere remains taxable at the owner’s domicile, for otherwise it would escape taxation altogether. (New York Central & H. R. Co. v. Miller, 202 U.S. 584, 597 [26 S.Ct. 714, 50 L.Ed. 1155]; Southern Pac. Co. v. Kentucky, 222 U.S. 63, 69, 73 [32 S.Ct. 13, 56 L.Ed. 96] ; Northwest Airlines, Inc. v. Minnesota, 322 U.S. 292, 294 [64 S.Ct. 950, 88 L.Ed. 1283,153 A.L.R. 245] ; Braniff Airways, Inc. v. Nebraska State Board of Eq. &A., 347 U.S. 590, 602 [74 S.Ct. 757, 98 L.Ed. 967]; Olson v. City & County of San Francisco, 148 Cal. 80, 83, 84 [82 P. 850, 113 Am.St.Rep. 191, 7 Ann.Cas. 443, 2 L.R.A. 197] ; California Shipping Co. v. City & County of San Francisco, 150 Cal. 145, 146 [88 P. 704].) To the extent that the property is taxable elsewhere it cannot be taxed by the domiciliary state, for otherwise it would be subject to multiple burdens in violation of the commerce clause. (Standard Oil Co. v. Peck, 342 U.S. 382, 385 [72 S.Ct. 309, 96 L.Ed. 427, 26 A.L.R.2d 1371] ; Western Live Stock v. Bureau of Revenue, 303 U.S. 250, 255-256 [58 S.Ct. 546, 82 L.Ed. 823, 115 A.L.R. 944].) Random excursions of migratory property into a state do not render the property taxable there, but if there is habitual use of such property in a state, the average amount thus habitually used is taxable there, even though the specific items are not continuously the same. (American Refrigerator Transit Co. v. Hall, 174 U.S. 70, 82 [19 S.Ct. 599," 43 L.Ed. 899]; Johnson Oil Ref. Co. v. Oklahoma, 290 U.S. 158, 162 [54 S.Ct. 152, 78 L.Ed. 238].)

Under the foregoing rules defendants are not precluded from taxing the aircraft in question except to the extent that they are taxable elsewhere. The majority opinion, however, is at odds with these rules in holding that the county must limit the tax on the aircraft according to the time they are physically present in the county, even if they are not taxable elsewhere.

The county board of equalization ivas likewise at odds with these rules in deciding that the aircraft were taxable on their full value at the commercial domicile¹ on the ground that apportionment of the tax was not required as a matter of law since the aircraft were not flown on a schedule. The board’s failure to determine whether or not any part of the property had acquired a taxable situs elsewhere was error, for defendants' power to tax is diminished accordingly if the property has acquired a taxable situs elsewhere (Standard Oil Co. v. Peck, supra, 342 U.S. 382, 384), whether or not other jurisdictions elect to assert their taxing power. (Johnson Oil Ref. Co. v. Oklahoma, 290 U.S. 158, 162 [54 S.Ct. 152, 78 L.Ed. 238].) Even migratory property that does not travel on a schedule may become subject to taxation in other jurisdictions.

It cannot be assumed, however, that the aircraft had acquired a taxable situs elsewhere merely because they were absent from Los Angeles County a large part of the time. No such assumption is supported by Standard Oil Co. v. Peck, supra, 342 U.S. 382, invoked by the majority opinion. The court there struck down an unapportioned tax imposed by the domiciliary state on oil barges that traveled the inland waters of the Mississippi and Ohio Rivers. It reasoned that river craft almost continuously within other states were subject to the taxing jurisdiction of those states, and a tax by the domiciliary state on their full value would result in “multiple taxation of interstate operations and the tax would have no relation to the opportunities, benefits, or protection which the taxing state gives those operations.’’ Barges that navigate interstate waterways ordinarily acquire more than one taxable situs along their course. In contrast, aircraft navigating the sky ordinarily do not acquire any other taxable situs along their course. (See concurring opinion of Jackson, J. in Northwest Airlines, Inc. v. Minnesota, supra, 322 U.S. 292, 304.) The domicile is therefore free to tax all such aircraft so long as there is no showing that they have maintained sufficiently regular, recurrent physical and business contacts with other jurisdictions that would accordingly subject them to taxation there. (Braniff Airways, Inc. v. Nebraska State Board of Eq. & A., 347 U.S. 590, 600-602 [74 S.Ct. 757, 98 L.Bd. 967]; New York Central & H. R. Co. v. Miller, supra, 202 U.S. 584, 597 [26 S.Ct. 714, 50 L.Bd. 1155].)

Since the board erroneously failed to determine whether any part of the property had acquired a taxable situs elsewhere, the case should be remanded to it for a redetermination of the tax on the basis of the evidence submitted at hearings before it.² (Universal Consolidated Oil Co. v. Byram, 25 Cal.2d 353, 362 [153 P.2d 746].)

If the evidence then showed that the aircraft were not subject to taxation elsewhere, the county would be free to tax them on the basis of their full value. (Southern Pac. Co. v. Kentucky, supra, 222 U.S. 63; New York Central & H. R. Co. v. Miller, supra, 202 U.S. 584; Northwest Airlines, Inc. v. Minnesota, supra, 322 U.S. 292, 298; Braniff Airways, Inc. v. Nebraska State Board of Eq. & A., supra, 347 U.S. at 602.) If, however, the evidence showed that the property had acquired a taxable situs elsewhere, the county would have to forego taxation to the extent that other jurisdictions had acquired the power to impose an apportioned tax. “The rule which permits taxation by two or more states on an apportionment basis precludes taxation of all of the property by the state of domicile.” (Standard Oil Co. v. Peck, supra, 342 U.S. at 384.) The board would then be compelled to apportion the tax on a basis realistic enough to preclude due process and commerce clause objections. The formula upheld in the Braniff case, supra, exemplifies what can be done in this regard. It encompassed such realistic factors as arrivals and departures, revenue tons handled by the carrier, and originating revenue.³ While not exhaustive, these solid contacts with the state reflect the ‘ ‘ opportunities, benefits or protection conferred or afforded by the taxing state” (Ott v. Mississippi Valley Barge Line, 336 U.S. 169, 174 [69 S.Ct. 432, 93 L.Ed. 585]), and the factors that contribute to the value of the property. Moreover, such a combination is apt to insure a fairness to both taxpayer and taxing authority that a single factor not counterbalanced by others does not afford. Indeed a single factor formula, such as that of physical presence compelled by the majority opinion, may be highly arbitrary. Suppose that Airline “A” flies nonstop between New York and Los Angeles, that the aircraft are physically present in New York 10 per cent of the time and in Los Angeles 30 per cent of the time, and in the air the rest of the time. Under the majority view, the aircraft would be subject to tax on 10 per cent of their value in New York and on 30 per cent in California; 60 per cent of their value would escape taxation altogether. Yet an Airline “B,” flying exclusively between Los Angeles and San Francisco would be subject to full taxation in California. Such a single factor formula leads to still more capricious results in a case like the present one of aircraft that travel over the high seas where they have no taxable contacts with any other jurisdiction. The arbitrariness of such a formula arises from the inclusion therein of “bridge time,” i.e. the time the aircraft are in the air and afford no state jurisdiction to tax, and the time they are in jurisdictions on random excursions that do not render them taxable there. If physical presence is used as the formula of apportionment or as one of the factors in the formula, certainly “bridge time” and the time spent in such random excursions should be excluded entirely from the formula, and the total time used should be only the time spent in jurisdictions where the property is taxable.

The perennial contention arises that there is always danger of multiple taxation latent in the possibility that different states would evolve different formulas of apportionment. It bears noting therefore that no court has found such a danger serious enough to invalidate an apportionment that reasonably reflects the opportunities, benefits and protection afforded by the taxing state.

Gibson, C. J., and Spence, J., concurred.

Appellants’ petition for a rehearing was denied January 14, 1959. Gibson, C. J., Traynor, J., and Spence, J., were of the opinion that the petition should be granted.

1 Although the state of incorporation is regarded as the legal domicile of a corporation, its domicile for tax purposes is its principal place of business or headquarters. Thus, the “commercial domicile” rather than the state of incorporation is given the power to tax intangible property of the corporation on the ground that “it is there that the owner in every practical sense realizes the economic advantages of his ownership.” (First Bank Stock Corp. v. Minnesota, 301 U.S. 234, 241 [57 S.Ct. 677, 81 L.Ed. 1061, 113 A.L.R. 228]; see Wheeling Steel Corp. v. Fox, 298 U.S. 193 [56 S.Ct. 773, 80 L.Ed. 1143]; Southern Pac. Co. v. McColgan, 68 Cal.App.2d 48 [156 P.2d 81]; Pacific Western Oil Corp. v. Franchise Tax Board, 136 Cal.App.2d 794 [289 P.2d 287].) Although plaintiff is incorporated in the state of Delaware, its principal place of business, the home port of its planes, and its repair terminal are all located in the County of Los Angeles. Its aircraft habitually return to their California headquarters.

2 " [T]he proper procedure upon the failure of an administrative board to give a hearing under appropriate circumstances is to remand the case to the board for proper proceedings. (Citations.) The policy underlying such a rule is that the determination of the issues should first be made by the administrative agency. It is given jurisdiction for that purpose, and interference with that jurisdiction should not be permittted until it has been pursued to the point of exhaustion.” (Steen v. City of Los Angeles, 31 Cal.2d 542, 546 [190 P.2d 937].) Although the term of a board of equalization is limited by statute (Bev. & Tax. Code, § 1603), "that provision is directory only and does not deflect from the statutory scheme that the authorized tribunal pass upon matters properly within its jurisdiction though in the completion of its work it must act at a time beyond the prescribed period.” (Universal Consolidated Oil Co. v. Byram, 25 Cal.2d 353, 362-363 [153 P.2d 746].)

3 ‘‘ ‘The proportion of flight equipment allocated to this state for purposes of taxation shall be the arithmetical average of the following three ratios: (1) The ratio which the aircraft arrivals and departures within this state scheduled by such air carrier during the preceding calendar year bears to the total aircraft arrivals and departures within and without this state scheduled by such carrier during the same period; Provided, that in the ease of nonscheduled operations all arrivals and departures shall be substituted for scheduled arrivals and departures; (2) the ratio which the revenue tons handled by such air carrier at airports within this state during the preceding calendar year bears to the total revenue tons and handled by such carrier at airports within and without this state during the same period; and (3) the ratio which such air carrier’s originating revenue within this state for the preceding calendar year bears to the total originating revenue of such carrier within and without this state for the same period.’ ” (Braniff Airways, Inc. v. Nebraska State Board of Bq. A., supra, 347 U.S. at 593.) This is the formula of the “ ‘proposed uniform statute to provide for an equitable method of state taxation of air carriers’ adopted by The Council of State Governments upon the recommendation of the National Association of Tax Administrators in 1947.” (Ibid.)