Untitled Texas Attorney General Opinion ( 1974 )

April 22, 1974
The Honorable Giles E. Miller Opinion No. H- 281
Assistant District Attorney
Dallas County Re: Validity of apportionment
6th Floor Records Building formula used by Board of Equali-
Dallas, Texas 15202 zation to determine taxable value
of airline flight equipment.
Dear Mr. Miller:
You have asked our opinion as to the validity of the apportionment
formula used by the Dallas County Board of Equalization in taxing the
flight equipment of interstate air carriers.
Pursuant to statutory authority, Dallas County imposes an ad
valorem property tax on interstate air carriers residing within its borders.
Article 7153, V. T. C. S. The t:ax on flight equipment is computed under a
formula based on the percentage of miles flown within the state compared
to total miles flown both within and without the state.
Your question to us is whether it is correct for the Board of Equali-
zation to use this formula to the exclusion of any other. The answer is
not simple.
Article 1, Sec. 8 of the Constitution of the United States, in the so-
called Commerce Clause, grants to the Congress the power “To regulate
Commerce with foreign Nations, and among the several States, and with
the Indian Tribes. ” No tax laid by a state may unduly burden interstate
commerce. However, the fact that aircraft is used in interstate or foreign
commerce does not itself render it immune or exempt from non-discriminatory
local taxation. See Annotation,. 31 L. Ed. 2d 975 (1973) “Validity. under
Commerce Clause of Federal Constitution, of State Tolls or Taxes on,
or Affecting, Interstate or Foreign Air Carriers or Passengers. ”
p. 13d9
The Honorable Ciles E. Miller page 2 (H-281)
Aircraft engaged in foreign commerce are subject to the “home-port”
doctrine that originally held that a vessel engaged in foreign commerce,
plying international waters, could only be taxed by the jurisdiction of its
home port -its true domicile- and that the jurisdiction of such domicile
could tax on a full value basis. Scandinavian Airlines System, Inc. v.
County of Los Angeles, 363 P. 2d 25 (Cal. 1961) cert. den. 368 U.S. 899(1961).
The home port doctrine does not apply, however, to aircraft engaged
in interstate commerce. Braniff Airways, Inc. v. Nebraska State Board
of Equalization and Assessment, 347 U. S. 590 (1954). Nevertheless, a
similar doctrine was applied in Northwest Airlines, Inc. v. Minnesota,
322 U. S. 292 (1944) where the airline did not urge that it would or could
be taxed by jurisdictions other than that of its home port.
However, in determining the degree to which the flight equipment of
interstate airlines may be taxed, a distinction must be made between taxes
levied by the jurisdiction of the home port and those where the aircraft
merely touch down, at terminals along their routes - terminal jurisdiction.
Because airlines engaged in interstate commerce are subject to the
taxing jurisdiction of more than one state, the full value of their flight
equipment normally may not constitutionally be stijsctedb the property
tax by any one jurisdiction. In a long line of decisions, the Supreme Court
has held that, as a matter of due process, state taxes on interstate commerce
must be reasonably related to the opportunities, benefits, or protection which
the taxing state provides. Braniff Airways, Inc. v. Nebraska State Board -of
Equalization and Assessment, supra; Standard Oil Co. v, Peck, 342 U. S.
382 (1952); and Ott v. Mississippi Valley Barge Line Co., 336 U. S. 169(1949). The requirements of due process are satisfied if the state tax is
fairly apportioned to the commerce carried on within the state. Ott v.
Mississippi Valley Barge Line Co., 336 U. S. at 174. The rule that
requires taxation of interstate commerce by several states to be on an
apportioned basis in effect precludes taxation of the full value of an inter-
state business’ property by any one terminal jurisdiction. Standard Oil
Co. v. Peck, 342 U.S. at 384.
p. 1310
The Honorable Giles Miller, page 3 (H-281)
Texas has no uniform apportionment rule; the formula to be used
is within the discretion of the local taxing authority. Attorney General
Opinion WW-818 (1960). All that is required is that the formula selected
comport with the traditional requirements of due process, e. g. that it
be reasonably related to the opportunities, benefits, or protection con-
ferred or afforded by the taxing state. Ott v. Missisrippi Valley Barge
Line Co., 336 U.S. at 174. In Greyhound Lines, Inc. v. Board of
Equalization, 419 S. W. 2d 345 (Tex. 1967). the Texas Supreme Court
had occasion to consider the validity of an apportionment formula based
on mileage travelled within the state as applied to the property of an
interstate bus company. The Court held that such a formula fully satis-
fied all federal due process requirements and approved its use by the
Board. Greyhound Lines, supra at 352. But while an apportionment
formula based on mileage travelled within the state is properly applicable
to interstate bus companies engaged in surface travel, its applicability
to air travel has raised some question. See Pan American World Airways,
Inc. v. Virgin Islands, 315 F. Supp. 74b (D. C., Virgin Is. 1970) and _~
Flying Tiger Line v. County of Los Angeles, 333P. 2d 323 (Cal. 1959)
(dissenting opinion). All miles logged by an interstate bus company are
presumably subject to tax in some jurisdiction. The miles flown by an
interstate airline are not necessarily all subject to tax in some jurisdic-
tion, however, because the mere use of air space over neighboring states,
without more, is insufficient contact to support taxation by those states.
Braniff Airways, supra and Pan American World Airways, supra.If each state having tax jurisdiction over an interstate airline were
to use an apportionment formula based on mileage flown within its borders,
then the percentage of that airline’s, property value corresponding to non-
taxable “bridge time” would escape taxation altogether. A taxing jurisdic-
tion which uses such a formula in effect foregoes the opportunity to tax
interstate air carriers to the fullest extent possible and in addition the
resulting tax may not be truly commensurate with the percentage of their
business done within the state.
This deficiency does not, however, render the Board’s use of such
a formula in taxing terminal interstate air carriers illegal or improper. An
I
i p. 1311
The Honorable Giles Miller page 4 (H-281)
apportionment formula based on mileage travelled within the state is
sufficiently related to the businers done by interstate air carriers within
the state to satisfy the due proce6s requirement6 of the federal and‘state
Constitution6.
However, the Texar Constitution goes further and hold6 that all
taxation must be uniform and equal. Article 8, Sec. 1, Texar Constitu-
tion. While taxation of aircraft owned by interrtate airline6 domiciled
elrewhere than Texa6, on the bar{6 presently ured by the Board of
Equalization, a6 set out in your letter, may satisfy thir requirement,
we doubt that it doe6 when, because of the inclusion of “bridge time” in
the formula, aircraft of Texas domiciled companies are taxed upon far
less than the value of their equipment. We believe the Texa6 Constitution
requires the adoption of a formula under which interstate aircraft owned
by Texae domiciled companies will be taxed at substantially full value
when the taxation by other jurisdictions is taken into consideration.
Otherwise intrastate aircraft, which can be taxed at 100% of their value
by the Texas county of their domicil6,would be unfairly and unequally
taxed.
You have not furnished us any fact6 concerning the actual application
of the formula employed by the Dallas Board. Therefore, we should not
be understood to hold that the apportionment based on mileage within the
state, even as to home-port aircraft, necessarily results in taxation which
is not uniform and equal. We do say. however, that the Board, as to all
aircraft, but particularly as to home-port aircraft which may not be taxed
elsewhere, has an affirmative duty to see that those aircraft and aircraft
used in intrastate commerce as well as those used solely in foreign com-
merce are taxed uniformly and equally.
SUMMARY
Taxation of aircraft engaged in interstate commerce
must be under a formula which bears some relationship
to the opportunities, benefits, or protection conferred
by the taxing state and which, as to aircraft owned by
p. 1312
The Honorable Giles Miller page 5 (H-281)
companies domiciled in Texa6, result6 at the
rame time in taxation which ie uniform and equal
when conrideririg aircraft used in intrastate com-
merce or solely in foreign commerce. A formula
based on miles travelled within the state may
6atisfy these requirement6 depending upon the factr.
Very truly your6,
Attorney General of Texas
kdTilcAc*
DAVID M. KENDALL, Chairman
Opinion Committee
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p. 1313
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