State ex rel. Arizona Dept. of Revenue v. Cochise Airlines, 1

• Decision Date: 26 December 1980
• Docket Number: CA-CIV,No. 1,1
• Citation: 626 P.2d 596,128 Ariz. 432
• Parties: STATE of Arizona ex rel., ARIZONA DEPARTMENT OF REVENUE, Plaintiff-Appellee, v. COCHISE AIRLINES, an Arizona corporation, Defendant-Appellant. 4589.
• Court: Arizona Court of Appeals

Page 596

626 P.2d 596

128 Ariz. 432

STATE of Arizona ex rel., ARIZONA DEPARTMENT OF REVENUE, Plaintiff-Appellee, v. COCHISE AIRLINES, an Arizona corporation, Defendant-Appellant.

No. 1 CA-CIV 4589.

Court of Appeals of Arizona, Division 1, Department A.

Dec. 26, 1980.

Rehearing Denied Feb. 24, 1981.

Review Denied March 24, 1981.

Robert K. Corbin, Atty. Gen., John A. LaSota, Jr., Former Atty. Gen., by Ian A. MacPherson, Asst. Atty. Gen., Phoenix, for plaintiff-appellee

Evans, Kitchel & Jenckes, P. C., by Dean C. Short, II, Phoenix, for defendant-appellant.

OPINION

WREN, Judge.

The single issue presented by this appeal is whether the appellant Cochise Airlines is liable to pay transaction privilege taxes imposed by A.R.S. §§ 42-1309 and 42-1310(2)(d) on its intrastate operations Cochise contends that the taxes are prohibited by the provisions of 49 U.S.C. § 1513, a portion of the Airport Development Acceleration Act of 1973 by which the Congress broadened federal monetary aid for airport development and prohibited certain forms of state taxation. The position of the State is that although the terms of the federal act are broad, 49 U.S.C. § 1513 was intended only to prohibit an airport "head tax" in any form and that under applicable standards of statutory construction, the subject Arizona transaction privilege tax was not prohibited. The State prevailed in the trial court. Insofar as the subject tax is imposed upon the carriage of persons, we reverse. Insofar as the tax is imposed upon the transportation of freight, we affirm and remand for a determination of the amount of appellant's liability.

Section 42-1309 provides, in pertinent part:

A. There is levied and there shall be collected by the commission for the purpose of raising public money to be used in liquidating the outstanding obligations of the state and county governments, to aid in defraying the necessary and ordinary expenses of the state and the counties, to reduce or eliminate the annual tax levy on property for state and county purposes, and to reduce the levy on property for public school education, annual privilege taxes measured by the amount or volume of business transacted by persons on account of their business activities, and in the amounts to be determined by the application of rates against values, gross proceeds of sales, or gross income, as the case may be, in accordance with the schedule as set forth in §§ 42-1310 through 42-1315.

A.R.S. § 42-1310(2)(d) provides pertinently:

§ 42-1310. Mining; timber; public utilities and carriers; contractors; newspapers and printing.

The tax imposed by subsection A of § 42-1309 shall be levied and collected at the following rates:

2. At an amount equal to one per cent of the gross proceeds of sales or gross income from the business upon every person engaging or continuing within this state in the following businesses:

(d) Transporting for hire freight or passengers by railroads or aircraft from one point to another point in the state.

Airport "head taxes" came into vogue in the early 1970's. The typical airport head tax was a flat charge (of perhaps $1.00) imposed by a municipality upon a person emplaning at an airport. The municipalities typically required the airline to collect the tax together with the fare paid by the passenger. A head tax was also sometimes collected from deplaning passengers. The basic principle of head taxes was constitutionally approved by the United States Supreme Court in Evansville-Vanderburgh Airport Authority District v. Delta Airlines, 405 U.S. 707, 92 S.Ct. 1349, 31 L.Ed.2d 620 (1972).

Subsections (a) and (b) of 49 U.S.C. § 1513 read as follows:

(a) No State (or political subdivision thereof, including the Commonwealth of Puerto Rico, the Virgin Islands, Guam, the District of Columbia, the territories or possessions of the United States or political agencies of two or more States) shall levy or collect a tax, fee, head charge, or other charge, directly or indirectly on persons traveling in air commerce or on the carriage of persons traveling in air commerce or on the sale of air transportation or on the gross receipts derived therefrom; except that any State (or political subdivision thereof, including the Commonwealth of Puerto Rico, the Virgin Islands, Guam, the District of Columbia, the territories or possessions of the United States or political agencies of two or more States) which levied a tax, fee, head charge, or other charge, directly or indirectly, on persons traveling in air commerce or on the carriage of persons traveling in air commerce or on the sale of air transportation or on the gross receipts derived therefrom prior to May 21, 1970, shall be exempt from the provisions of this subsection until December 31, 1973.

(b) Nothing in this section shall prohibit a State (or political subdivision thereof, including the Commonwealth of Puerto Rico, the Virgin Islands, Guam, the District of Columbia, the territories or possessions of the United States or political agencies of two or more States) from the levy or collection of taxes other than those enumerated in subsection (a) of this section, including property taxes, net income taxes, franchise taxes, and sales or use taxes on the sale of goods or services; and nothing in this section shall prohibit a State (or political subdivision thereof, including the Commonwealth of Puerto Rico, the Virgin Islands, Guam, the District of Columbia, the territories or possessions of the United States or political agencies of two or more States) owning or operating an airport from levying or collecting reasonable rental charges, landing fees, and other service charges from aircraft operators for the use of airport facilities.

Cochise Airlines is principally an intrastate airline with routes between various communities in Arizona. For the month of February, 1975, Cochise paid under protest the sum of $787.37 for transaction privilege taxes pursuant to A.R.S. § 42-1310(2)(d) and education excise taxes and special education excise taxes pursuant to A.R.S. §§ 42-1361 and 42-1371, respectively, the latter two taxes being "piggy-back" privilege taxes imposed and collected on the same basis as the basic transaction privilege tax. The State Board of Tax Appeals held that Cochise Airlines was not liable to pay the taxes. The State Department of Revenue appealed from the decision of the Board of Tax Appeals and the cause was submitted to the Superior Court on stipulated facts and cross-motions for summary judgment. The trial court held that the Arizona transaction privilege tax remained valid and that appellant was liable to pay the taxes. This appeal followed.

It should be noted at the outset that the State does not challenge the power of Congress to prohibit imposition of the subject privilege tax on appellant's intrastate operations if it so chooses. The only issue before the Court is whether the privilege tax falls within the prohibitory terms employed by Congress in subsection (a) of 49 U.S.C. § 1513, and the included, correlative question of whether the tax is permitted under the provisions of subsection (b).

The State has made a well-presented argument to the following effect: (1) that the basic Congressional intent was to eradicate only the "head tax", in any form; (2) that under the principles of noscitur a sociis and ejusdem generis, the Congressional prohibition should apply only to taxes "like the head tax", and not to an excise tax on the privilege of engaging in business which is measured by, rather than imposed upon, gross receipts of sales; (3) that by a proper and grammatical construction of subsection (a) of the act, the words "or on the gross receipts derived therefrom" relate back only to the immediately preceding phrase "on the sale of air transportation" and not to the prior preceding phrase "on the carriage of persons traveling in air commerce", the significance being that "air transportation" encompasses foreign and interstate commerce but not intrastate commerce, while the term "air commerce" encompasses any operation or navigation of an aircraft which directly affects, or which may endanger safety in, interstate or foreign air commerce (4) that the Arizona transaction privilege tax on Cochise Airlines is analogous in its effect to a sales tax, and sales taxes are explicitly excepted from the prohibition of subsection (a) by subsection (b).

After careful consideration of the State's position in this case, we find we must reject it. In our opinion, the plain terms of the federal act strike directly at the subject Arizona privilege tax, and leave no room for a construction which permits a tax on the business of carrying persons.

The crux of this controversy lies in the fact that the Arizona transaction privilege tax is essentially a tax upon the privilege of engaging in the business of transporting persons and freight, and 49 U.S.C. § 1513(a) expressly prohibits a State from levying or collecting a "tax, fee, head charge, or other charge, directly or indirectly, * * * on the carriage of persons travelling in air commerce * * *."

"Air commerce" is defined in 49 U.S.C. § 1301 as follows:

(4) 'Air Commerce' means interstate, overseas, or foreign air commerce or the transportation of mail by aircraft or any operation or navigation of aircraft within the limits of any Federal airway or any operation or navigation of aircraft which directly affects, or which may endanger safety in, interstate, overseas, or foreign air commerce.

"Air transportation", as indicated above, refers to interstate, overseas, or foreign air transportation or the transportation of mail by aircraft. 49 U.S.C. § 1301(10). Although the parties' stipulation of facts in the trial court does not state in so many words that Cochise Airlines is in "air commerce", it is clear from a reading of the briefs of the parties that there is no dispute over the fact that Cochise's operations are in "air commerce." Indeed, the thrust...