88 Hawai'i 336, Kamikawa v. United Parcel Service, Inc.

• Citation: 966 P.2d 648
• Decision Date: 29 October 1998
• Docket Number: No. 21467,21467
• Parties: 88 Hawai'i 336 In the Matter of the Tax Appeal of Ray K. KAMIKAWA, Director of Taxation, State of Hawai'i, Appellant, v. UNITED PARCEL SERVICE, INC., Appellee.
• Court: Supreme Court of Hawai'i

Page 648

966 P.2d 648

88 Hawai'i 336

In the Matter of the Tax Appeal of Ray K. KAMIKAWA, Director

of Taxation, State of Hawai'i, Appellant, v. UNITED PARCEL SERVICE, INC., Appellee.

No. 21467

Supreme Court of Hawai'i.

Oct. 29, 1998.

Josephine L. Chang and Girard D. Lau, Deputy Attorneys General, on the briefs, for Appellant.

Richard R. Clifton and Patrick W. Hanifin (of Cades Schutte Fleming & Wright), Honolulu and Richard D. Birns and Madeleine Sann (of Philadelphia, PA), on the briefs, for Appellee.

Before MOON, C.J., and KLEIN, LEVINSON, NAKAYAMA, and RAMIL, JJ.

MOON, Chief Justice.

This appeal arises from the Tax Appeal Court's order granting Appellee United Parcel Service's [hereinafter, UPS] Motion for Summary Judgment and denying Appellant Ray K. Kamikawa, Director of Taxation, State of Hawaii's [hereinafter, Kamikawa or State] Motion for Summary Judgment. The issue presented in this appeal is whether the Federal Aviation Act (FAA), which regulates "air transportation," preempts Hawai'i Revised Statute (HRS) § 239-6 (1976)--Hawaii's Public Service Company (PSC) tax statute ¹--as it applies to the gross receipts that are attributable to the ground transportation of packages that UPS transports interisland and/or between Hawai'i and the mainland United States.

Specifically, on appeal, Kamikawa contends that the Tax Appeal Court's order granting UPS's motion for summary judgment and denying his motion for summary judgment should be reversed for the following reasons: (1) the revenues received by UPS in the instant matter are derived from the sale of "ground transportation," and not "air transportation" as defined by 49 U.S.C. § 1301 [now codified at 49 U.S.C. § 40102]; and (2) the tax appeal court erred in concluding as a matter of law that, as applied, 49 U.S.C. § 1513 [now codified at 49 U.S.C. § 40116] preempts the PSC tax as it applies to UPS's gross receipts derived from the ground portion of its air package service.

Because Kamikawa is correct in each of these contentions, we vacate the decision of the Tax Appeal Court and remand with instructions that the Tax Appeal Court enter summary judgment in favor of Kamikawa.

I. BACKGROUND

UPS is a specialized common carrier offering an integrated air and ground transportation service for small packages. ² UPS provides door-to-door transportation of packages from the premises of its customers to the premises of the recipients of those packages. UPS ships packages intraisland, interisland, and to or from the mainland United States. UPS charges customers for all services--air and ground transportation--on one bill.

UPS began operating in Hawai'i in 1977. From 1977 to 1984, service was confined to O'ahu and consisted of (1) transportation of packages between points on O'ahu and (2) transportation of packages between O'ahu and the mainland. In June 1984, UPS extended service to the other Hawaiian islands. Based on the service it provided during these years, UPS filed PSC tax returns in which it reported (1) gross receipts derived from the intraisland (i.e., entirely "ground") packages and (2) gross receipts derived from "air packages," which includes partly air and partly ground transportation.

On November 1, 1983, the United States Supreme Court, in Aloha Airlines v. Director of Taxation, 464 U.S. 7, 104 S.Ct. 291, 78 L.Ed.2d 10 (1983), held that the FAA, 49 U.S.C. § 1513, preempts Hawaii's PSC tax insofar as it applies to gross receipts derived from "air transportation." Thereafter, on June 15, 1984, UPS filed an amended PSC tax return for the years 1977 through 1983, claiming a refund of all PSC taxes it had paid with respect to the "ground portion of gross receipts from air packages." In addition to its refund claim, UPS paid PSC taxes for 1984 based on gross receipts from intraisland packages, but paid no tax on any portion of gross receipts from packages it transported between points on different islands and between points in Hawai'i and the mainland. The State denied UPS's claims for a refund on the ground that 49 U.S.C. § 1513 does not preempt Hawaii's power to tax the gross receipts from the ground transportation portion of air packages.

Thereafter, on October 29, 1984, UPS filed a "Notice of Appeal to Tax Appeal Court from Assessor" (notice of appeal), appealing the State's assessment of Hawai'i PSC taxes, pursuant to HRS § 239-6, for the tax years 1977 through 1984. UPS conceded before the Tax Appeal Court that it had failed to file its refund claim within the three-year statute of limitations provided in HRS §§ 239-7 and 235-111(a) (1976); therefore, only UPS's refund claims for 1981 through 1983 and the State's PSC tax assessment for 1984 are before this court. Further, because it agreed that Hawai'i may assess PSC taxes on purely "ground transportation," UPS only appealed the State's taxation of gross receipts attributable to the ground transportation portion of air packages that travel interisland and/or between Hawai'i and the mainland United States.

On June 30, 1989, UPS filed a motion for summary judgment, and, on December 22, 1989, the parties stipulated to continue the hearing on UPS's motion "until further moved on by either party in order to allow discovery to be completed in this case." On April 16, 1997, the Tax Appeal Court gave notice to the parties that it would dismiss the case with prejudice for want of prosecution unless the parties objected and showed good cause why the case should not be dismissed. Upon UPS's objection showing good cause, the Tax Appeal Court scheduled the case for trial.

Thereafter, on December 12, 1997, UPS withdrew its June 30, 1989 motion for summary judgment, and the parties filed cross-motions for summary judgment. The Tax Appeal Court held oral argument on January 13, 1998. On January 28, 1998, the Tax Appeal Court entered an order granting UPS's motion for summary judgment and denying Kamikawa's cross-motion for summary judgment.

Following entry of final judgment on March 6, 1998, Kamikawa timely appealed.

II. STANDARD OF REVIEW

This court reviews an award of summary judgment de novo, under the same standards applied by the trial court. Therefore, "[s]ummary judgment is appropriate if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Crompton v. Tern Corp., 83 Hawai'i 1, 6, 924 P.2d 169, 174 (1996) (emphasis and brackets in original) (citation omitted).

Where, as here, the appeal is from the Tax Appeal Court, it is well settled that, in reviewing the findings of fact, "a presumption arises favoring its actions which should not be overturned without good and sufficient reason. The appellant has the burden of showing that the decision of the Tax Appeal Court was 'clearly erroneous.' " Weinberg v. City and County of Honolulu, 82 Hawai'i 317, 322, 922 P.2d 371, 377 (1996) (citation omitted). Inasmuch as the facts here are undisputed and the sole question is one of law, we review the decision of the Tax Appeal Court "under the right/wrong standard." Id. III. DISCUSSION

The dispositive issue on appeal is whether the ground transportation portion of air packages that UPS transports interisland and/or between Hawai'i and the mainland constitutes non-taxable "air transportation" under the FAA. The short answer is it does not.

As explained below, we agree that the FAA preempts Hawaii's PSC tax on revenues derived from "air transportation." We hold, however, that the Tax Appeal Court erred when it concluded that "the revenues received by UPS in the instant matter are derived from the sale of 'air transportation.' " Consequently, we further hold that the State may assess PSC taxes on the gross receipts that UPS receives for the ground transportation portion of air packages that travel interisland and/or between Hawai'i and the mainland.

A. 49 U.S.C. § 1513 ³ Preempts HRS § 239-6 Insofar As It Assesses Taxes On "Air Transportation."

UPS attempts to rely on the United States Supreme Court's decision in Aloha Airlines v. Director of Taxation, 464 U.S. 7, 104 S.Ct. 291, 78 L.Ed.2d 10 (1983), for the proposition that the FAA, 49 U.S.C. § 1513, preempts Hawaii's PSC tax on the ground portion of gross receipts from air packages. This argument lacks merit.

In Aloha Airlines, the Supreme Court addressed the issue of whether 49 U.S.C. § 1513(a) preempted HRS § 239-6 as it applied to the gross income of airlines operating within the state. Specifically, the State assessed taxes against Aloha Airlines, Inc. and Hawaiian Airlines, Inc., as public service companies, under the following provision:

There shall be levied and assessed upon each airline a tax of four per cent of its gross income each year from the airline business[.] ... The tax imposed by this section is a means of taxing the personal property of the airline or other carrier, tangible and intangible, including going concern value, and is in lieu of the [general excise] tax imposed by chapter 237 but is not in lieu of any other tax.

HRS § 239-6. Aloha Airlines and Hawaiian Airlines "sought refunds for taxes assessed under this provision for the carriage of passengers between 1974 and 1977[, and between 1974 and 1978, respectively]." Aloha Airlines, 464 U.S. at 11, 104 S.Ct. 291 (emphasis added).

In a consolidated appeal following decisions in the Tax Appeal Court, this court held that 49 U.S.C. § 1513(a) did not preempt HRS § 239-6 as it applied to taxes assessed on gross receipts derived from the carriage of passengers. The United States Supreme Court reversed.

Concluding that we had failed to give effect to the plain meaning of section 1513(a), the Supreme Court held that section 1513(a) "proscribes the imposition of state and local taxes on gross receipts derived from air transportation or the carriage of persons in air commerce."...