Aloha Airlines, Inc., Matter of

• Decision Date: 23 June 1982
• Docket Number: 7751,Nos. 7078,s. 7078
• Citation: 65 Haw. 1,647 P.2d 263
• Parties: In the Matter of the Tax Appeal of ALOHA AIRLINES, INC., Taxpayer-Appellant. In the Matter of the Tax Appeal of HAWAIIAN AIRLINES, INC., Taxpayer-Appellant.
• Court: Hawaii Supreme Court

Page 263

647 P.2d 263

65 Haw. 1

In the Matter of the Tax Appeal of ALOHA AIRLINES, INC. Taxpayer-Appellant. In the Matter of the Tax Appeal of HAWAIIAN AIRLINES, INC. Taxpayer-Appellant.

Nos. 7078, 7751.

Supreme Court of Hawai'i.

June 23, 1982.

Syllabus by the Court

1. Under the test favored by the United States Supreme Court, a state tax does not offend the Commerce Clause if it is applied to an activity with a substantial nexus with the taxing state, is fairly apportioned, does not discriminate against interstate commerce, and is fairly related to services provided by the state.

2. The Court customarily affords states wide latitude in imposing general revenue taxes, and there is no requirement under the Due Process Clause that the amount of general revenue taxes collected from a particular activity must be reasonably related to the value of the services provided to the activity. Moreover, this latitude is not divested by the Commerce Clause merely because the taxed activity has some connection to interstate commerce, particularly when the tax is levied on an activity conducted within the state.

3. It was never the purpose of the Commerce Clause to relieve those engaged in interstate commerce from their just share of the state tax burden even though it increases the cost of doing business. And this share of the burden includes sharing in the cost of benefits such as a trained work force and the advantages of a civilized society.

4. There is no unerring test to determine just when a provision of state law has been preempted by federal law.

5. The power of taxation is indispensable to the existence of state governments and is a power which, in its own nature, is capable of residing in, and being exercised by, different authorities at the same time. In this sense, it is like the police power.

6. The consideration of a state tax under the Supremacy Clause starts with the basic assumption that Congress did not intend to displace state law, because the historic powers of the states are not to be superseded unless that is the clear and manifest purpose of Congress.

7. A congressional intent to supplant state law may be evidenced in the following ways: (1) the scheme of federal regulation may be so pervasive as to make reasonable the inference that Congress left no room for states to supplement it; (2) the Act of Congress may touch a field in which the federal interest is so dominant that the federal system will be assumed to preclude enforcement of state laws on the same subject; (3) the object sought to be obtained by the federal law and the character of obligations imposed by it may reveal the same purpose; and (4) the state policy may produce a result inconsistent with the objective of the federal statute.

8. A state statute is void to the extent it conflicts with a federal statute if compliance with both federal and state regulations is a physical impossibility, or where the state law stands as an obstacle to the accomplishment and execution of the full purpose and objective of Congress.

9. What appears paradoxical in 49 U.S.C. § 1513 tells us that the federal taxation of air transportation was not meant to nullify all state and local taxes related thereto. The exemptions from the purview of § 1513(a) enumerated in 49 U.S.C. § 1513(b) indicate that the primary revenue sources of the states have been placed beyond the preemptive reach of § 1513(a).

10. The tax imposed by HRS § 239-6 has some attributes of a property tax. It avoids the difficulties encountered in ad valorem assessments of the property of utilities by substituting a tax upon gross income. And the formula prescribed in § 239-6 gives effect to the intangible factors which influence real values.

11. The State does not purport to regulate any aspect of air commerce pursuant to HRS § 239-6, which is a revenue measure in all respects. It does not conflict with a federal regulatory scheme; nor does it invade the particular area occupied by 26 U.S.C. §§ 4261 and 4271.

Hugh Shearer, Honolulu (H. Mitchell D'Olier, Honolulu, with him on briefs; Goodsill, Anderson & Quinn, Honolulu, of counsel), for taxpayer-appellant Hawaiian Airlines.

Richard L. Griffith and Michael A. Shea, Honolulu (Ralph B. Palmer, Honolulu, with them on opening brief; Roger H. Epstein, Honolulu, with them on reply brief; Cades, Schutte, Fleming & Wright, Honolulu, of counsel), for taxpayer-appellant Aloha Airlines.

Kevin T. Wakayama, Deputy Atty. Gen., Honolulu, for Director of Taxation-appellee.

Dirk D. Snel, Atty., U. S. Dept. of Justice, Washington, D.C. (Sanford Sagalkin, Acting

Asst. Atty. Gen., Peter R. Steenland, Atty., U. S. Dept. of Justice, Washington, D.C., and Walter M. Heen, U. S. Atty., Honolulu, on brief), for U. S. Dept. of Justice, amicus curiae.

Before RICHARDSON, C. J., LUM and NAKAMURA, JJ., MARUMOTO, Retired Justice in place of OGATA, J., disqualified, and MENOR, Retired Justice, assigned by reason of vacancy.

NAKAMURA, Justice.

Aloha Airlines, Inc. and Hawaiian Airlines, Inc. (hereafter Aloha and Hawaiian, respectively; the taxpayers, collectively) challenge the taxation of inter-island air carriers under the Public Service Company Tax Law, HRS Chapter 239, in these consolidated appeals from the Tax Appeal Court. They claim the assessment of a tax on the "gross income each year from the airline business" pursuant to HRS § 239-6 ¹ runs afoul of the federal constitution's Supremacy and Commerce Clauses ² because 49 U.S.C. § 1513 proscribes the levy of a tax premised on "the gross receipts derived" from air transportation. ³ We conclude the State tax in question, as applied to the taxpayers, has not been rendered unconstitutional by the foregoing federal legislation and affirm the Tax Court's decisions.

I.

Aloha and Hawaiian are Hawaii corporations engaged in the transportation of persons, property, and mail by air between terminal and intermediate points in Hawaii. Prior to the enactment of S.L.H. 1981, c. 167, they fell within the meaning of "Public service company" as the term was defined in HRS § 239-2 because a common carrier by air was deemed a public utility by HRS § 269-1. ⁴ See In re Tax Appeal of Aloha Airlines, Inc., 56 Haw. 626, 627, 547 P.2d 586, 587 (1976). Although the crucial federal statute was enacted in 1973 as part of the Airport Development Acceleration Act of 1973, the taxpayers nevertheless continued to file annual returns as required by HRS § 239-4 and to pay the tax as prescribed by HRS § 239-6 without question for several years thereafter. The taxpayers' present position on the invalidity of HRS § 239-6 as it applies to airlines was initially advanced in 1977 when Aloha filed amended returns for the 1973, 1974, and 1975 calendar years. Hawaiian sought no refund of the tax payments in question until 1978 when it submitted amended returns for 1973, 1974, 1975, and 1976. All claims for refunds were summarily disallowed by the State Director of Taxation (the Director). Aloha's return for 1976 and Hawaiian's return for 1977 reflected their present views regarding the unconstitutional nature of the Public Service Company Tax. The Director, however, ruled 49 U.S.C. § 1513 was "not applicable for Hawaii tax purpose," and assessments consistent with HRS § 239-6 were made. Timely appeals to the Tax Appeal Court from the Director's determinations on the refunds and assessments followed.

The appeals were submitted to the Tax Appeal Court for decision on stipulated facts and briefs filed by the taxpayers and the Director. Aloha and Hawaiian conceded they were public service companies within the meaning of HRS § 239-2, but argued, as they do here, that there is an irreconcilable conflict between HRS § 239-6 and 49 U.S.C. § 1513 and the State law has been voided by the federal statute. The court rejected their arguments, ruled the Public Service Company Tax is "a property tax and a general tax," and concluded the Director properly assessed the tax against the taxpayers.

II.

Aloha asserts the State law in question contravenes the Commerce Clause and the Supremacy Clause of the federal constitution; Hawaiian's claim of unconstitutionality is premised on the Supremacy Clause. We begin our analysis with a review of the State and federal statutory provisions involved.

A.

Hawaii's Public Service Company Tax is a direct descendant of the Public Utility Tax which was adopted in 1932. Although airlines were not covered by the tax on public utilities when it first became effective, they became subject to the tax shortly thereafter. ⁵ Two decades later, air carriers were exempted from payment of the utility tax and subjected to taxation under the General Excise Tax Law. ⁶ The legislature reconsidered this decision in 1963 and again decided inter-island air carriers should be classified with public utilities for State tax purposes; it concomitantly redesignated the Public Utility Tax as the Public Service Company Tax. See S.L.H. 1963, c. 147, § 2(a). Airlines have since been subject to taxation pursuant to HRS § 239-6 which delineates the basis and the rates for assessing the tax against common carriers by air and water, motor carriers, and contract carriers other than motor carriers. The foregoing provisions levy a flat four or three percent tax on gross income from utility business. Others subject to the Public Service Company Tax are likewise taxed on the basis of their gross incomes, but at varying rates (beginning at 5.885%) determined in each case by the ratio between the net income and the gross income from utility business. See HRS § 239-5.

Our Territorial predecessors considered the nature of the levy in question early in the history of the Public Utility Tax; they concluded it "imposes a tax comparable to the ad valorem real and personal property taxes otherwise imposed" by the laws of the Territory of Hawaii. Hawaii Consolidated Railway v. Borthwick, 34 Haw. 269, 281 (1937), aff'd, 105 F.2d 286 (1939). And the...