American Airlines, Inc. v. State Bd. of Equalization
| Decision Date | 15 May 1963 |
| Citation | 216 Cal.App.2d 180,30 Cal.Rptr. 590 |
| Parties | AMERICAN AIRLINES, INC., a corporation, Plaintiff and Appellant, v. STATE BOARD OF EQUALIZATION, Defendant and Respondent. Civ. 26775. |
| Court | California Court of Appeals Court of Appeals |
Overton, Lyman & Prince, by Carl J. Schuck, Los Angeles, Debevoise, Plimpton, Lyons & Gates, and Marvin Lyons, New York City, of cousel, for appellant.
Stanley Mosk, Atty. Gen., Dan Kauffmann, Asst. Atty. Gen., Neal J. Gobar, Deputy Atty. Gen., for respondent.
This is an appeal from a judgment adjudgment that plaintiff is not entitled to a refund of use taxes paid to the state in the amount of $181,385.61.
The taxes involved are for a five-year period from July 1, 1952, to June 30, 1957, and were assessed by respondent under the California Sales and Use Tax Law and paid under protest by appellant.
The facts were stipulated in a lengthy written stipulation submitted to the trial court. Generally the facts as stipulated were as follows: Appellant, (sometimes hereinafter referred to as 'American' or as the 'company') a Delaware corporation, is a certified air carrier and operated a major air transportation system carrying persons, property and mail throughout various parts of the United States and several foreign countries. The company is subject to regulations issued by the Civil Aeronautics Board and the Civil Aeronautics Authority in accordance with the law. The company's system is divided into four territorial regions for operational administration purposes. The western region covers stations in Arizona and California. The maintenance base for entire system is at Tulsa, Oklahoma. At this base the company receives and tests all new engines and propellers and does not overhauling, including major repairing and testing of all engines and propellers which have been in use. The function of overhauling and testing radio equipment is performed for the entire system at La Guardia Airport in New York. The position of the company with respect to overhauled radio equipment and the parts used in such work is the same as its position with respect to overhauled engines and propellers and the parts used in such operations and consequently no further mention will be made of the radio equipment operations.
The aircraft of the company must be kept airworthy at all times to the end that flight schedules, contractual commitments and safety rules are met. To comply with such demands, the company must have for each aircraft in its system four components, including engines, propellers and radio equipment and parts for such components which can be installed in such aircraft at any given time. The company keeps on hand at its Tulsa and New York bases and at its regional bases, including Los Angeles, supplies in varying amounts of new and overhauled engines, propellers, and other equipment ready for installation as replacements for units which require overhaul or repair. In the event the supply of engines, propellers or other items is insufficient for the immediate needs of a regional base, the replacements are shipped into that base from the Tulsa base or from some other station of the system. During the period involved with which we are concerned, 18 new DC 7 eigines and certain new propellers held at different times as standby replacement units at the Los Angeles base were installed as replacements in aircraft at Los Angeles and other California stations. The use taxes assessed with respect to these units are in question. All of the new engines and propellers were purchased by the company and delivered to it at the maintenance base at Tulsa. The engines and propellers were purchased for system-wide use, including use in California, and were to be directed from Tulsa as and when they should be needed to carry on the business of the company. After the units arrived at Tulsa they were tested. In the case of engines, the testing lasted about 8 hours, spread over a period of several days. In the case of propellers the testing lasted four hours.
After a period of storage in Tulsa lasting from 21 days to 292 days and averaging 132 days, the engines and propellers were shipped by truck or air to Los Angeles for installation in aircraft. After a period of storage and retention, 18 of the engines and certain propellers were installed at the California stations. The time of storage and retention in California prior to installation varied from about one day to 62 days. The elapsed time between departure from Tulsa and installation in California varied from one to 67 days. Upon completion of the installation of an engine functional checks were made and visual inspection was had. The propellers were checked to ascertain if they properly responded to certain pitching and feathering. Upon the completion of the checking, the aircraft on which the installation was made resumed scheduled flights by departing from a California point.
At the time of the purchase of the new engines and the propellers here involved and at the time of the shipment thereof to Los Angeles the company had not determined at what particular or specific station any particular or specific engine or propeller would be installed.
All of the overhauled engines and propellers involved in this case were either DC 6 or DC 7 equipment. When an engine or propeller was removed from an aircraft because of length of service or malfunctioning it was delivered to the base at Tulsa for repair or overhaul. The operation consisted of restoring such items in accordance with the regulations pertaining thereto.
The company stored at Tulsa all of the necessary parts for the overhaul and repair of engines or propellers. The parts were purchased outside of California and were delivered to the company at Tulsa. The parts were kept on hand an average of about 6 months before they were installed in an engine in the course of an overhaul or repair.
The overhauled or repaired engines were tested at Tulsa to determine their airworthiness. The tests lasted about the same time as the tests on new engines.
During the period with which we are concerned 488 repaired and overhauled engines and certain repaired propellers was shipped from Tulsa to Los Angeles by truck or air and after a period of storage and rentention in California they were installed in aircraft either in Los Angeles or at other stations in California. The time of storage and retention in California prior to installation varied from three to 77 days.
The use taxes here in issue with respect to the overhauled engines and propellers were assessed on the purchase price of the parts installed in the units. The aggregate purchase price of the parts installed in the repair of propellers on which the use tax is assessed was $174,510, and the aggregate purchase price of the parts installed in the overhaul of the engines on which the use tax is assessed was $3,739,153.
All of the repaired and overhauled engines and propellers after installation in aircraft were subjected to the same tests and checks as was the case with new engines and propellers.
At the time the parts were purchased to be used at Tulsa the company had not selected the particular engine or propeller in which the parts would be installed in the course of repair or overhaul, nor had it determined at what particular station any particular repaired item would be installed in an airplane. The parts had been purchased for use whenever and whether (including California) such items would be needed. The company engaged in scheduled flights into and out of California. Passengers were carried between points within California. All of the company's flights originating in California terminate in other states.
During the time in question the scheduled miles flown in California by the company varied from 5.70 percent to 6.04 percent of its total miles flown, or in other words about 94 percent of the use of the equipment was outside of California.
The trial court found that the parts which were installed in the new engines and propellers at Tulsa and the new engines and propellers were purchased for storage and use in California and that such property was stored and used in California and that such personal property had come to rest in California prior to its installation into aircraft in California within the meaning of the statutes and further that the tax did not violate the commerce clause of the United States Constitution or section 6352 of the Revenue and Taxation Code.
The appellant now makes three major assertions. First, it states that the taxes here are outside the purpose of the use tax. Second, that the engines, propellers and parts were not purchased for storage, use or other consumption in California, claiming among other things the initial uses of the engines and propellers were substantial uses outside of California, that after installation in California the engines and propellers including the overhauled engines containing the taxed part were used more than 94 percent outside of California, that under the respondent's administrative rulings property is not purchased for storage, use or consumption in California where there is prior substantial use outside of California and subsequent use more outside than inside of California, such property is not taxable. Third, that the taxes in issue are in violation of the commerce clause of the federal Constitution and of section 6352 of the Revenue and Taxation Code because the use of the engines and propellers in California was a use in interstate commerce and that the tax imposes an unconstitutional burden on interstate commerce.
Sections 6008, 6009, 6201, 6202, 6246 and 6352 of the Revenue and Taxation Code are set forth in a footnote 1
American urges that a narrow or restricted view be taken of the use tax, arguing in effect that the only purpose of the tax is to complement...
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