Director of Revenue v. Superior Aircraft Leasing Co., Inc., 68857

• Citation: 734 S.W.2d 504
• Decision Date: 14 July 1987
• Docket Number: No. 68857,68857
• Parties: DIRECTOR OF REVENUE, Appellant, v. SUPERIOR AIRCRAFT LEASING COMPANY, INC., and the Administrative Hearing Commission of the State of Missouri, Respondents.
• Court: United States State Supreme Court of Missouri

Page 504

734 S.W.2d 504

DIRECTOR OF REVENUE, Appellant, v. SUPERIOR AIRCRAFT LEASING COMPANY, INC., and the Administrative Hearing Commission of the State of Missouri, Respondents.

No. 68857.

Supreme Court of Missouri En Banc.

July 14, 1987.

Rehearing Denied Sept. 15, 1987.

William L. Webster, Atty. Gen., Melodie Powell, Asst. Atty. Gen., Jefferson City, appellant.

John W. Inglish, Jefferson City, for respondents.

DONNELLY, Judge.

This is an appeal by the Director of Revenue from an order of the Administrative Hearing Commission invalidating the assessment of Missouri use tax, section 144.610, RSMo 1986, by the Department of Revenue against Superior Aircraft Leasing Company, Inc. This Court has exclusive jurisdiction of the cause pursuant to Mo.Const. art. V, § 3, because it involves the construction of a revenue law of the state.

There is no dispute as to the facts. Respondent-taxpayer, Superior Aircraft Leasing Co., is a Missouri corporation with its office in Lebanon, Missouri, and its principal place of business in Troy, Ohio. On April 2, 1980, the president of Superior Aircraft, Kenneth Low, purchased and took delivery of an airplane at Beech Field, Wichita, Kansas. The airplane was a 1980 Model 58 Beechcraft Baron (FAA Registration No. N427KL). Low intended to fly the plane directly to Dayton International Airport in Vandalia, Ohio, but because of darkness and his concern for safety in piloting a new aircraft during darkness, he decided to stay overnight in Lebanon, Missouri. He completed his trip to Ohio on the following day.

The aircraft was purchased in order to lease it to Ohio Aviation Company, a company that is in the business of selling Beech aircraft and providing an air charter service. Ohio Aviation leased the aircraft for use in the charter service and for promoting the sale of other aircraft. Upon its arrival in Ohio, the aircraft in question was immediately placed into service pursuant to the oral lease. When not in use by Ohio Aviation, respondent was allowed to use the aircraft for its own business.

Respondent admittedly took delivery in Kansas to avoid liability for Missouri sales and use taxes. No sales or use tax was ever paid on the purchase, use or storage of the aircraft in Kansas, Ohio or in any other state. No personal property tax has ever been paid on the aircraft.

The Department of Revenue assessed respondent for unpaid tax, penalties and interest for the period January 1, 1981, to September 30, 1981. On appeal, the Administrative Hearing Commission held that respondent was not liable for the use tax assessed by the Department of Revenue.

Section 144.610, RSMo 1986, in pertinent part, reads:

1. A tax is imposed for the privilege of storing, using or consuming within this state any article of tangible personal property ... This tax does not apply with respect to the storage, use or consumption of any article of tangible personal property purchased, produced or manufactured outside this state until the transportation of the article has finally come to rest within this state or until the article has become commingled with the general mass of property of this state.

2. Every person storing, using or consuming in this state tangible personal property purchased from a vendor is liable for the tax imposed by this law, and the liability shall not be extinguished until the tax is paid to this state....

For purposes of the use tax, section 144.605(7), RSMo 1986, defines "storage" as "the keeping or retention in this state of tangible personal property purchased from a vendor for any purpose, except sale or subsequent use solely outside the state." The term "use" is defined as "the exercise of any right or power over tangible personal property incident to the ownership or control of that property, except that it does not include storage or the sale of the property in the regular course of business." Section 144.605(10), RSMo 1986.

The use tax is a levy on the privilege of using within the taxing state property purchased outside the state, if the property would have been subject to the sales tax had it been purchased at home. Southwestern Bell Telephone Co. v. Morris, 345 S.W.2d 62, 66 (Mo. banc 1961). Use taxes have been consistently upheld by the United States Supreme Court ¹ and are recognized as serving a dual purpose. The primary function is to "complement, supplement, and protect the sales tax." Management Services v. Spradling, 547 S.W.2d 466, 468 (Mo. banc 1977). It achieves this goal by imposing the tax on the "exercise of incidents of ownership of property that was not subject to the sales tax at the time of its acquisition" because of the commerce clause of the United States Constitution. White, State Sales and Use Taxes-Variations, Exemptions, And The Aviation Industry, 45 Journal of Air Law and Commerce 509, 515-516 (1979-80). In doing so, it eliminates "the incentive to purchase from out-of-state merchants in order to escape local sales taxes thereby keeping in-state merchants competitive with sellers in other states," and it also provides a means to augment state revenues. Management Services v. Spradling, supra at 468.

For determining the applicability of the "use" tax, this Court has adopted and consistently followed the "taxable moment" analysis first recognized in Southern Pacific Company v. Gallagher, 306 U.S. 167, 59 S.Ct. 389, 83 L.Ed. 586 (1939). See, Management Services v. Spradling, supra at 469, and King v. L & L Marine Service, 647 S.W.2d 524, 527 (Mo. banc 1983). The main premise of this theory is that there is no burden on interstate commerce when a period of time is found during which the property has reached the end of its interstate movement and has not yet begun to be consumed in interstate operations. That period of time is the "taxable moment." Under this theory, it is the period when the property ceases to be moved in interstate commerce that is taxable, rather than the transaction of interstate commerce itself. ²

In Gallagher, the United States Supreme Court upheld application of a California use tax where supplies and equipment were transported to California from out-of-state and then consumed in the operation and maintenance of the interstate railway system. The Court explained:

We think there was a taxable moment when the [goods] had reached the end of their interstate transportation and had not begun to be consumed in interstate operations. At that moment, the tax on storage and use--retention and exercise of a right of ownership respectively--was effective. The interstate movement was complete, the interstate consumption had not begun.

Southern Pacific Co. v. Gallagher, 306 U.S. at 177, 59 S.Ct. 389.

If we could assume that the "taxable moment" doctrine has continuing viability, we would have no difficulty in finding that a "taxable moment" did not occur in the present case. However, the Director of Revenue contends that the "taxable moment" analysis, adopted by this Court in Management Services and applied in King, is no longer the proper method for determining the validity of a state tax and we must agree.

The contemporary approach of the United States Supreme Court was announced in Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 97 S.Ct. 1076, 51 L.Ed.2d 326 (1977). The Supreme Court therein "attempted to clarify the apparently conflicting precedents it has spawned," in determining the effect of the Commerce Clause on state taxation of interstate commerce. Mobil Oil Corp. v. Commission of Taxes, 445 U.S. 425, 443, 100 S.Ct. 1223, 1234, 63 L.Ed.2d 510 (1980). The basic principle that interstate commerce is immune from state and local taxation was rejected. Today, "interstate commerce may constitutionally be made to pay its way." Maryland v. Louisiana, 451 U.S. 725, 754, 101 S.Ct. 2114, 2133, 68 L.Ed.2d 576 (1981), (citing Complete Auto Transit, supra, and Western Live Stock v. Bureau of Revenue, 303 U.S. 250, 58 S.Ct. 546, 82 L.Ed.2d 823 (1938)).

The State's right to tax interstate commerce is limited, however, and no state tax may be sustained unless the tax: (1) has a substantial nexus with the State; (2) is fairly apportioned; (3) does not discriminate against interstate commerce; and (4) is fairly related to the services provided by the State.

Maryland v. Louisiana, 451 U.S. at 754, 101 S.Ct. at 2133. Vermont and Nevada, when confronted with a challenge to the imposition of use tax on an aircraft, have applied the Complete Auto Transit test. See, Whitcomb v. Commissioner of Taxes, 144 Vt. 466, 479 A.2d 164 (1984); Great American Airways v. Nevada State Tax Commission, 101 Nev. 422, 705 P.2d 654 (1985). See also, Delta Air Lines, Inc. v. Dept. of Revenue, 455 So.2d 317 (Fla.1984) (test used in imposing state sales tax on purchase of aviation fuel); and Burlington Northern Railroad Co. v. Ragland, 280 Ark. 182, 655 S.W.2d 437 (1983) (test used in denying application of use tax to railway equipment).

Here, even though the plane was hangared and repairs, if needed, were made in Dayton, Ohio, there were contacts with Missouri sufficient to create a substantial nexus. During the period April 2, 1980, through September 1981, 17.7 percent of the total flight hours were logged on flights to Missouri solely for Superior Aircraft's business. All of these flights, with the exception of one for inspecting a construction site, were recorded as being for board meetings of Superior Aircraft. The time spent in Missouri for each of those trips ranged from several days to approximately a week. ³

Because Superior Aircraft is a corporation organized and licensed under the laws of Missouri and maintains a business office in Missouri, it is reasonable to infer that the board meetings were conducted in accordance with Missouri law. Additionally, if necessary, Superior Aircraft could have used Missouri state courts to enforce resolutions arising from such board meetings. Such evidence shows both that a "substantial nexus" exists...