Netjets Aviation, Inc. v. Guillory
| Decision Date | 18 July 2012 |
| Docket Number | Nos. G044970,G044980.,s. G044970 |
| Citation | 207 Cal.App.4th 26,12 Cal. Daily Op. Serv. 7044,2012 Daily Journal D.A.R. 8508,143 Cal.Rptr.3d 111 |
| Court | California Court of Appeals Court of Appeals |
| Parties | NETJETS AVIATION, INC., et al., Plaintiffs and Respondents, v. Webster J. GUILLORY, as County Assessor, etc., Defendant and Appellant. Flight Options, LLC, Plaintiff and Respondent, v. Webster J. Guillory, as County Assessor, etc., Defendant and Appellant. CitationShares Management, LLC, Plaintiff and Respondent, v. Joseph E. Holland, as County Assessor, etc., Defendant and Appellant. Bombardier Aerospace Corporation, Plaintiff and Respondent, v. Joseph E. Holland, as County Assessor, etc., Defendant and Appellant. |
OPINION TEXT STARTS HERE
Held Unconstitutional
West's Ann.Cal.Rev. & T. Code §§ 1161(a)(1), 1161(a)(2).
Nicholas S. Chrisos, County Counsel, James C. Harman and Aurelio Torre, Deputy County Counsel, for Defendant and Appellant Webster J. Guillory.
Dennis A. Marshall, County Counsel, and Marie A. LaSala, Deputy County Counsel, for Defendant and Appellant Joseph E. Holland.
John F. Krattli, Acting County Counsel (Los Angeles), and Albert Ramseyer, Deputy County Counsel, for the California Assessors' Association and California State Association of Counties as Amici Curiae on behalf of Defendants and Appellants.
Randy Ferris, Robert W. Lambert and Kiren Kaur Chohan for the California State Board of Equalization as Amicus Curiae on behalf of Defendants and Appellants.
O'Melveny & Myers, Robert M. Swerdlow, Adam L. Bloom, Los Angeles, Jonathan D. Hacker, Scott M. Edson, Washington, DC; Loeb & Loeb and Christopher W. Campbell, Los Angeles, for Plaintiffs and Respondents NetJets Aviation, Inc., NetJets International, Inc., and NetJets Large Aircraft, Inc.
Ajalat, Polley, Ayoob & Matarese, Richard J. Ayoob, Terry L. Polley, Glendale, Christopher J. Matarese and Gregory R. Broege for Plaintiff and Respondent Flight Options, LLC.
Cahill, Davis & O'Neall, John D. Cahill, Cris K. O'Neall and Andrew W. Bodeau, Los Angeles, for Plaintiff and Respondent CitationShares Management, LLC.
Bewley, Lassleben & Miller, Jeffrey S. Baird and Joseph A. Vinatieri, Whittier, for Plaintiff and Respondent Bombardier Aerospace Corporation.
Wm. Gregory Turner for the Council on State Taxation as Amicus Curiae on behalf of Plaintiffs and Respondents.
Respondents sell fractional interests in private jets, and manage those jets for the fractional owners. In 2007, the California Legislature enacted new legislation to assess a personal property tax against the managers of fractionally owned aircraft. The legislation added sections 1160, 1161, 1162, and 5368 to the Revenue and Taxation Code, and amended Revenue and Taxation Code sections 441 and 452 (the Legislation). (All further statutory references are to the Revenue and Taxation Code, unless otherwise specified.) Respondents challenged the Legislation, and the trial court concluded it was unconstitutional or otherwise unlawful.
We hold the tax on the fractionally owned aircraft assessed by the Legislation is constitutional and lawful, as against the substantive challenges raised by respondents. We agree with the trial court's ruling, however, that the new assessment cannot be applied retroactively. Accordingly, we hold retroactive application of the new tax assessment is unconstitutional.
We reverse and direct the trial court to enter judgments providing that the retroactivity provisions of the Legislation are unconstitutional, but that the Legislation is lawful and constitutional in all other respects challenged by respondents.
NetJets Aviation, Inc., NetJets International, Inc., and NetJets Large Aircraft, Inc. (collectively, NetJets), are Delaware corporations, with their principal places of business in Ohio, South Carolina, and Connecticut, respectively. Flight Options, LLC (Flights Options), is a Delaware limited liability company, with its principal place of business in Ohio. CitationShares Management, LLC (CitationShares), is a limited liability company organized under the laws of Delaware, with its principal place of business in Connecticut. Bombardier Aerospace Corporation (Bombardier) is a Texas corporation, with its principal place of business in Texas.1
In November 2003, the Federal Aviation Administration (FAA) enacted regulations pertaining to fractional ownership of aircraft and program management services for such fractionally owned aircraft. (14 C.F.R. § 91.1001 et seq. (2012).) Fractional owners purchase fractional interests in a specific aircraft, and are allotted a specified number of hours of access to the aircraft, depending on the size of their ownership interests.
A fractional owner enters into a number of operating agreements regarding the ownership interest: (1) a purchase agreement, by which the owner acquires an undivided share in one aircraft, agrees not to transfer its interest without the respective Respondent's consent, agrees to use the aircraft exclusively in the fractional ownership program, transfers possession of the aircraft back to Respondent, and grants Respondent the right to sell additional fractional interests in the aircraft and the right to repurchase the fractional interests under specific conditions; (2) a management agreement, by which the fractional owner gives Respondent the exclusive right to manage the aircraft, and agrees to pay a monthly management fee and an hourly fee for the time the aircraft is used, and by which Respondent agrees to staff, provide pilots for, and maintain the aircraft, and retains the right to use the aircraft when not being used by a fractional owner; (3) an owner's agreement, by which each fractional owner agrees that the aircraft will be used exclusively in the fractional ownership program; and (4) a master interchange agreement or dry lease exchange agreement,2 by which all fractional owners agree that they will participate in the fractional ownership program under the relevant operating agreements, and that the aircraft for which the owner is on title will be used in the program.
Respondents are managers for fractionally owned aircraft in their respective fleets. Respondents make fractional shares of aircraft available for purchase. They also provide central management of the aircraft including furnishing pilots, obtaining insurance, maintaining the aircraft, and administering a reciprocal leasing arrangement by which fractional owners may use another aircraft if the aircraft in which they own a fractional share is unavailable.
Each of the Respondents also offers access to the aircraft to nonfractional owners. (Bombardier does not operate its own program, but leases unused fractional shares to an independent charter air carrier.) The same aircraft that make up the fractional ownership program are used for these programs.
In California, general aviation aircraft are taxed as personal property in the county in which they are hangared. (Cal.Code Regs., tit. 18, § 204; 1 Ehrman & Flavin, Taxing Cal. Property (4th ed.2011) § 7.6; Bd. of Equalization, Assessors' Handbook (Oct.2002) § 504, Assessment of Personal Property and Fixtures, p. 36
In April 2006, the Los Angeles County Assessor inquired of the State Board of Equalization (the Board) whether fractionally owned aircraft were subject to property taxation in California. The Board responded the aircraft could be taxable in California, but did not determine whether any individual aircraft had acquired a taxable situs in California. The Board also determined that Respondents could be taxed directly if they maintained possession and control over the aircraft.
In 2007, the California Legislature proposed Senate Bill No. 87 to capture tax revenue on fractionally owned aircraft. (Stats.2007, ch. 180, § 1.)
Senate Bill No. 87, which was enacted as the Legislation, amended and added certain sections of the Revenue and...
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