New York Times Co. v. Commissioner of Revenue

• Decision Date: 07 May 1998
• Parties: The NEW YORK TIMES COMPANY v. COMMISSIONER OF REVENUE. FEDERAL EXPRESS CORPORATION v. COMMISSIONER OF REVENUE.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 682

693 N.E.2d 682

427 Mass. 399

The NEW YORK TIMES COMPANY v. COMMISSIONER OF REVENUE.

FEDERAL EXPRESS CORPORATION v. COMMISSIONER OF REVENUE.

Supreme Judicial Court of Massachusetts,

Suffolk.

Argued March 2, 1998.

Decided May 7, 1998.

William E. Halmkin, Boston (Arthur A. Hundhausen, Denver, CO, with him), for New York Times Company.

Harold J. Carroll, Boston, for Federal Express Corporation.

Edward J. DeAngelo, Assistant Attorney General, for Commissioner of Revenue.

Before WILKINS, C.J., and ABRAMS, LYNCH, GREANEY, FRIED and IRELAND, JJ.

FRIED, Justice.

The taxpayers, The New York Times Company (Times) and Federal Express Corporation (FedEx), appeal from the decisions of the Appellate Tax Board (board) upholding the Commissioner of Revenue's (commissioner's) imposition of excise tax on the Times and FedEx for use of their aircraft in the Commonwealth. The Times argues that the imposition constitutes an unlawful exception to the long-standing, consistent, and binding policy of the commissioner to exempt all instrumentalities of interstate commerce from the Massachusetts use tax. FedEx does not claim that there was any such long-standing and consistent policy, but argues that there should have been a publicly declared policy allowing such taxation before its aircraft were taxed. Both also argue that imposition of the tax constitutes a violation of the equal protection guarantees of the Fourteenth Amendment to the United States Constitution and art. 10 of the Massachusetts Declaration of Rights. Finally, the Times argues that the participation in the board's decision of a particular commissioner, who was formerly an attorney for the commissioner and had argued a similar case before he became a commissioner, violated its due process rights under the Fourteenth Amendment and art. 29 of the Massachusetts Declaration of Rights. We granted the taxpayers' applications for direct appellate review, and now affirm.

I

The Times caused one of its subsidiaries, NYT 1896T, Inc., to purchase two jet planes and lease them to the Times. These planes were used in transporting its employees around the country. Under letter agreements amending a preexisting flight management agreement between the Times and A.F.M. Corporation (AFM) of Westfield, Massachusetts, AFM undertook to operate and maintain the two aircraft for the Times's purposes only. All costs of operating and maintaining the aircraft were passed on to the Times.

Both Times aircraft first entered the Commonwealth without passengers or cargo. When not engaged in travel, both aircraft were hangared at Barnes Airport in Westfield. Repairs and maintenance were performed largely within Massachusetts, and an inventory of spare parts exclusively for the two aircraft was kept at Barnes Airport.

After an investigation at the Barnes Airport, the Department of Revenue (department) gave notice of its intention to impose use taxes on the Times, pursuant to G.L. c. 64I, § 2, ¹ for its use of the two aircraft for the periods from 1984 to 1990. After unsuccessfully challenging the notice of intention to assess in the department's appeal and review bureau in 1992, the Times paid the use tax. The Times then made applications for abatement of taxes for the same periods, which the commissioner denied. The Times then appealed to the board. The board upheld the commissioner's decision.

FedEx acquired four "feeder" aircraft for the purpose of transporting relatively small amounts of cargo between remote areas and its hubs in the northeastern States. FedEx entered into a flight management agreement with Wiggins Airways (Wiggins) of Norwood, under which Wiggins leased the aircraft from FedEx at a nominal fee and passed all costs of operating and maintaining the aircraft to FedEx.

All four FedEx aircraft first entered the Commonwealth without passengers or cargo. They were operated to a great extent within Massachusetts. When not engaged in travel, all four aircraft were often hangared at Wiggins's Norwood base. Maintenance of the aircraft was done largely within Massachusetts. FedEx's feeder aircraft frequently flew in and out of Logan Airport, and apartments for its pilots were maintained in East Boston.

An audit of FedEx's books and records for periods from 1985 to 1988 led to the issuance of a notice of intention to assess. After unsuccessfully challenging the notice in the Department's appeal and review bureau, FedEx paid the use tax. FedEx thereafter applied for abatement of taxes for the same periods. The commissioner denied abatement. FedEx then appealed to the board. Relying on its Times decision, the board upheld the commissioner's decision.

II

Neither taxpayer argues that the commissioner's imposition of taxes in the instant cases violates G.L. c. 64I, § 2, or the commerce clause as interpreted by the Supreme Court in Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 97 S.Ct. 1076, 51 L.Ed.2d 326 (1977), and its progeny. In Complete Auto, the Court rejected the rule of Spector Motor Serv., Inc. v. O'Connor, 340 U.S. 602, 71 S.Ct. 508, 95 L.Ed. 573 (1951), that a State tax on the "privilege of doing business" is per se unconstitutional when it is applied to interstate commerce. Complete Auto Transit, Inc. v. Brady, supra at 288-289, 97 S.Ct. at 1083-1084. In rejecting that rule, the Complete Auto Court validated State taxation of an interstate business activity so long as 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 the services provided by the State." Id. at 279, 97 S.Ct. at 1079. See also George S. Carrington Co. v. State Tax Comm'n, 375 Mass. 549, 551-552, 377 N.E.2d 950 (1978) (Complete Auto Transit governs Massachusetts tax commission's ability to tax interstate commerce).

The Times argues, however, that, at the time the commissioner subjected its aircraft to taxation, he had not yet adopted the Complete Auto theory, but still adhered to the Spector Motor theory. Administrative agencies must generally abide by their own "internally promulgated policies" as evidenced by "regulation, guideline, instruction sheet, or other informal agency action of general application." Commissioner of Revenue v. BayBank Middlesex, 421 Mass. 736, 739, 741, 659 N.E.2d 1186 (1996). See Gillette Co. v. Commissioner of Revenue, 425 Mass. 670, 678, 683 N.E.2d 270 (1997) ("We held [in BayBank Middlesex ] that the commissioner could not retroactively assess back taxes and interest where the Department of Revenue had stated a clear policy on the issue that had remained unchanged and on which the taxpayers relied"). The Times ² claims that assessment of taxes against its aircraft constitutes the only exception to the commissioner's consistent, long-standing, and binding practice of exempting all instrumentalities of interstate commerce, including aircraft, from the Massachusetts use tax. The board, in upholding the taxation of the Times's aircraft, found:

"[T]here was no single settled Departmental practice governing taxation of all aircraft arguably involved in interstate commerce adhered to over the entire 1980-1991 time period.... A variety of opinions existed [within the department] on the taxability of interstate aircraft.... However, no intra-Departmental consensus had been reached. There were no authoritative pronouncements on the question from the Commissioner."

In considering whether the evidence in a case is sufficient to support the board's conclusion, our review is limited to asking "whether a contrary conclusion is not merely a possible but a necessary inference from the findings." First Data Corp. v. State Tax Comm'n, 371 Mass. 444, 446, 357 N.E.2d 933 (1976). In addition, a clear indication of the existence of a policy is necessary for that policy to be binding on the commissioner. See Gillette Co. v. Commissioner of Revenue, supra at 678, 683 N.E.2d 270; Commissioner of Revenue v. BayBank Middlesex, supra at 741, 659 N.E.2d 1186; General Elec. Co. v. Commissioner of Revenue, 402 Mass. 523, 532, 524 N.E.2d 90 (1988). The evidence that the Times offered does not compel the conclusion that the commissioner had a policy of exempting all instrumentalities of interstate commerce, including aircraft, from the Massachusetts use tax.

The Times argues that the commissioner's consistent and long-standing practice of exempting all instrumentalities of interstate commerce, including aircraft, from the Massachusetts use tax was evidenced by 830 Code Mass. Regs. § 64H.25.1(7)(g). ³ The Times further argues that the commissioner's continued adherence to the old Spector Motor rule is evidenced by internal legal memoranda, the fact that the commissioner did not tax any use of aircraft after studies in 1980 and 1988-1989 into the feasibility of taxing use of aircraft, and the testimony of various former and present employees of the department.

Section 64H.25.1(7)(g) deals with motor vehicles, not aircraft. Although one internal memorandum dated 1987 recommends applying "the principles and most of the evidentiary requirements" of § 64H.25.1(7)(g) to aircraft, a memorandum dated 1988 points out that the provision must be amended before it may be applied to aircraft. ⁴ And the commissioner's decision not to tax any aircraft after the two feasibility studies in the 1980s may be explained by the fact that, at the time, the department auditors had failed to locate any aircraft that met all four Complete Auto criteria. As the board found, testimony of the present and former employees of the department was often conflicting, and certainly did not clearly indicate that the commissioner adhered to any one policy in his decisions whether to assess taxes against instrumentalities of interstate commerce. In sum, no inference is required from the record that the commissioner, at the time of assessing taxes against the Times's aircraft, had adhered to a...