Scandinavian Airlines System, Inc. v. County of Los Angeles
| Decision Date | 22 July 1960 |
| Citation | 6 Cal.Rptr. 694 |
| Parties | SCANDINAVIAN AIRLINES SYSTEM, INC., a New York corporation, Plaintiff and Respondent, v. COUNTY OF LOS ANGELES, a political subdivision of the State of California, and City of Los Angeles, a municipal corporation, Defendants and Appellants. Civ. 24265. |
| Court | California Court of Appeals Court of Appeals |
Harold W. Kennedy, County Counsel, Alfred Charles De. Flon, Deputy County Counsel, Los Angeles, for appellants.
Musick, Peeler & Garrett, Roderick M. Hills, Richard D. Esbenshade, Los Angeles, for respondent.
Plaintiff brought this suit to recover property taxes levied by both the City and County of Los Angeles against certain of plaintiff's planes employed in foreign commerce, which taxes had been paid by plaintiff under protest. Thirteen different aircraft belonging to plaintiff (SAS) were present in this county at one time or another during the period here in issue. The 13 aircraft made a total of 104 flights per year, or an average of 8 flights per plane. Each of the aircraft was registered and based in one of the three Scandinavian countries, Denmark, Norway or Sweden. As of the first Monday of March, 1955, the SAS service consisted of two flights per week into Los Angeles. Each week one plane would arrive in Los Angeles in the early afternoon of Tuesday and depart a day and one-half later on early Thursday morning, and another plane would arrive during early Saturday afternoon and would depart early on the following Monday morning. The only point in the United States with which said planes had physical contact was International Airport in Los Angeles.
Los Angeles City and County, as of the first Monday of March, 1955, assessed and levied a personal property tax upon these planes on an apportionment basis; that is, only a portion of the full value of the subject planes regularly entering Los Angeles County constituted the basis for the assessed valuation. That fraction of the total value of the aircraft equal to the hours spent in Los Angeles County as compared with the total hours in the year, was the basis upon which the tax was levied. Each of the aircraft is taxed in the country in which it was registered on an unapportioned basis.
Based on these facts, the trial court awarded judgment of SAS and the defendants County and City of Los Angeles have appealed.
SAS advances three grounds upon which it argues the judgment must be sustained: (1) that the tax violates due process; (2) that the tax is an unconstitutional regulation of foreign commerce; and (3) that there is no statutory authority for the tax.
We first consider the validity of the challenged tax with relation to the due process clause of the 14th Amendment to the Constitution of the United States. In this connection, the due process inquiry is whether the property taxed has acquired a situs in the taxing jurisdiction through having had sufficient contact with the jurisdiction. A further criterion is that the '* * * tax in practical operation had relation to opportunities, benefits, or protection conferred or afforded by the taxing State.' Ott v. Mississippi Valley Barge Line, 336 U.S. 169, 69 S.Ct. 432, 434, 93 L.Ed. 585. See also Braniff Airways, Inc. v. Nebraska State Bd. of Equalization, 347 U.S. 590, 600, 74 S.Ct. 757, 98 L.Ed. 967; Slick Airways, Inc. v. County of Los Angeles, 140 Cal.App.2d 311, 314, 295 P.2d 46; and, Flying Tiger Line, Inc. v. County of Los Angeles, 51 Cal.2d 314, 319-320, 333 P.2d 323. In the Braniff case, supra, the Supreme Court said: '* * * [T]he bare question whether an instrumentality of commerce has a tax situs in a state for the purpose of subjection to a property tax is one of due process.' 347 U.S. at pages 598-599, 74 S.Ct. at page 762.
SAS contends that their aircraft have acquired no tax situs in this state. Reliance is placed on the old 'home port' doctrine cases to support this proposition, principally Hays v. Pacific Mail S. S. Co., 17 How. 596, 58 U.S. 596, 15 L.Ed. 254; Old Dominion S. S. Co. v. Commonwealth of Virginia, 198 U.S. 299, 25 S.Ct. 686, 49 L.Ed. 1059; southern Pac. Co. v. Commonwealth of Kentucky, 222 U.S. 63, 32 S.Ct. 13, 56 L.Ed. 96; and Morgan v. Parham, 16 Wall. 471, 83 U.S. 471, 21 L.Ed. 302. These cases dealt with the tax situs of ocean going vessels engaged in commerce between states. The Hays case held a vessel taxable only by New York, its state of registry. This rule found support by way of dicta in the Old Dominion case, but the court nevertheless allowed Virginia to tax vessels which had a permanent situs in the state even though registered in another state. The Southern Pac. Co. and Morgan cases allowed taxation only by the state of domicile of the owner on the rationale that no permanent situs had been developed in any other state and thus the vessels would escape taxation entirely unless taxed by the domiciliary state. This rule was also applied to vessels moving solely in inland waters. City of St. Louis v. Wiggins Ferry Co., 11 Wall. 423, 78 U.S. 423, 20 L.Ed. 192; Ayer & Lord Tie Co. v. Commonwealth of Kentucky, 202 U.S. 409, 26 S.Ct. 679, 50 L.Ed. 1082.
Clearly, the early rule was that permanent presence in the taxing jurisdiction was essential to the dovelopment of a tax situs in a jurisdiction other than the state of domicile or registry, in so far as vessels engaged in interestate commerce were concerned. However, contemporaneously, a different rule developed with regard to the taxation of railroad rolling stock. Pullman's Palace-Car Co. v. Commonwealth of Pennsylvania, 141 U.S. 18, 11 S.Ct. 876, 35 L.Ed. 613; Union Refrigerator Transit Co. v. Commonwealth of Kentucky, 199 U.S. 194, 26 S.Ct. 36 50 L.Ed. 150. In these cases it was held that rolling stock engaged continuously in commerce between states could acquire a taxable situs in more than one state and that the taxable value of the property must be apportioned among the states in which the property had thus acquired a situs.
This rule of apportionment was later expanded to include vessles employed on inland waters in interstate commerce. In Ott v. Mississippi Valley Barge Line, supra, the court allowed Louisiana to levy an apportioned tax on tugs and barges which were domiciled in Ohio. The taxable situs in Louisiana developed through regular and substantial employment of the vessels in the waters of that state. Later, in Standard Oil Co. v. Peck, 342 U.S. 382, 72 S.Ct. 309, 310, 96 L.Ed. 427, the Supreme Court adopted the rule that a domiciliary state could not tax the full value of property which was employed in interstate commerce and which was not physically present in the state of domicile during the entire tax year. the court said: 'The rule which permits taxation by two or more states on an apportionment basis precludes taxation of all of the property by the state of domicile.' Thus, the early cases involving vessels engaged in interstate commerce upon inland waters and allowing taxation only by the state of domicile have been, in effect, overruled.
Two Supreme Court cases in the filed of air transportation have resulted in the application of the apportionment doctrine to interstate aircraft traffic. In Northwest Airlines, Inc. v. State of Minnesota, 322 U.S. 292, 64 S.Ct. 950, 88 L.Ed. 1283, the court allowed an unapportioned tax on aircraft by the state of domicile even though the plans had substantial contacts with other states. However, in Braniff Airways, Inc. v. Nebraska State Bd. of Equalization, supra, 347 U.S. 590, 74 S.Ct. 757, 98 L.Ed. 967, an apportioned tax levied by Nebraska, a non-domiciliary state, on aircraft flown in interstate commerce was upheld. The Northwest case was distinguished on the ground that no proof of taxable situs elsewhere had been made by the airline in that case. The court said at page 600 of 347 U.S., at page 763 of 74 S.Ct.: 'We perceive no logical basis for distinguishing the constitutional power to impose a tax on such aircraft from the power to impose taxes on river boats.' The test of taxable situs, said the court, is the 'sufficiency of contact' of the nondomiciliary state with property it seeks to tax. The 'sufficiency of contact' criterion was held to be satisfied by the fact that Braniff aircraft made an average of 18 stops per day in Nebraska. The court concluded: "The basis of the jurisdiction [to tax] is the habitual employment of the property within the state." 347 U.S. at page 600, 74 S.Ct. at page 764.
The application of the Braniff doctrine of 'sufficiency of contact' to establish situs has been applied and expanded by the courts of this state. In Flying Tiger Line, Inc. v. County of Los Angeles, 51 Cal.2d 314, 333 P.2d 323, the taxpayer's aircraft operated in interstate and foreign commerce. Assuming that the planes had acquired a taxable situs elsewhere, merely from the fact that they were flown in interstate and in foreign commerce, after a review of the authorities, the Court held: 51 Cal.2d at page 319, 333 P.2d at page 326. (Emphasis added.)
Thus, the modern situs rule, as approved by the courts of this state, is that substantial benefits and protection have been accorded the property by the taxing state. The same result is reached by requiring a 'sufficiency of contact' in line with the Braniff case since contact with a state results in the conferring of benefits and protection by the state contacted.
It is thus too clear for argument that the aircraft of SAS have established a taxable situs in the County of Los...
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