Skelton v. Federal Express Corp., 75--130
| Decision Date | 19 January 1976 |
| Docket Number | No. 75--130,75--130 |
| Parties | Walter SKELTON, Director for Revenues, Arkansas Department of Finance and Administration, Appellant, v. FEDERAL EXPRESS CORPORATION, Appellee. |
| Court | Arkansas Supreme Court |
James R. Cooper, Robert G. Brockmann, James R. Eads, Jr., and Harlin R. Hodnett, Little Rock, for appellant.
Frank L. Watson, Memphis, Tenn., Paul F. Henson, North Little Rock, for appellee.
This is an action for declaratory judgment, and the parties have stipulated to most of the facts. Appellee, Federal Express Corporation, is an interstate air carrier of small packages and freight, organized under the laws of the State of Delaware with its principal place of business in Tennessee, and licensed in Arkansas as a foreign corporation.
One relevant section of the stipulation reads as follows:
On February 14, 1975, the Department of Finance and Administration audited Plaintiff's personal property which consisted of eighteen Falcon jet aircraft and that these jet aircraft were located on the premises of Little Rock Airmotive, Inc.; that the aircraft were delivered to the Plaintiff in states and countries other than Arkansas; that the said aircraft were transported in interstate commerce to Little Rock, Arkansas, where each aircraft received necessary and substantial modifications to its body and structure before it could be used in Plaintiff's interstate air carrier operations; that Plaintiff's property was not in Arkansas for profit; the property in question had not been placed in service in Arkansas.
Other relevant facts stipulated are that:
Appellee has never performed any intrastate business in Arkansas; there is no dispute as to the amount of the assessment or rate of taxation; and the aircraft, while in Arkansas, received extensive modifications, and as each aircraft was completed, it was delivered to appellee's principal place of business in Memphis, Tennessee. Production time for the modification process was approximately fifty days for each aircraft.
The parties agreed that the issues involved in this controversy should be determined by declaratory judgment.
Roger Frock, general manager and senior vice president of Federal Express Corporation, testified that when the aircraft were purchased and initially brought into Arkansas they were not involved in carrying freight. In most cases they were brought in by the seller under a ferry package, with very rudimentary equipment in them, just enough to allow them to safely fly into Arkansas, but they were not equipped, could not have handled freight. During the retention of the aircraft in Arkansas, Federal Express Corporation did exercise ownership rights or power incident to the ownership of the aircraft and contracted with Little Rock Airmotive for extensive modification of each aircraft. He testified Federal Express Corporation's route goes from Memphis to Little Rock to Houston to San Antonio, so it is very likely that some of those eighteen aircraft did make stops in Little Rock over the course of being in revenue service. Mr. Frock stated the airplanes were not used in interstate operations prior to modification.
The trial court held that the tax assessment was illegal and should be set aside. From the court's decree comes this appeal.
The Arkansas Compensating Tax Act provides in Ark.Stat.Ann. § 84--3105(a) (Repl.1960) the following:
(a) There is hereby levied and there shall be collected from every person in this State a tax or excise for the privilege of storing, using or consuming, within (the State, any article of tangible personal property, after) the passage and approval of this Act (§§ 84--3101--84--3128), purchased for storage, use or consumption in this State at the rate of three per centum (3%) of the sales price of such property. This tax will 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 such article has finally come to rest within this State or until such article has become commingled with the general mass of property of this State. This tax shall apply to the use, storage or consumption of every article of tangible personal property, except as hereinafter provided, irrespective of whether the article or similar articles are manufactured within the State of Arkansas or are available for purchase within the State of Arkansas, and irrespective of any other condition.
For the aircraft to be subject to the tax they must have been purchased for use or storage in the State and to have finally come to rest within the State.
The stipulation and the testimony clearly reflect that at the time of the purchase appellee intended to bring the aircraft into the State for extensive modification.
Appellee strongly contends that the aircraft were not purchased for use in the State but for use in its interstate operations. This contention is found to be without merit in light of the definition of the term 'use':
The term 'use' means and includes the exercise of any right or power over tangible personal property incident to the ownership or control of that property, except that it shall not include the sale of that property in the regular course of business. Ark.Stat.Ann. § 84--3104(c) (Repl.1960).
Retention of the aircraft within the State of Arkansas alone constitutes sufficient use to support the appellant's assessment. Flying Tiger Line v. State Board of Equalization, 157 Cal.App.2d 85, 320 P.2d 552 (1958); Pacific Telephone and Telegraph Company v. Gallagher, 306 U.S. 182, 59 S.Ct. 396, 83 L.Ed. 595 (1939). In addition to the aircraft being retained in Arkansas for a period of approximately 50 days appellee contracted with an Arkansas firm for modifications to be carried out on the planes. This is an exercise of a right over the aircraft incident to the ownership or control of same. Exercise of these ownership rights constitutes a taxable 'use' of the aircraft within the State.
The aircraft were also stored in the State of Arkansas. In Ark.Stat.Ann. § 84--3104(b) (Repl.1960), the term 'storage' is defined as '. . . any keeping or retention in this State of tangible personal property purchased from a vendor for any purpose, except sale or subsequent use...
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