Undercofler v. Eastern Air Lines, Inc.

• Decision Date: 02 February 1966
• Docket Number: No. 23285,23285
• Citation: 221 Ga. 824,147 S.E.2d 436
• Parties: , 3 UCC Rep.Serv. 352 Hiram K. UNDERCOFLER et al. v. EASTERN AIR LINES, INC.
• Court: Georgia Supreme Court

Page 436

147 S.E.2d 436

221 Ga. 824, 3 UCC Rep.Serv. 352

Hiram K. UNDERCOFLER et al. v. EASTERN AIR LINES, INC.

No. 23285.

Supreme Court of Georgia.

Feb. 2, 1966.

Rehearing Denied Feb. 23 and March 10, 1966.

Syllabus by the Court

1. This suit is not one against the State.

2 (a). The Georgia Retailers' and Consumers' Sales and Use Tax Act (Ga.L.1951, p. 360, as amended), as it existed prior to February 19, 1965, did not impose taxes for this air carrier's fuel and parts, purchased and brought into Georgia for use, and actually used, in aircraft operated exclusively in interstate commerce.

(b). Meals purchased in this State for service to its passengers were subject to tax under such Act where the ticket, the cost of which included the price of the meal, was bought in this State, even though the meals were served outside of Georgia.

3. Such tax on the meals did not violate the United States or the Georgia Constitution.

4. The allegations of the petition were sufficient for injunctive relief against the imposition of the tax on the fuel and parts.

5. No basis for declaratory judgment was alleged.

6. The holdings in 2 and 4 above are controlling upon the rulings made as to the restraining orders.

Arthur K. Bolton, Atty. Gen., Louis F. McDonald, Asst. Atty. Gen., H. Perry Michael, Atlanta, for appellants.

Gambrell, Harlan, Russell & Moye, E. Smythe Gambrell, Theodore M. Forbes, Jr., Atlanta, for appellee.

GRICE, Justice.

An air carrier's petition, seeking relief against sales and use taxes on certain personal property, is for appraisal here.

The carrier contends that it is not subject to the Georgia Retailers' and Consumers' Sales and Use Tax Act (Ga.L.1951, p. 360, as amended) for fuel and parts purchased and brought into Georgia for use, and actually used, exclusively in interstate commerce, and for food purchased in Georgia and served to passengers outside Georgia on interstate flights.

Litigation over this issue began when the carrier, Eastern Air Lines, Inc., filed in the Superior Court of Fulton County its petition which, as amended, named as defendants 'Hiram K. Undercofler, who is State Revenue Commissioner of the State of Georgia and E. J. Olmstead, who is Director of the Sales and Use Tax Unit of' that department. It sought injunction and declaratory relief against assessments for such taxes for a designated period. Two temporary orders were entered, restraining the defendants as prayed. The defendants interposed general and special demurrers to the petition.

Enumerated as errors are the overruling of the defendants' general demurrers, the denial of their motion to dissolve the first restraining order, and the granting of the second restraining order.

The allegations of the amended petition, insofar as material to this appeal, are those which follow.

The plaintiff's carrier operations are almost entirely in interstate commerce, and the great bulk of those in Georgia are wholly interstate. Those interstate flights which touch Georgia land at and take off only from the Altanta Municipal Airport.

Plaintiff maintains of Georgia, in addition to terminal facilities, those for servicing, repair and maintenance of its aircraft used exclusively in interstate operations. In connection with these facilities plaintiff maintains flight equipment, including replacement parts and components (all hereinafter referred to as 'parts') which are installed in such aircraft. It purchases these parts outside of Georgia and brings them into Georgia in interstate commerce. They are used exclusively for aircraft operated only in interstate commerce and do not come to rest in Georgia or become a part of the mass of plaintiff's property in this state. Plaintiff's records show separately the parts installed in aircraft used exclusively in interstate commerce and in those used to a small degree in intrastate commerce.

Plaintiff also purchases all fuel for its aircraft outside of Georgia and brings it into this state in interstate commerce. The fuel which is purchased for aircraft operating exclusively in interstate commerce is used for that purpose, and is so shown on its records. That which is bought for use in both interstate and intrastate commerce is so used and recorded. None of the fuel comes to rest in Georgia so as to become a part of the mass of plaintiff's property in Georgia.

Plaintiff also purchases prepared meals in Georgia for serving on interstate flights only. It buys these meals and boards them on the aircraft just prior to departure, and serves them only after the Georgia line is passed. It makes no separate charge to its passengers for these meals but includes the price in the cost of the ticket. These meals, from purchase until consumption, are in continuous movement in interstate commerce and never become a part of the mass of plaintiff's property in Georgia.

Plaintiff has paid all taxes owed by it pursuant to such Sales and Use Tax Act.

Nevertheless the defendants have threatened to assess additional taxes for the period from February 1, 1959, through June 30, 1963, for specified amounts of principal, interest, and penalty. In addition defendants have threatened and, unless protected by this court, will audit for numerous periods after June 30, 1963, through February 18, 1965, for the purpose of further assessments.

The additional taxes threatened apparently derive from an official opinion issued on January 27, 1959, by the then Attorney General of this state, declaring no longer valid his earlier official opinion of July 2, 1951, to the contrary. Concluding excerpts of both opinions are set forth.

The defendants are attempting to apply such later 1959 ruling to plaintiff by requiring it to pay a tax on all fuel and parts brought into Georgia in aircraft operated exclusively in interstate commerce, and also on all food purchased by plaintiff in Georgia for service to its passengers on aircraft operated exclusively in interstate commerce. Under the earlier 1951 opinion the plaintiff was required to pay a tax upon such items only in proportion to their use in intrastate commerce, and no contention was made by the defendants' predecessors that those items bought for use exclusively in interstate commerce were taxable.

As interpreted by the later 1959 opinion and construed, applied and enforced by the defendants, the Act imposes a burden on interstate commerce, in violation of Article I, Section 8, Paragraph 3 of the United States Constitution since it requires plaintiff to pay a tax upon commodities bought by it for use, and used, exclusively in interstate commerce. Such Act, as applied to the plaintiff by the defendants, also violates Article XII, Section I, Paragraph I of the Georgia Constitution.

The defendants have misconstrued and misapplied the Act in attempting to assess such additional taxes against plaintiff, because by Section 4 the Act excludes and exempts the items in controversy here.

Plaintiff's acts, above described, constitute bona fide interstate commerce, and defendants' efforts to tax such purchases and uses violate Section 4 of said Act; but if the defendants' interpretation of the Act is correct, then it, as so interpreted and applied to plaintiff, violates the Constitutions of the United States and of Georgia, as aforesaid.

Plaintiff's purchases of the meals are exempt from the Act as the sales to plaintiff from its suppliers are for resale, and plaintiff's sales of them to its passengers are not subject to the tax because they occur beyond this State.

Plaintiff has paid all sales and use taxes owed by it under the Act as construed by the 1951 opinion of the Attorney General, but has not paid any sought to be assessed under the 1959 opinion because it does not owe them.

Plaintiff's legal remedy is uncertain and inadequate. Section 19 of the Sales and Use Tax Act provides that upon claim of illegal assessment, 'the taxpayer shall have his remedy under the Code of Georgia, Section 92-8445 et seq.' However, although such a section existed in the unofficial annotated Code, it has never been a part of the official Code of Georgia, and therefore plaintiff cannot be certain that it has any legal remedy.

Furthermore, even if such remedy exists, it is inadequate. That section of the annotated Code provides for appeal of assessments to the superior court. But defendants have threatened to audit plaintiff's records from about June 30, 1963, through February 18, 1965, and as each month is a tax period, plaintiff will be confronted with a series of assessments. Each new assessment and appeal would constitute a new and separate proceeding at law, resulting in a multiplicity of suits. Also, in making such assessments, the defendants may either assess an arbitrary figure and impose upon plaintiff the burden of correctness, or they may audit plaintiff's records for the months involved and make an assessment on that basis. Either procedure would subject plaintiff to substantial expense and inconvenience, with doubtful legal basis for recovery therefor. The latter procedure would require plaintiff either to bring its records from New York City and Miami to defendants' offices or to pay the expenses of defendants' agents to and from such cities and while there so engaged.

Plaintiff has a further claim to equitable relief for the reason that it acted for some eight years in reliance upon the said 1951 opinion in planning its operations so as to make Atlanta, rather than some city in another state, a key part of its operations. Furthermore, between the 1951 and 1959 opinions, the General Assembly of Georgia met in eight sessions but took no action which detracted from the original 1951 opinion, although it amended the Act 17 times in other respects.

An actual controversy exists between the plaintiff and defendants as to the proper construction and application of said Sales and Use Tax Act as it affects plaintiff, and hence plaintiff is entitled to a declaratory ...