In Re the Tax Appeal of Aloha Airlines, Inc.

647 P.2d 263, 65 Haw. 1, 1982 Haw. LEXIS 182
CourtHawaii Supreme Court
DecidedJune 23, 1982
Docket7078, 7751
StatusPublished
Cited by13 cases

This text of 647 P.2d 263 (In Re the Tax Appeal of Aloha Airlines, Inc.) is published on Counsel Stack Legal Research, covering Hawaii Supreme Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
In Re the Tax Appeal of Aloha Airlines, Inc., 647 P.2d 263, 65 Haw. 1, 1982 Haw. LEXIS 182 (haw 1982).

Opinions

[3]*3OPINION OF THE COURT BY

NAKAMURA, J.

Aloha Airlines, Inc. and Hawaiian Airlines, Inc. (hereafter Aloha and Hawaiian, respectively; the taxpayers, collectively) challenge the taxation of inter-island air carriers under the Public Service Company Tax Law, HRS Chapter 239, in these consolidated appeals from the Tax Appeal Court. They claim the assessment of a tax on the “gross income each year from the airline business” pursuant to HRS § 239-61 runs afoul of the federal constitution’s [4]*4Supremacy and Commerce Clauses2 because 49 U.S.C. § 1513 proscribes the levy of a tax premised on “the gross receipts derived” from air transportation.3 We conclude the State tax in question, as applied to the taxpayers, has not been rendered unconstitutional by [5]*5the foregoing federal legislation and affirm the Tax Court’s decisions.

I.

Aloha and Hawaiian are Hawaii corporations engaged in the transportation of persons, property, and mail by air between terminal and intermediate points in Hawaii. Prior to the enactment of S.L.H. 1981, c. 167, they fell within the meaning of “Public service company” as the term was defined in HRS § 239-2 because a common carrier by air was deemed a public utility by HRS § 269-1.4 See In re Tax Appeal of Aloha Airlines, Inc., 56 Haw. 626, 627, 547 P.2d 586, 587 (1976). Although the crucial federal statute was enacted in 1973 as part of the Airport Development Acceleration Act of 1973, the taxpayers nevertheless continued to file annual returns as required by HRS § 239-4 and to pay the tax as prescribed by HRS § 239-6 without question for several years thereafter. The taxpayers’ present position on the invalidity of HRS § 239-6 as it applies to airlines was initially advanced in 1977 when Aloha filed amended returns for the 1973, 1974, and 1975 calendar years. Hawaiian sought no refund of the tax payments in question until 1978 when it submitted, amended returns for 1973, 1974, 1975, and 1976. All claims for refunds were summarily disallowed by the State Director of Taxation (the Director). Aloha’s return for 1976 and Hawaiian’s return for 1977 reflected their present views regarding the unconstitutional nature of the Public Service Company Tax. The Director, however, ruled 49 U.S.C. § 1513 was “not applicable for Hawaii tax purpose,” and assessments consistent with HRS § 239-6 were made. Timely appeals to the Tax Appeal Court from the Director’s determinations on the refunds and assessments followed.

[6]*6The appeals were submitted to the Tax Appeal Court for decision on stipulated facts and briefs filed by the taxpayers and the Director. Aloha and Hawaiian conceded they were public service companies within the meaning of HRS § 239-2, but argued, as they do here, that there is an irreconcilable conflict between HRS § 239-6 and 49 U.S.C. § 1513 and the State law has been voided by the federal statute. The court rejected their arguments, ruled the Public Service Company Tax is “a property tax and a general tax,” and concluded the Director properly assessed the tax against the taxpayers.

II.

Aloha asserts the State law in question contravenes the Commerce Clause and the Supremacy Clause of the federal constitution; Hawaiian’s claim of unconstitutionality is premised on the Supremacy Clause. We begin our analysis with a review of the State and federal statutory provisions involved.

A.

Hawaii’s Public Service Company Tax is a direct descendant of the Public Utility Tax which was adopted in 1932. Although airlines were not covered by the tax on public utilities when it first became effective, they became subject to the tax shortly thereafter.5 Two decades later, air carriers were exempted from payment of the utility tax and subjected to taxation under the General Excise Tax Law.6 The legislature reconsidered this decision in 1963 and again decided inter-island air carriers should be classified with public [7]*7utilities for State tax purposes; it concomitantly redesignated the Public Utility Tax as the Public Service Company Tax. See S.L.H. 1963, c. 147, § 2(a). Airlines have since been subject to taxation pursuant to HRS § 239-6 which delineates the basis and the rates for assessing the tax against common carriers by air and water, motor carriers, and contract carriers other than motor carriers. The foregoing provisions levy a flat four or three percent tax on gross income from utility business. Others subject to the Public Service Company Tax are likewise taxed on the basis of their gross incomes, but at varying rates (beginning at 5.885%) determined in each case by the ratio between the net income and the gross income from utility business. See HRS § -239-5.

Our Territorial predecessors considered the nature of the levy in question early in the history of the Public Utility Tax; they concluded it “imposes a tax comparable to the ad valorem real and personal property taxes otherwise imposed” by the laws of the Territory of Hawaii. Hawaii Consolidated Railway v. Borthwick, 34 Haw. 269, 281 (1937), aff'd, 105 F.2d 286 (1939). And the rationale for so concluding was stated in part as follows:

Authorities on taxation have uniformly recognized with approval the efforts of some of the States to avoid the difficulties encountered in ad valorem assessments of the real and personal property of utilities actually employed in the utility business by substituting a tax upon gross incomes from utilities from utility business, upon net income from the same source or both. (See Lutz, Public Finance [2d ed.] p. 462, etseq.; Luce, “Assessment of Real Property for Taxation,” 35 Mich. L. Rev. 1217; Ravage, “Valuation of Public Utilities for Ad Valorem Taxation,” 41 Yale L. J. 487.) And this method of taxation of real and personal property of utilities within the taxing jurisdiction has the unqualified approval of the courts. It will suffice to cite the leading cases on the subject decided by the United States Supreme Court. (See

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In Re the Tax Appeal of Aloha Airlines, Inc.
647 P.2d 263 (Hawaii Supreme Court, 1982)

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647 P.2d 263, 65 Haw. 1, 1982 Haw. LEXIS 182, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-the-tax-appeal-of-aloha-airlines-inc-haw-1982.