King v. L & L Marine Service, Inc.

BLACKMAR, Judge,

dissenting.

I wholly agree with the holding in the principal opinion that the cute trick attempted by the taxpayer (or, at this stage perhaps, the non-taxpayer), for the admitted purpose of avoiding the payment of Missouri’s compensating use tax on the purchase of an airplane, did not take it out of the coverage of the Missouri Statutes, §§ 144.600-144.615, RSMo 1978. I cannot agree that any such scheme and device was effective to disable the Missouri legislature from taxing an incident which it has chosen to tax, by imposing the bar of the Commerce Clause (Art. I, § 8, cl. 3) of the Constitution of the United States. I therefore dissent.

Although a classical economist might feel that the use taxes are anticompetitive and inhibit consumers from seeking the best bargains available, the United States Supreme Court has recognized their propriety and validity over a period of many years. Henneford v. Silas Mason Company, 300 U.S. 577, 57 S.Ct. 524, 81 L.Ed. 814 (1937). By means of the use tax a state may protect its industries and merchants against competition from states which do not choose to impose sales taxes, or which have sales taxes lower than Missouri’s. Purchasers situated in Missouri and who might be expected to make the bulk of their purchases in Missouri, then are not able to derive tax advantages from going elsewhere.

*528The facts are all stipulated, and so there is no question of deference to the findings of the administrative tribunal. This taxpayer is a Missouri corporation, with its principal office and place of business in Missouri. It has a national business, all of which relates to interstate commerce, but that circumstance does not exempt it from paying sales taxes at the site of its purchases, and should not exempt it from paying use taxes which may properly be levied. The plane in question was subject to the control of the corporation at all times, and the people in the executive office in Missouri had the authority to give directions about its use. It was regularly hangared at Lambert International Airport between trips, and its regular repair facilities were in Missouri. If the present result stands then the corporation would have derived a positive advantage from going outside of the state to purchase the plane.

The leading case involving the application of use taxes to property used in interstate commerce is Southern Pacific Company v. Gallagher, 306 U.S. 167, 59 S.Ct. 389, 83 L.Ed. 586 (1939). There the Supreme Court allowed California to apply its use tax to property which was used solely in interstate commerce in the operation of a railroad. The railroad corporation was organized under Kentucky law, but had its principal office in California. The case involved two kinds of property, office supplies and maintenance supplies. These were purchased outside the state of California and shipped in on the railroad’s own lines without cost. The supplies were stored in California pending use. Sometimes the period of storage was very short, as with construction materials shipped to a job site. The court said that a “taxable moment” was required in order to permit the assessment of a use tax, and held that storage, even for a very brief period, was such a moment. Id. at 177, 59 S.Ct. at 393. The court explained its position further:

the taxable event is the exercise of the property right in California ....

306 U.S. at 181, 59 S.Ct. at 395.

In United Airlines, Inc. v. Mahin, 410 U.S. 623, 93 S.Ct. 1186, 35 L.Ed.2d 545 (1973), Illinois levied a use tax on aviation fuel which had entered Illinois by pipeline or tank car from other states and was stored at Midway Airport or O’Hare Field. The tax was measured by the quantity of fuel loaded into planes departing from the airports. The Court held that either storage or withdrawal could be a taxable incident and that the tax could be measured by the entire volume of fuel loaded into interstate as well as intra-state flights. Thus the tax could attach the moment that fuel was pumped into a plane which was ready for immediate departure to a point in another state.

In Management Services, Inc. v. Spradling, 547 S.W.2d 466 (Mo.1977), this Court upheld the application of the use tax in the purchase of an airplane by a corporation organized under Missouri law and having its principal place of business in Missouri. The aircraft was manufactured in Kansas but was then shipped to Colorado, where the purchaser took the delivery on January 8, 1970. After several test flights, the aircraft, on January 23, 1980, was flown to Kansas City, Missouri. On January 23 it flew to the manufacturer’s place of business in Wichita, Kansas, and back to Kansas City the same day. On January 25, it began transporting company personnel in interstate commerce. This Court very appropriately decided the case in exact terms of Southern Pacific, considering the periods from January 21 to January 23, and from January 23 to January 25 as “storage,” and the use after January 25 as “consumption” in interstate commerce. We decided the case on the narrow basis that the storage preceded the consumption, so that the use tax was expressly permitted by Southern Pacific. The clear analogy permitted us to dispose of the case without further extended analysis.

This taxpayer undoubtedly structured the transaction now in question with Management Services in mind, and seeks to maintain the proposition that a use tax may not be levied on property used in interstate commerce unless there is a taxable moment, *529such as storage, which precedes the use in interstate commerce. I do not believe that Southern Pacific is so confining, or that the Court there intended to cast a mold into which all factual situations must fit before the use tax is permissible on property used in interstate commerce.

The case before us is indistinguishable from Management Services, except for the journey of the plane from Wilmington, Delaware 1 to Newark, New Jersey, so that the officer who accepted delivery could complete further business in New York, and its trip from Newark to St. Louis to return the officer to his home base, and to take the plane to the place where it would be accessible to the company officers. The plane, then, was on the ground at the company’s principal place of business and readily subject to its control, which was exercised out of its principal office. Clearly there was an “exercise of property rights,” wholly within Missouri. Under these circumstances even a moment on the ground at Lambert constituted a “taxable moment.” Moments were repeated over the ensuing months. There were taxable moments in Missouri which could be found in no other state. These moments are entirely sufficient to support the imposition of the use tax.

Northwest Airlines v. Minnesota, 322 U.S. 292, 64 S.Ct. 950, 88 L.Ed. 1283 (1944) involved personal property taxes but is very helpful in resolving this case. The taxpayer was an interstate air carrier, organized under Minnesota law and having its principal offices in St. Paul. At issue was the ad valorem taxation of its fleet of airplanes for the year 1939. The tax was levied" on the planes owned on May 1 of that year. All of its planes had been engaged wholly in interstate flying prior to the taxable date, and continued to be so engaged. All planes came into Minnesota at some time during the year but departed for ports in other states after stopping simply to discharge passengers and cargo and to receive other passengers and freight, except for periods when they were down for repair and overhaul. A majority of the Court found that there were sufficient taxable incidents in Minnesota, which could not be repeated in other states, so as to permit the taxation of all of the planes for their full value, without apportionment. All five of the majority justices agreed that the analogy of the “home port” of a ship applied to permit the imposition of the tax. Justice Frankfurter gave additional prominence to the fact of Minnesota incorporation, and Justice Jackson discounted this, but felt that the combination of location of executive offices and regular presence of the planes in Minnesota was sufficient to establish St. Paul as “home port” and to support the tax.

The “taxable incidents” found in Northwest Airlines are exactly the same as the incidents in this case. It is entirely appropriate to say that Lambert is the “home port” of the aircraft here in question. Its arrival at its home port is entirely sufficient as a “taxable moment.” The prior interstate journey does not change this situation.

The principal opinion relies substantially on the case of W.R. Grace & Co. v. Comptroller, 255 Md. 550, 258 A.2d 740 (1969). Grace was a Connecticut corporation. The report does not show where its principal office or place of business was. It had a “division” in Maryland, but the report does not demonstrate that the planes in issue were used exclusively, or even substantially, in the business of the division. The court indicated, rather, that they were used in the business of “W.R. Grace & Co.,” and it is patent that the chief executive officers of the company, wherever they might be, were the persons entitled to give authoritative directions about the use of the planes. The only local incident was that of “storage” or “hangaring,” which took place at Friendship airport in Maryland. Although there are decisions indicating that this incident might be sufficient to support local taxation, the Maryland court did not so hold, on the basis that the storage at the hangar was incidental to the use of the planes in inter*530state commerce.2 The court in so holding placed more restrictions on the taxing power of the state than the federal constitution requires. The decision is not binding on us in any sense. The report, furthermore, shows that the court rested its conclusion, at least in part, on local comptrollers’ rules. This circumstance may have forestalled review of the decision by the Supreme Court of the United States. Be all of these circumstances as they may, however, the present record contains facts such as domicile of the corporation, location of the principal office, and right of local control, which are not present in the Grace case.

Grace does mention the fact that the planes had made other interstate journeys on their owner’s business before landing for the first time at Friendship. This circumstance is cited, among others, to demonstrate the lack of total connection to Maryland. There is no indication that the prior journeys were contrived as a part of a tax-avoiding scheme. Grace is not strong support for the broad proposition the taxpayer seeks to draw from it — that any “interstate moment” prior to the “taxable moment” of landing and remaining on the ground at “home port” will avoid the use tax.

The Maryland court, furthermore, makes an abortive attempt to distinguish Northwest Airlines by pointing out that there was no majority opinion. All three of the opinions in Northwest demonstrate that the present case shows adequate taxable incidents. Justice Douglas’s qualification on Northwest in Standard Oil Co. v. Peck, 342 U.S. 382, 384, 72 S.Ct. 309, 310, 96 L.Ed. 427 (1952) simply says that “it was not shown that ‘a defined part of the domicilary corpus had acquired a taxable situs elsewhere.’ ” The tax which Missouri seeks could not possibly have been claimed by any other jurisdiction. Northwest, on its facts, is clearly applicable here.

The taxpayer also tries to make use of Union Pacific Railroad Co. v. Utah State Tax Commission, 110 Utah 99, 169 P.2d 804 (1946), in which eight diesel engines that the railroad had used for switching in Nebraska were moved to Salt Lake City, Utah, and used in switching operations there. The record does not show when the railroad acquired the engines or what taxes were paid at that time. Nor was the extent of use in Nebraska shown. That case obviously presented the problem as to whether each successive movement of property to another state would be the occasion for an additional use tax. The case involves circumstances having no counterpart in the present record, and is of little help in resolving the matter now before us.

The position here advanced is supported by such decisions as American Airlines, Inc. v. State Board of Equalization, 216 Cal.App.2d 180; 30 Cal.R. 590 (1963), holding that shipment of aircraft parts to California for immediate installation in aircraft destined for interstate departure was constitutionally sufficient to invoke California use tax; Vector Company, Inc. v. Benson, 491 S.W.2d 612 (Tenn.1973), emphasizing “right to control”; In re Woods Corporation, 531 P.2d 1381, 1384 (Okl.1975), emphasizing the exercise “of rights incident to ownership and possession... ”; and Sundstrand Corporation v. Department of Revenue, 34 Ill.App.3d 694, 339 N.E.2d 351, 354 (1975), characterizing the use tax as a tax on the “exercise of right of ownership.” These eases of course differ as to facts but are helpful in showing that most courts which have dealt with the problem have borne in mind the essential purpose of use tax statutes and have applied them so as to permit states to protect their local interests, within the framework of Supreme Court decisions.

The multiple taxable incidents in Missouri are not rendered inoperative simply because the plane did not proceed immediately to Missouri after purchase. None of the cases cited by the taxpayer supports any “interstate moment” theory as a bar to the use tax. When the plane landed in St. Louis, at *531the company’s home, it was completely under the control of the company’s management. The storage, even for a moment, is enough. It matters not what the plane had done earlier.

It is often said that personal property is presumed to have the domicile of the owner in the absence of a showing of permanent situs elsewhere. Hawley v. Malden, 232 U.S. 1, 34 S.Ct. 201, 58 L.Ed. 477 (1913); Southern Pacific Co. v. Kentucky, 222 U.S. 63, 32 S.Ct. 13, 56 L.Ed. 96 (1911). We do not have to decide here as between the state of incorporation and the state where the principal office is located, since the two coincide. The domicile is the place at which the corporation would be expected to make purchases. This state may protect its expectations by means of a use tax.

I do not dispute the taxpayer’s assertion that tax avoidance, as distinguished from tax evasion, is as American as apple pie, but we should deal with fundamentals rather than accidents or episodes. The Commerce Clause serves a vital purpose in our federal scheme of government. When state taxes burden interstate commerce the Supreme Court of the United States has not hesitated to strike them down. When a tax does not burden interstate commerce and serves a proper local purpose, however, the Court has upheld it, as it has with use taxes. The principal opinion would subject Missouri traders to disadvantage in a transaction possessing substantial local incidents, or taxable moments. The conclusion is not required by any controlling decision, and is out of line with the cases reflecting the appropriate purpose of the use tax.

The principal opinion is based wholly on federal constitutional grounds and, as the opinion shows, operates to defeat the legislative intent. This Court, of course, has the authority and duty to give attention to controlling constitutional decisions, and to scrutinize the work of the state legislature to ensure compliance with federal constitutional standards. If there is conflict the statute must yield, wholly or pro tanto. The strong presumption, however, is in favor of validity. The legislative intent should be set aside only in a clear case. I find the cases ruled on neither compelling nor persuasive. My reading of the controlling authorities persuades me that the state’s position is sound.

Up to this point I have not mentioned the wholly intra-state flights the plane made after arrival at its home base at Lambert Field. These flights, in and of themselves, supply the required “taxable moment” to support the use tax. They were clearly contemplated at the time the plane was acquired. The taxpayer proves too much when it tries, as it did at oral argument, to avoid the effect of the intra-state flights by claiming that the taxpayer’s whole business constituted interstate commerce. Local incidents of interstate business are taxable locally. Southern Pacific, supra. The in-tra-state flights supply the “local activity separate from an aspect of interstate commerce” which the principal opinion finds necessary. More than this, they demonstrate the taxpayer’s complete control over the plane at its legal and commercial domicile, which is a privilege that may be taxed.

The decision of the Administrative Hearing Commission should be reversed and the case remanded with instructions to uphold the assessment of the tax.

. Delaware had no sales tax.

. See Edelman v. Boeing Air Transport, 289 U.S. 249, 53 S.Ct. 591, 77 L.Ed. 1155 (1933); Nashville, Chattanooga & St. Louis R. Co. v. Wallace, 288 U.S. 249, 53 S.Ct. 345, 77 L.Ed. 730 (1933).