Bi Go Markets, Inc. v. Morton

ROBERTSON, Chief Justice,

dissenting.

Respondent Bi-Go Markets, Inc., is a New Hampshire corporation and a subsidiary of Wetterau Incorporated. Bi-Go leases a corporate jet to Wetterau, which Wetterau bases in St. Louis County, Missouri. This case asks us to determine whether a non-domiciliary taxing authority (here, St. Louis County, Missouri) may levy an unapportioned ad valorem tax on property used in interstate commerce (here, Bi-Go’s corporate jet based in St. Louis County). The precise issue in this case has escaped the dispositive hand of the United States Supreme Court.

The majority opinion concludes that St. Louis County may levy an unapportioned ad valorem tax on the airplane, reasoning that the tax is permissible because no other state has been shown to have the power to tax the airplane. In my opinion, the Commerce Clause of the United States Constitution does not permit St. Louis County to levy an unapportioned tax in this case. For the reasons expressed, I respectfully dissent.

I.

A taxpayer may challenge a state’s efforts to levy an ad valorem tax on two constitutional grounds. First, the Due Process Clause of the Fourteenth Amendment prohibits a state from taxing property with which it has no significant contacts. Thus, property that is permanently located outside the state, even though it belongs to a domiciliary of the state, may not be taxed by the domiciliary state. Union Refrigerator Transit Co. v. Kentucky, 199 U.S. 194, 26 S.Ct. 36, 50 L.Ed. 150 (1905) (due process prevents domiciliary state from taxing property located permanently outside the state); Old Dominion Steamship Co. v. Virginia, 198 U.S. 299, 25 S.Ct. 686, 49 L.Ed. 1059 (1904) (non-domiciliary state may tax property located permanently within its borders on an unapportioned basis). Although Bi-Go claims an unappor-tioned Missouri tax would violate due process, Missouri has sufficient contacts with this airplane to support the imposition of an ad valorem tax. The extent of Missouri’s power to tax, however, is a Commerce Clause rather than a Due Process Clause concern.

The Commerce Clause forbids a state from levying a tax that either discriminates against interstate commerce or places an undue burden upon interstate commerce. Bi-Go’s jet leaves Missouri for other states on nearly a daily basis. It travels, at least sporadically, to New Hampshire, the domicile of its owner. It is used to transport persons and property between and among the several states as the needs of its owners dictate. The plane, it is not disputed, is an instrument of interstate commerce.

There is no claim here that St. Louis County’s tax discriminates against interstate commerce. The County seeks to impose a tax at the same rate as that for property involved in purely intrastate com*923merce. Therefore, it remains only to be determined whether the unapportioned tax assessed in this case poses an undue burden on interstate commerce. The majority opinion holds that it does not. With respect, I disagree.

The majority opinion holds that the federal constitution does not require St. Louis County to apportion its tax because the taxpayer has failed to prove “that the aircraft maintained a habitual •presence or continuous use or enjoyment of the property within New Hampshire.” Maj.Op. at 920. [Emphasis added.] By borrowing language used to test the taxing authority of non-domiciliary states and applying it to New Hampshire, the domiciliary state in this case, it is apparent that the majority’s result is founded on its assumption that the taxing powers of non-domiciliary states are now identical to those of domiciliary states. I believe, however, that a domiciliary state still occupies a unique position with respect to levying taxes on the property of its residents, provided the domiciliary state retains some contact with the taxed property.

No previous case, state or federal, holds that a non-domiciliary state may levy an unapportioned ad valorem tax on an instrument of interstate commerce not located permanently and continuously within its borders. On the other hand, a domiciliary state may levy such a tax on property used in interstate commerce until it is shown that some non-domiciliary state has acquired sufficient contact with the property to levy an apportioned tax. New York Central & H.R. Co. v. Miller, 202 U.S. 584, 587, 26 S.Ct. 714, 50 L.Ed. 1155 (1906); Northwest Airlines, Inc. v. Minnesota, 322 U.S. 292, 299-300, 64 S.Ct. 950, 954-955, 88 L.Ed. 1283 (1944). The majority, by equating the taxing powers of domiciliary and non-domiciliary states, grants Missouri the benefit of the presumption found in Miller and Northwest despite the fact that Missouri is not the domicile of the plane’s owners. The majority does not dispute that if any state in addition to Missouri has the authority to tax this airplane, no matter how small its apportioned share may be, then Missouri must apportion its tax as well. Maj.Op. at 917. The majority holds that, because the aircraft made only eleven stops and three overnight stays in New Hampshire during the ten months under review, New Hampshire has insufficient contacts to support a New Hampshire tax. Maj.Op. at 920. I disagree and would hold that these contacts with New Hampshire, while perhaps insufficient to create the power to tax in a state that is not the property owners’ domicile, are sufficient for a state to retain at least some of the power to tax it had originally as the property owners’ domicile.

Indeed, my reading of the cases suggests that, at most, New Hampshire’s authority to levy an unapportioned tax as the domiciliary state is defeated only to the extent that Missouri (or some other jurisdiction) can “take” some portion of that authority to tax away. Therefore, I do not believe that Bi-Go is required to show that the contacts with New Hampshire are sufficient to establish it as a taxing situs; Bi-Go’s domicile there is enough. The burden on Bi-Go is merely to show that New Hampshire has not lost its power to tax completely; that Missouri has not taken New Hampshire’s place as the sole taxing authority. The eleven visits and three overnight stays in New Hampshire are sufficient to allow New Hampshire to maintain some authority to tax and, therefore, Missouri must apportion its tax.

Undoubtedly, there is confusion in the relevant cases. This uncertainty is based on the fact that the cases focus on a particular state, either a domicile or a non-domicile, and its power to tax certain property. The question of a particular state’s power to tax certain property as opposed to another state’s power has not been directly presented to the Supreme Court. Thus, the cases the majority cites are no more persuasive for its positions than for the conclusion I reach. In any particular case, the analysis proceeds from an initial factual predicate that the state attempting to tax is either the property owner’s domicile or not. To reach its result, however, the majority must assume that the distinction between the power of domiciliary and non-domicili*924ary states to levy property taxes is no longer relevant.

The majority opinion first cites Union Refrigerator Transit Co. v. Kentucky, 199 U.S. 194, 26 S.Ct. 36, 50 L.Ed. 150 (1905), for the proposition that a domiciliary state may not tax property that is permanently located outside the state. Maj.Op. at 918. Union Transit is a due process case. There, a Kentucky county court determined that Kentucky property taxes should apply only to that portion or percentage of Union Transit’s rolling stock used in Kentucky. Id. at 195, 26 S.Ct. at 36. A Kentucky circuit court affirmed this method of apportionment. The Kentucky Court of Appeals reversed, holding that Kentucky had authority to assess property taxes against the entire fleet because Kentucky, as the domiciliary state, was deemed to be the situs of Union Transit’s personal property wherever it may be situated. Id. The United States Supreme Court reversed and held that “the cars in question, so far as they were located and employed in other States than Kentucky, were not subject to the taxing power of that Commonwealth.” Id. at 211, 26 S.Ct. at 41. Union Transit thus stands for the proposition that a domiciliary state may levy an unapportioned property tax only insofar as the property is not permanently located outside the domiciliary state. Once property is permanently removed from the jurisdiction, the Due Process Clause prohibits the domiciliary state from taxing that property.

The majority next relies on Johnson Oil Refining Co. v. Oklahoma, 290 U.S. 158, 54 S.Ct. 152, 78 L.Ed. 238 (1933), to support the proposition that a domiciliary state may completely lose the power to tax the property of its residents. Maj.Op. at 918. Johnson Oil, too, is a due process case. As the majority recounts, Johnson Oil states that “the state of domicile has no jurisdiction to tax personal property where its actual situs is in another state.” Johnson Oil, 290 U.S. at 161, 54 S.Ct. at 153. I do not read the phrase “actual situs” as broadly as the majority, however. Instead, I believe the quoted statement merely recites the rule of Union Transit: where property establishes a tax situs 'permanently outside a domiciliary state, due process prohibits the domiciliary state from taxing the property.

The Supreme Court’s attention in Johnson, however, was not on Illinois, the domiciliary state, but on Oklahoma, a non-domiciliary state where the taxed property was habitually, though not continuously, found. Id. at 160, 54 S.Ct. at 153. The Court held that “Oklahoma was entitled to tax its proper share of the property ... determined by taking the number of cars which on the average were found to be physically present within the state.” Id. at 163, 54 S.Ct. at 154. [Emphasis added.] By limiting the non-domiciliary state to an apportioned tax, other states (including, presumably, Illinois) could levy taxes according to their contacts.

The majority next considers the two airline cases, Northwest Airlines, Inc. v. Minnesota, 322 U.S. 292, 64 S.Ct. 950, 88 L.Ed. 1283 (1944), and Braniff Airways, Inc. v. Nebraska, 347 U.S. 590, 74 S.Ct. 757, 98 L.Ed. 967 (1954). In Northwest, the airline was a domiciliary of Minnesota, which sought to levy an unapportioned tax on the airline’s property. The Supreme Court held that a domiciliary state may levy an unapportioned tax on property of its residents until the taxpayer demonstrates that the property is subject to tax in another state. Absent this showing, the domiciliary state may levy against all the taxpayer’s property wherever located. Id. 322 U.S. at 299-300, 64 S.Ct. at 954-955. This had been the rule since New York Central & H.R. Co. v. Miller, 202 U.S. 584, 587, 26 S.Ct. 714, 50 L.Ed. 1155 (1906), and continues to be rule today. See Central R.R., 370 U.S. at 613, 82 S.Ct. at 1302, and Peabody, 731 S.W.2d at 838.

In Braniff, the airline was an Oklahoma corporation. Nebraska, a non-domiciliary state, attempted to levy a tax on Braniff airplanes landing in Nebraska. The Court permitted Nebraska to levy an apportioned tax on Braniff’s planes based, in part, on the number of landings in Nebraska. Braniff, therefore, stands as an example, like Union Transit and unlike Northwest and Peabody, where the required showing *925that a non-domiciliary state possessed the power to tax was successfully made.

Braniff does not discuss the power of Oklahoma, the domiciliary state, to tax. Union Transit and Northwest make clear, however, that the authority of a domiciliary to tax does not evaporate merely because a non-domiciliary may levy an apportioned tax. Far from depriving the domiciliary state of the authority to tax, the existence of sufficient taxable contacts with another state, at most, requires the domiciliary to apportion its tax. See also Standard Oil Co. v. Peck, 342 U.S. 382, 384-85, 72 S.Ct. 309, 309-311, 96 L.Ed. 427 (where property was almost continuously out of the state, domiciliary state may only tax on an apportioned basis). But see Central Railroad Co. v. Pennsylvania, 370 U.S. 607, 612, 82 S.Ct. 1297, 1301, 8 L.Ed.2d 720 (1962) (due process does not limit a domiciliary state to an apportioned tax based on the proportion of the time the property spent within the state).

Finally, the majority turns to Central Railroad Co. v. Pennsylvania, 370 U.S. 607, 82 S.Ct. 1297, 8 L.Ed.2d 720 (1962), for the proposition that “it is only ‘multiple taxation of interstate operations’ that offends the Commerce Clause.” Central R.R., 370 U.S. at 612, 82 S.Ct. at 1301 (citing Peck, 342 U.S. at 385, 72 S.Ct. at 310). The sentence immediately preceding this quote reads, “a [domiciliary] State casts no forbidden burden upon interstate commerce by subjecting its own corporations, though they be engaged in interstate transport, to nondiscriminatory property taxes.” Id. In fact, the Supreme Court goes on to say, in language following that cited by the majority opinion, that “the Due Process Clause [does not] confine the domiciliary State’s taxing power to such proportion of the value of the property being taxed as is equal to the fraction of the tax year which the property spends within the State’s borders. Union Transit held only that the Due Process Clause prohibited ad valorem taxation by the owner’s domicile of tangible personal property permanently located in some other State.” Id. [Emphasis in original, citations omitted.]

The majority opinion also cites as “instructive,” Peabody Coal Co. v. State Tax Comm’n, 731 S.W.2d 837 (Mo. banc), cert. denied, 484 U.S. 960, 108 S.Ct. 446, 98 L.Ed.2d 386 (1987). Maj.Op. at 920. Yet, Peabody involved a Missouri corporation. Peabody is thus of little assistance as Peabody’s analysis proceeds from a factual predicate not found in this case. The airplanes being taxed in that case were based in Missouri, the domiciliary state, but traveled extensively in interstate commerce. This Court upheld an unapportioned Missouri tax because, while the record plainly showed the planes were out of Missouri for a substantial percentage of the time, the taxpayer had failed to demonstrate that any other state had acquired the authority to tax the property. Thus, this Court applied the presumption afforded domiciliary states by Central R.R., 370 U.S. at 611-12, 82 S.Ct. at 1301-02, Northwest, 322 U.S. at 294, 64 S.Ct. at 951, and Miller, 202 U.S. at 587, 26 S.Ct. 714. It appears that the majority has, in the present case, given Missouri the benefit of this same presumption even though she is not, in this case, the domicile of Bi-Go.

The central issue in this case is whether any state other than Missouri has the authority to tax Bi-Go’s jet. If so, Missouri must apportion. If not, Missouri may tax the entire value of the jet. Bi-Go bears the burden of establishing the existence of another tax situs. The majority opinion holds Respondents have failed in this burden because eleven landings and three overnight visits in New Hampshire are insufficient to establish a tax situs there. I believe, however, that because New Hampshire is respondents’ domicile the question is not whether these contacts establish the authority to tax there but rather whether the contacts are sufficient to retain at least some part of its originally plenary power to tax the property. Because I believe that these eleven landings and three overnight visits are a sufficient factual predicate for New Hampshire to retain authority to tax, I believe St. Louis County *926must apportion its tax.1

For this reason I believe the majority’s reliance on Chief Justice Stone’s dissent in Northwest is incorrect. See Maj.Op. at 920 n. 2. Justice Frankfurter’s opinion for the plurality in that case contains a very different statement.

The continuous protection by a State other than the domiciliary State — that is, protection throughout the year — has furnished the constitutional basis for tax apportionment in these interstate commerce situations, and it is on that basis that the tax laws have been framed and administered.
The taxing power of the domiciliary State has a very different basis. It has the power to tax because it is the State of domicile and no other State is.... [N]o judicial restriction has been applied against the domiciliary State except when property (or a portion of fungible units) is permanently situated in a State other than the domiciliary State. And permanently means continuously throughout the year, not a fraction thereof, whether days or weeks.

Northwest, 322 U.S. at 297-98, 64 S.Ct. at 953. In Central R.R., the “very different basis” of the domiciliary state’s power to tax is further explained as not being bound by the commerce clause and only bound by the due process clause to the extent that a state may not tax property permanently located outside its borders. It cannot be said that Bi-Go’s jet is permanently outside of New Hampshire. New Hampshire maintains some contact with the property of its resident and must, therefore, retain some portion of its power to tax this property. To the extent of this retained power, at least, Missouri’s power to tax the plane is likewise reduced. An apportionment of value must occur to reflect this reduction in this state’s constitutional authority to tax.

II.

I must also respectfully dissent from the majority’s “additional basis” for its reversal as to Wetterau. Maj.Op. at 920-21. The majority contends that Peabody Coal, “by strict stare decisis,” controls the disposition of Wetterau’s appeal. Maj.Op. at 920. Peabody Coal holds that Missouri may levy an unapportioned tax on an instrument of interstate commerce when the owner of that property is a domiciliary of this state. Peabody Coal, 731 S.W.2d at 839. The taxpayer, in that case, was the owner of the aircraft and was a Missouri corporation. Id. at 838.

In the present case, while it is true that Wetterau is a Missouri corporation, Wetter-au is not the owner of the jet. Wetterau holds the airplane under a six-year, triple-net lease from Bi-Go. Bi-Go, a New Hampshire domiciliary, is the owner. Sections 137.075 and 137.095, RSMo 1986, may make Wetterau liable for any tax which may otherwise legally be assessed against this plane, but neither those sections nor the domicile of a lessee changes what is, in my view, a constitutional prohibition against an unapportioned tax in this case. C.f. Union Transit, 199 U.S. at 195, 26 S.Ct. at 36 (state may tax only on an apportioned basis where owner of property was not a domiciliary of that state, without regard to the fact that the property was, at any one time, in the hands of numerous lessees). It is not the domicile of the taxpayer that drives the constitutional analysis; it is the domicile of the property owner. Any other rule would, in the present case, result in an unapportioned tax being *927held unconstitutional as against Bi-Go because it poses an undue burden on interstate commerce, but the same tax on the same plane would be held constitutional as against Wetterau. The constitutional law of ad valorem taxes cannot be made to depend on who receives the bill.

New Hampshire is the domiciliary state of the property owner in this case. As such, it stands in a unique constitutional position to levy an ad valorem tax on this plane. This position has not been lost simply because the plane has had limited contacts with New Hampshire or because the plane has been leased to a Missouri domiciliary. Because New Hampshire retains at least some of it authority to tax, Missouri may constitutionally levy only an apportioned tax, regardless of who is to pay that tax.

III.

Bi-Go maintains that such an apportionment is beyond the power of the St. Louis County. It argues that only the General Assembly has the power under Missouri’s constitution to establish the apportionment formula. St. Louis County contends that apportionment is merely a mechanical function. As such, it does not require legislative action.

Article X, Section 1 of the Missouri Constitution provides:

The taxing power may be exercised by the general assembly for state purposes, and by counties and other political subdivisions under power granted them by the general assembly for county, municipal and other corporate purposes.

St. Louis County has not cited a statute that grants it the authority to apportion a tax on property in interstate commerce. Where the General Assembly has granted that authority, it has done so in recognition of the statewide impact of such an apportionment and has assigned the apportionment task to the State Tax Commission. See, e.g., Section 151.060(3), RSMo 1986 (interstate railroad property to be apportioned); Section 155.040, RSMo 1986 (interstate airline property to be apportioned). Absent statutory authority in St. Louis County to apportion, I would hold that it lacks the authority.

IV.

Because I believe Missouri may not, consistent with the principles embodied in the federal commerce clause, levy an unappor-tioned tax on Bi-Go’s property, I would hold that Missouri must apportion its tax to fairly reflect the extent of its contacts with the property. Additionally, because the legislature has not established a formula by which this apportionment may be accomplished, St. Louis County is prohibited by Article X, Section 1 of the Missouri Constitution from doing so.

For these reasons, I respectfully dissent.

. Moreover, it is irrelevant whether the amounts charged by New Hampshire are, or should be considered, an ad valorem tax. This is so because the question is not whether a tax has been imposed in another jurisdiction but rather, "whether a state property tax might constitutionally be imposed...by the several states on an apportioned basis.’ ” Central R.R., 370 U.S. at 613, 82 S.Ct. at 1302 [citations omitted]; accord, Braniff, 347 U.S. at 598, 74 S.Ct. at 762. See also Peabody Coal, 731 S.W.2d at 838 (“The existence in another state of the constitutional authority to [tax] is enough to preclude Missouri [, the domiciliary state,] from levying an unap-portioned tax.”). Therefore, because the issue is solely whether New Hampshire maintains some constitutional authority to tax, Judge Benton’s "practical analysis” in which he finds a de facto "fair apportionment” between Missouri's unap-portioned ad valorem tax and New Hampshire’s user fee is inapposite.