Flying Tiger Line, Inc. v. County of Los Angeles

*323CARTER, J.

I concur in the judgment of affirmance. The issue presented by this case is: To what extent can the domicile state of an interstate and foreign air carrier impose an ad valorem tax on its property when one or more non-domiciliary states have acquired the power to impose an ad valorem tax on an apportioned basis. While the decided cases seem to hold that under the circumstances the domicile state cannot tax on the basis of the full assessed valuation of all the property, the precise extent of its power to tax has not yet been decided by the Supreme Court of the United States.

The principles bearing on this issue are contained in several recent cases. In Northwest Airlines, Inc. v. Minnesota, 322 U.S. 292 [64 S.Ct. 950, 88 L.Ed. 1283, 153 A.L.R. 245], the court held that Minnesota, the domicile of the airline, had constitutional power to tax the airline’s entire fleet of aircraft at its full value even though all the planes were continuously engaged in interstate flights. In this case Chief Justice Stone wrote a vigorous dissent in which he held that Minnesota could only impose an apportioned tax. In 1949 the Supreme Court held in Ott v. Mississippi Valley Barge Line Co., 336 U.S. 169 [69 S.Ct. 432, 93 L.Ed. 585], that Louisiana, a nondomiciliary state, could tax barges and tugs, moving in and out of the state, on an apportioned basis according to the commerce carried on within the state. In Standard Oil Co. v. Peek (1952), 342 U.S. 382 [72 S.Ct. 309, 96 L.Ed. 427, 26 A.L.R.2d 1371], involving vessels traveling on the Mississippi River, the Supreme Court adopted the rule that a domiciliary state could not tax the full value of property located only part of the time within its borders, and which must have acquired a tax situs elsewhere, without constituting an unreasonable burden on interstate commerce. The court said, at page 384:11 The rule which permits taxation by two or more states on an apportioned basis precludes taxation of all of the property by the state of the domicile.” Northwest Airlines was distinguished on the ground that in that case it had not been shown that “a defined part of the domiciliary corpus” had acquired a taxable situs elsewhere. The court did not spell out, however, the extent of the domicile’s taxing power under the circumstances. Finally, in 1954, in Braniff Airways, Inc. v. Nebraska State Board of Equalization and Assessment, 347 U.S. 590 [74 S.Ct. 757, 98 L.Ed. 967], the court, applying the reasoning of the Ott case, upheld the *324power of a nondomiciliary state to impose an apportioned tax on planes and flight equipment used by the taxpayer in operating a purely interstate line.

In the present ease Los Angeles County, the domicile for tax purposes, seeks to impose an ad valorem property tax on the full value of five aircraft belonging to Flying Tiger Line, used chiefly in the Korean Airlift, but also used in other foreign and interstate commerce. The tax was paid under protest, and in the suit for refund the trial court gave judgment for plaintiff in an amount equal to the difference between the tax paid on the full value and the tax that should have been paid on a value apportioned according to the time the planes were physically present in the county during a certain test period.

I agree with the views expressed in the opinion prepared by Mr. Justice Me Comb which holds, in effect, that where a nondomiciliary state has acquired the power to impose an apportioned tax, the domicile must also impose an apportioned tax. There is no express authority to support this proposition, but it appears to be in harmony with sound principles of constitutional law.

The commerce clause is violated when a tax subjects interstate commerce to an undue burden or creates a risk of such a burden. However, it has been recognized that interstate commerce should “pay its way” in the states where it receives substantial benefits and protection, with the result that reasonable state taxation is permitted. To avoid a violation of the due process clause, the tax must bear a reasonable relation to the benefits and protection conferred by the taxing state. These rules were recognized in the Standard Oil case where the court said: “The rule which permits taxation by two or more states on an apportionment basis precludes taxation of all of the property by the state of the domicile. Otherwise there would be multiple taxation of interstate operations and the tax would have no relation to the opportunities, benefits, or protection which the taxing state gives those operations.”

The rule stated in the opinion prepared by Mr. Justice McComb presents no real risk of multiple taxation. A cumulative burden could result from the use in different states of different apportionment formulae, but this is not very likely. Apart from this slight possibility, apportionment of the tax base is generally acknowledged to be the best way to avoid multiple taxation. It was stipulated at the trial that the aircraft in question were physically present in Los Angeles *325County only 36.37 per cent of the time during a test period. This percentage was used to apportion the value of the planes by the trial court and is reasonably related to the benefits and protection conferred by the county. Therefore, there does not appear to be a violation of due process.

I can see no basis for holding that the case be remanded to the board of equalization for a hearing to determine whether any other state has acquired the power to impose an apportioned tax under the rule of the Braniff ease. The trial court was apparently satisfied that such a showing had been made. If no state has such power, then Los Angeles County may tax on the full value of the aircraft under the holding of the Northwest Airlines case. On the other hand, if one or more states have such power, then the Standard Oil case applies, and the full value cannot be taxed.

I have found no authority holding that the board of equalization should determine to what extent the property has acquired a taxable situs elsewhere, and then should order a reassessment of the tax accordingly. Under this basis of taxation an undue burden on interstate commerce is likely to result in two different ways. The board of equalization is required to determine whether any portion of the Flying Tiger Line’s property has acquired a taxable situs elsewhere and what that portion is. Although tests framed by the Supreme Court are available to aid the board in this determination, there are no iron-clad rules describing what contacts are sufficient to give a state jurisdiction to tax. Thus it may be that while the board will find that certain property has not acquired a taxable situs in another state and so is taxable in full by Los Angeles County, the taxing authorities in that state may reach a contrary determination and impose a tax under that state’s apportionment formula. The cumulative burden that would result is apparent.

An undue burden may also arise because of the various formulae for apportionment used among the states. These formulae are computed on the basis of the presence of the aircraft in and out of the state, mileage in and out of the state, arrivals and departures in and out of the state, revenue earned in and out of the state, as well as many combinations of these factors. With a 100 per cent tax base being applied in the domicile state, different formulae applied by other states are very apt to lead to excessive taxation.

That personal property has its situs at the owner’s domicile, *326has long been recognized as a fiction employed to prevent migratory property from avoiding taxation completely. (Pullman’s Palace Car Co. v. Pennsylvania, 141 U.S. 18, 29 [11 S.Ct. 876, 35 L.Ed. 613].) This fiction was primarily used in cases involving ocean-going vessels which acquired no actual situs elsewhere. It was thought that if they were not taxable at the domicile they might not be taxable at all. (Ott v. Mississippi Valley Barge Line, supra, p. 173.) As Chief Justice Stone said in his dissenting opinion in the Northwest Airlines case: “And our decisions establish that, except in the ease of tangibles which have nowhere acquired a tax situs based on physical presence, and for that reason remain taxable at the domicile even if never present there, the state’s power to tax chattels depends on their physical presence and is neither added to nor subtracted from because the taxing-state may or may not happen to be the state of the owner’s domicile.” But where it appears that the carrier will not avoid taxation on a considerable portion of its property, there should be no reason to employ the fiction in whole or in part. It is obvious that to permit Los Angeles County to tax the full value of the property here involved, would impose a tax beyond that justified by its physical contacts with the county, a tax that the county has no power to impose, and thus violate due process. Moreover the tax is not reasonably related to the benefits and protection conferred by the county. “So far as due process is concerned the only question is whether the tax in practical application has relation to opportunities, benefits, or protection conferred or afforded by the taxing state.” (Ott v. Mississippi Valley Barge Line, supra, p. 174.)

It is of some significance to note that recommendations made by the Civil Aeronautics Board in 1945, as a result of the confusion engendered by the Northwest Airlines case indicate disapproval of the domicile basis for taxation and support for some system of apportionment of the tax base. (See Multiple Taxation of Air Commerce, H.R. Doe. No. 141, 79th Cong., 1st Sess.)

It has been suggested that Flying Tiger Line will probably avoid taxation of a large portion of its property because the greater part of Flying Tiger’s Flights are overseas. This suggestion is probably well-founded. Another quotation from the dissenting opinion of Chief Justice Stone in the Northwest Airlines case, however, adequately disposes of this point: “It is no answer to suggest that the states other than Minnesota have not asserted their constitutional power to tax or that we *327do not know how or to what extent they have exercised it. The extent to which one state may constitutionally tax the instruments of interstate transporation does not depend on what other states may happen to do, but on what the taxing state has constitutional power to do.”

The logic of the foregoing is inescapable.