Aloha Airlines, Inc. v. Director of Taxation of Hawaii

PETITIONER:Aloha Airlines, Inc.
RESPONDENT:Director of Taxation of Hawaii
LOCATION:Franklin County Sheriff

DOCKET NO.: 82-585
DECIDED BY: Burger Court (1981-1986)
LOWER COURT: Supreme Court of Hawaii

CITATION: 464 US 7 (1983)
ARGUED: Oct 04, 1983
DECIDED: Nov 01, 1983

ADVOCATES:
Richard L. Griffith – on behalf of the Appellants
William David Dexter – on behalf of Appellee

Facts of the case

Question

Audio Transcription for Oral Argument – October 04, 1983 in Aloha Airlines, Inc. v. Director of Taxation of Hawaii

Warren E. Burger:

Mr. Griffith, I think you may proceed whenever you are ready.

Richard L. Griffith:

Mr. Chief Justice, and may it please the Court:

These consolidated cases are on appeal from the Supreme Court of Hawaii.

They present a single issue, whether a Hawaii tax of 3 percent of the gross income of airlines from the airline business is exempt from the section of the Federal Aviation Act, 49 U.S.C., Section 1513, which forbids a state from levying a tax on the gross receipts derived from the carriage of passengers or the sale of air transportation.

The Hawaii Supreme Court upheld the Hawaii tax.

Its decision thus conflicts with the holdings of the other state courts which have considered the same issue, namely, the highest court of the State of New York, the Court of Appeals of Arizona, and the Superior Court of Alaska, all of which have struck down similar state taxes because of this federal statute.

Also, in the State of Ohio, the Attorney General rendered an opinion that the Ohio tax was invalid in view of the federal statute, and the Ohio legislature then repealed the tax.

Appellants Aloha Airlines and Hawaiian Airlines are commercial airlines flying in federal airways between the six major islands of Hawaii.

I will make three points on oral argument, and only three.

First, the plain language of the federal statute, 49 U.S.C. 1513, prohibits this tax.

Second, the Hawaii tax can’t be saved under subsection (b) of that federal statute because subsection (b) is consistent with subsection (a).

And finally, the legislative history of this statute requires a decision in favor of the airlines in this case because Congress meant exactly what it said in Section 1513, and it meant to forbid precisely this kind of state tax.

With regard to my first point, that the federal statute expressly prohibits the Hawaii tax, we need examine only the gist of the Hawaii tax statute and the key sentence of the federal statute.

First, the Hawaii statute says there shall be levied and assessed upon each airline a tax of 4 percent of its gross income each year from the airline business.

That language conflicts directly with the federal statute which provides no state… this is the federal statute… no state shall levy or collect a tax, fee, head charge or other charge directly or indirectly on persons traveling in air commerce or on the carriage of persons traveling in air commerce, or on the sale of air transportation, or on the gross receipts derived therefrom.

This federal statute thus expressly prohibits every conceivable method by which a state could tax the carriage of passengers by air or the sale of air transportation or the gross receipts derived therefrom.

William H. Rehnquist:

How about a next income tax, Mr. Griffith?

Richard L. Griffith:

Subsection (b) expressly permits a net income tax, Your Honor.

William H. Rehnquist:

Is there all that much difference between a gross income tax and a net income tax?

Richard L. Griffith:

I think there definitely is.

A gross income tax is a tax at the immediate point of transaction between a passenger and the airline, or between a customer and the provider of a service, and that is a tax which can easily be passed on dollar for dollar to the customer.

William H. Rehnquist:

Well, you say that a gross income tax is necessarily one on the passenger?

I wouldn’t have thought so, or perhaps I misunderstood you.

The statute is defined four different ways, to hit a tax directly on the passenger or a tax on the carriage of that passenger, or a tax on the sale of air transportation, or a tax on the gross receipts realized by the airline.

Yes, but what I am try… what I want to ask you is whether a gross income tax or gross receipts tax on the airline that is collected at the head office of the airline, it isn’t imposed on passengers individually at all–

Richard L. Griffith:

Yes.

William H. Rehnquist:

–Is that appreciably different from a net income tax similarly reflected?

Richard L. Griffith:

Very definitely different in concept and theory, Your Honor.

William H. Rehnquist:

How?

Richard L. Griffith:

Because a net income tax depends on many other factors besides the price of a ticket.

Richard L. Griffith:

It depends on administrative overhead, it depends on many other things, including other deductible state taxes.

Many other deductions and concepts are woven in before you get to the net of a company.

Sandra Day O’Connor:

Now, the act does not prohibit, I gather, a property tax or a franchise tax to be levied by the state.

Richard L. Griffith:

That is correct.

Sandra Day O’Connor:

And what reason would Congress have to forbid the use of gross receipts as a measure for imposing a property tax or a franchise tax?

Richard L. Griffith:

Because Congress–

Sandra Day O’Connor:

If the amount is the same?

Richard L. Griffith:

–Congress was very much concerned about the price of air fares, and the fact is that Congress as part of an overall federal program levied an 8 percent federal excise tax on air fares.

It did not want the states competing with that tax.

It did not want the states adding an additional tax up on top of the federal tax because that federal tax was the prime revenue raiser to fund the Congress’ airport aid program, a program which funneled vast sums out to the states for the development of airports.

Sandra Day O’Connor:

Well, I know that is what you have argued on the purpose, but if the state can get the same revenue and just label it something else, it is little hard to understand the position.

Richard L. Griffith:

I am saying, Your Honor, that the states cannot reach the same revenue through another label.

Sandra Day O’Connor:

Well, now, Congress has amended the law in a way that doesn’t apply to the tax years in question here.

Richard L. Griffith:

Yes.

Sandra Day O’Connor:

But they have since amended it, and they have created a new exemption for in lieu taxes.

Now, if that were applicable today, does that have any implication on this?

Richard L. Griffith:

No, it would not, Your Honor, because Congress left the two key sections we are talking about, (a) and (b) of Section 1513, undisturbed.

It then added an in lieu tax, but that would be taxes not prohibited by subsection (a), but certain in lieu taxes in other areas providing that the funds received from such in lieu tax go into airport development and improvement.

The Hawaii tax does not do that.

The Hawaii tax goes into the general state treasury.

Harry A. Blackmun:

Mr. Griffith, if you should prevail here, is there anything to prevent the state from turning around and levying even a higher income tax on your clients?

Richard L. Griffith:

Nothing whatsoever except the usual constitutional guarantees against unequal treatment, but otherwise nothing whatsoever.

Harry A. Blackmun:

But you might win a Pyhrric victory then here.

Richard L. Griffith:

We are willing to take that chance, Your Honor.

Warren E. Burger:

That isn’t the only kind of tax they could levy either, is it?

Richard L. Griffith:

That is correct, Mr. Chief Justice.

The subsection (b) lists a whole litany of state taxes that are still permitted so long as they do not reach head taxes, gross receipts taxes, taxes on air carriage, taxes on the sale of transportation.

So long as the states will stay away from the area of prohibition, they have freedom to tax the airlines like any other business or citizen.

Harry A. Blackmun:

If you were entirely an intrastate airline, didn’t fly over international waters, you would have no case here, would you?

Richard L. Griffith:

We would have a case, Your Honor.

Richard L. Griffith:

I’ll tell you why.

And the Arizona case was exactly on this point.

Section 1513 speaks of persons traveling in air commerce, and it also speaks in terms of carriage of persons traveling in air commerce.

Air commerce is a defined term in the Federal Aviation Act.

It has several definitions, but one key definition is flights within the federal air space.

The flights of the two airlines before you today are entirely within the federal air space, so even if we were totally intrastate, we would be covered by this statute, and in fact, I would remind you, in the Arizona case, Cochise Airlines was flying between points in the State of Arizona; it was stipulated that that was intrastate, but because of that definition of air commerce, that airline’s flights clearly came within the scope of the statute.

In subsection (a) Congress precluded all traditional forms of tax by specifically prohibiting any tax or any fee or any head charge, and it then went on to try and preclude preventive minds by prohibiting other charges to ensure that this prohibition would encompass any prohibited tax, however labeled.

Second, Congress broadly defined the subjects and measures of tax to be prohibited: namely, taxes, first, on persons traveling in air commerce; second, on the carriage of persons traveling in air commerce; third, on the sale of air transportation; and fourth, on the gross receipts derived therefrom.

And then finally, Congress extended this absolute prohibition to all taxes that are directly or indirectly levied or collected on any of these prohibited areas.

Congress thus meant to sweep the field clean of state taxes on air carriage, on gross receipts therefrom, and on head taxes.

The plain language, I submit, of Section 1513(a) thus prohibits the Hawaii tax.

Now, the Director of Taxation of Hawaii attempts to avoid the effect of this language with several theories, mostly looking to subsection (b) of the federal statute, and our second major point is that these arguments should not prevail because subsection (b) is clearly consistent with subsection (a) which I have quoted with you.

After sweeping the field clean of gross receipts and head taxes, Congress added subsection (b) simply to clarify which state taxes are still permitted.

This section provides that states may levy taxes other than those enumerated in (a), and then it lists property taxes, net income taxes, franchise taxes, and sales or use taxes.

But the key clause in the subsection (b) is taxes other than those enumerated in subsection (a).

This clause clearly means that a state will be permitted to levy a tax if but only if that tax is not based on the carriage of passengers or the sale of air transportation or the gross receipts derived therefrom.

The Director argues that the Hawaii tax is a property tax and thus is permitted under subsection (b) because that is one of the listed taxes there, and he relies on a phrase in the Hawaii statute which says

“this tax is a means of taxing the personal property of airlines and other carriers. “

There are several flaws in this argument.

First, the Hawaii tax is actually based solely on gross receipts.

It therefore violates subsection (a) and is not permitted under (b) because the Hawaii tax is not one of those taxes other than those enumerated in subsection (a).

The Director, it seems to us, is therefore asking this Court to rewrite subsection (b) and to ignore that clause, taxes other than those enumerated in subsection (a).

But this clause cannot be ignored.

Secondly, the Hawaii tax is in no sense truly a property tax.

The tax return used requires information only as to the airline’s gross receipts.

It requires no information as to the airline’s personal property.

The tax is only labeled as a means of taxing the personal property, and Justice Marumoto in his dissent below pointed out that Hawaii has no personal property tax as such, and there was none at the time this tax was enacted.

Federal standards are controlling here, and for federal purposes, I submit this is not a personal property tax.

The Director also argues that Section 1513(a) prohibits only taxes on gross receipts and not property taxes measured by gross receipts.

But I submit this argument exalts form over substance and asks this Court to disregard the broad sweep of subsection (a) which forbids the use of gross receipts as the measure of a tax as well as the subject of a tax.

Richard L. Griffith:

Finally, the Director argues that the Hawaii tax–

Harry A. Blackmun:

Mr. Griffith–

Richard L. Griffith:

–Yes.

Harry A. Blackmun:

–The airlines over a number of years accepted this tax, didn’t they?

Richard L. Griffith:

Your Honor, we did not.

Harry A. Blackmun:

Your client didn’t.

That is–

Richard L. Griffith:

Our client did not, yes.

Harry A. Blackmun:

–You represent Aloha?

Richard L. Griffith:

Aloha Airlines.

Harry A. Blackmun:

Well, did you file protests every year or something?

Did you–

Richard L. Griffith:

We have protested and contested the tax back to the first effective year.

The Director argues the tax is a general business tax which does not discriminate against airlines because other businesses in Hawaii bear a similar state tax on their gross receipts.

The flaw in this argument is that unlike other businesses in Hawaii in general, the airline passenger fares are already burdened with an 8 percent federal excise tax.

In its wisdom, Congress determined that this federal tax is steep enough and that the states cannot tax air fares or tax the gross receipts of airlines from air transportation.

Congress believed that any state taxes on top of the already steep federal tax would discourage air traffic and would reduce the yield of the federal tax, thereby depriving the airport and airway development program of the funds to carry out its purpose.

Finally, my last argument, and I will be brief, although resort to legislative history is not required because I believe we have a very clear federal statute here, I believe this legislative history clearly tells us that Congress meant to say exactly what it said in Section 1513, and meant to bar precisely the kind of tax here in issue.

In 1970 Congress found that the nation’s airports and air control system were outmoded and inadequate to handle the massive growth in air traffic.

Congress responded with a two-part program.

First, it vastly increased grants of federal funds to the states for airport improvement.

And second, to pay for this program, it adopted a comprehensive and uniform program of federal taxes on passengers and on airlines.

That comprehensive program has been considered and described by this Court in Massachusetts v. the United States in 1978 in a very able opinion written by Justice Brennan.

The most significant tax in this federal program, and the largest revenue raiser by far is the 8 percent federal tax on all domestic air fares.

After this program took effect, Congress learned of efforts by states and localities to impose head taxes and gross receipts taxes of their own.

Congress regarded the state and local taxes as a threat to the revenue base underlying the 1970 airport development program, and in 1973 it enacted the Airport Development Acceleration Act which included this federal statute that I have been describing today, and it also included an additional increase in grants to the states for airport development.

In fact, in the years in issue, this fine program has yielded $55 million to the State of Hawaii for airport and airway grants.

That is the six years after 1973.

Also, we note that Congress recently acted to continue this program of grants and taxes until the year 1987.

So this decision is important.

Richard L. Griffith:

The Solicitor General has filed an amicus brief in support of the airlines in this case.

He has called the Hawaii tax a threat to the fiscal integrity of the federal airport development program.

In the Solicitor General’s brief he points out that if this Court is to sanction the Hawaii tax, other states would regard the decision as an invitation to evade the federal prohibition by labeling their gross receipts taxes as a means of taxing personal property.

Surely, Congress did not intend that its mandate be so easily evaded or that its national fiscal program be so easily undermined.

Congress in its wisdom has determined that the steep federal tax on passenger air fares is all the taxation that air carriage of persons should bear.

At the same time, the federal government has distributed substantial grants to the state, fueling a great improvement in the nation’s airports.

The plain words of the federal statute forbid this Hawaii tax.

The Court should not embark on an invitation to rewrite that plain language, and the Hawaii tax should be stricken and the decision below reversed.

Thank you.

Warren E. Burger:

Mr. Dexter?

William David Dexter:

Mr. Chief Justice, and may it please the Court:

I believe that Aloha Airlines and Hawaiian Airlines in the argument here have said nothing that has not been substantially covered in the briefs.

So I would like to focus this Court’s attention on what I believe to be some of the underlying practical considerations that need to be considered and undoubtedly are controlling in the disposition of this case.

Harry A. Blackmun:

Mr. Dexter, you will speak about the language of the statute, won’t you, because I have gone through your brief and I do not find it quoted anywhere.

William David Dexter:

Yes.

Well, let me just answer that question right now.

The statute has to do with the same user taxes that were preempted by Congress under the Airport and Airways Development Act.

Congress had imposed an 8 percent ticket tax on domestic flights, a 3 percent enplaning tax on international flights, and a 5 percent tax on air transportation of goods.

Now, 1513(a) simply prohibits a tax on the air transportation of persons.

Also, it prohibits a tax on the air carriage of persons in interstate commerce.

It also prohibits a tax on the sale of air transportation.

Those are the three taxes that are prohibited.

Those parallel, if you will, the federal taxes that have been preempted by Congress, and as we have indicated in our brief, those deal with specific subjects of taxation.

Subsection (b) says except for the taxes enumerated in subsection (a)–

William H. Rehnquist:

Mr. Dexter, you didn’t mention in responding to Justice Blackmun, or at least I didn’t hear you–

William David Dexter:

–What?

William H. Rehnquist:

–That the prohibition is not just on taxing the sale of air transportation but goes as they are on the gross receipts derived therefrom.

William David Dexter:

But on the gross receipts derived therefrom, Your Honor, as far as the legislative history history is concerned, is traceable to a discriminatory Ohio tax on singling out airlines.

One of the basic positions that we have that there’s much… that there’s a lot of difference between Congress taxing me and not taxing anyone else and Congress saying that I am singled out for an exemption.

What subsection (a) is designed to do is to prevent directly or indirectly imposition of those kinds of head taxes preempted by Congress, and the pro… the quid pro quo there was increased congressional involvement in airport development and financing.

William David Dexter:

The legislative history clearly indicates that this was the balancing, and it had nothing to do with general business taxes.

Thurgood Marshall:

Well, is this a gross receipts tax?

William David Dexter:

No, it is not, Your Honor.

This tax is a tax, a utilities tax–

Thurgood Marshall:

It’s a tax on gross receipts.

William David Dexter:

–Well, it’s a general utilities tax imposed–

Thurgood Marshall:

On what, gross receipts?

William David Dexter:

–It’s on the franchises, the business, the going concern’s values of the property the same as the old utility taxes on railroads or other utilities.

Thurgood Marshall:

It’s not on gross receipts.

William David Dexter:

No.

The property… the property… the going concern value of the property is the thing that this statute focuses on, and in order to determine the going concern value of utility property, this Court for 100 years has realized that you look at the income that is being produced by that property that has to be used solely for utility purposes.

Ad valorem valuations of it or looking at it in different ways doesn’t work.

So all that the Hawaii legislature has done is imposed a franchise privilege tax on the utilization of tangible property in the State of Hawaii, including going concern value.

Thurgood Marshall:

Then how is that measured?

How is it measured?

William David Dexter:

It is measured by the gross income–

Thurgood Marshall:

Receipts.

William David Dexter:

–of the utility.

Thurgood Marshall:

Oh, so this is a gross income tax.

William David Dexter:

But it is measured by the gross–

Thurgood Marshall:

And it is different from gross receipts.

William David Dexter:

–Well, it’s… we don’t quibble with–

Thurgood Marshall:

Well, don’t you require them to report their gross, “their gross receipts”?

William David Dexter:

–Yes, they are required–

Thurgood Marshall:

And then you say that is not a gross receipts tax.

William David Dexter:

–It is not a tax on gross receipts.

Thurgood Marshall:

I have problems.

William David Dexter:

Okay, but if you look… if you look at what they are trying to measure, Your Honor, they are trying to measure the value of the franchises.

They are trying to measure the value of the doing business privileges in the state.

They are trying to measure the value attributable to how they are able to use the property, and–

John Paul Stevens:

Well, Mr. Dexter, they don’t say anything about the value of the franchise in the statute itself, do they?

William David Dexter:

–Well, the… it says doing business, but if you look at the definition of public–

John Paul Stevens:

And it says there shall be leveled and assessed upon each airline a tax of 4 percent of its gross income each year from the airline business.

William David Dexter:

–But as… but it is a franchise… if you look at–

John Paul Stevens:

It is really something else.

William David Dexter:

–If you look at a utility, a definition of a public utility–

John Paul Stevens:

Well, what definition of public utility?

William David Dexter:

–It is in Section 269-1 of the Hawaiian statutes, you can see how they are talking about trying to get at measuring the going concern value of utility property in the State of Hawaii, and it is not what we consider a traditional tax on gross receipts.

It is measured.

John Paul Stevens:

Is that statute quoted in the briefs?

William David Dexter:

What?

John Paul Stevens:

Is that statute quoted?

William David Dexter:

No, it is not, and we would… there are some supplemental statutes we want to refer to here in the argument, if I get to it… and we would be glad to furnish a supplemental appendix to the court.

Let’s turn back to these practical considerations that I wanted to talk about.

The Hawaiian tax here applies to all of the income from the business activities of these airlines.

That is the public service company tax.

The airlines are here contending that only the tax as applied to their receipts from air transportation of persons is invalid, so they have asked for a specific deduction from the tax.

They are not claiming the tax is invalid.

In addition, the airlines’ pay on their nonoperating utility property a general business privilege tax measured by 4 percent of gross receipts.

So they have paid into the state of Hawaii for the purpose of conducting substantial business activities in Hawaii as a public utility and otherwise of 3 or 4 percent of a tax… a tax on 3 or 4 percent of their total gross income from that business.

Now, the Hawaii tax, indicating again the nature of its franchise, the Hawaii tax is due January 1, measured by the receipts of the prior year for the next ensuing calendar year, very much like a franchise tax for the privilege of doing business for the next year, very much like an ad valorem property tax where the tax is due on a specific date.

In contrast, the 1513(a) tax is on a transactional type of tax for the furnishing specifically of air transportation services.

So the tax computation under 1513(a) and the actual tax computation under the Hawaiian public service tax are entirely different.

Now, the Hawaiian tax applies only to intrastate business in Hawaii, considering the interisland transportation as intrastate.

For instance, United Air Lines, Northwest Orient, other airlines that fly in and out of Hawaii that do not do intrastate business pay no public service commission tax.

It is only on those utilities conducting a substantial intrastate business with employees, substantial properties, substantial business activities there.

Now, the Hawaii tax also applies to all other utilities doing business in the State of Hawaii.

The public service commission tax applies to all utilities.

Therefore, steamship companies, gas companies, electric companies, motor carrier companies, telephone companies and so forth all pay the same tax at the same or higher rate than the tax impose on the airlines in question.

In addition, comparable taxes are paid by every business in the State of Hawaii measured by gross receipts with the exception of life insurance companies and financial institutions.

Byron R. White:

But none of them pay the federal 8 percent transportation tax, do they?

William David Dexter:

Well, Your Honors, neither do the airlines here.

Those taxes are imposed on me or you when we go to buy a ticket.

Byron R. White:

Well, I just, nevertheless, none of them have to charge their customers the 8 percent.

William David Dexter:

Well, this is true, Your Honor.

Byron R. White:

Okay.

William David Dexter:

This is true.

There is that difference.

But all of them, whether it is an attorneys, doctors, barbers, whatever, taxi cab drivers, every business in Hawaii is required to pay this 4 percent general excise tax.

William H. Rehnquist:

Mr. Dexter, that argument would carry considerable weight if the claim here were that the tax on your… the levy by Hawaii violated equal protection, but it is that it violates a specific prohibition in an act of Congress.

William David Dexter:

Well, we think… well, let… we think that (a) is talking about specific excise taxes where airlines have been singled out for discriminatory treatment such as the Ohio excise tax.

William H. Rehnquist:

But it just certainly, its language just doesn’t bear that construction, do you think?

William David Dexter:

Well, if you look at (b), I mean, just step back from the language, what was Congress trying to get at in (a)?

Look at the legislative history, and then look at (b).

(b) is talking about, except for the taxes enumerated in (a), (a) are specific excise taxes on air transportation, directly or indirectly.

That is what all the legislative history is about.

What does (b) say?

(b) talks about taxes of general applicable.

For instance, compare–

William H. Rehnquist:

No, gross receipts tax on air transportation is a tax of general applicability, don’t you think?

I don’t see why a gross receipts tax on air transportation or receipts is any less a tax of general applicability than a net income tax on the revenue from air transportation.

William David Dexter:

–Well, but what I am saying is that if you had… for instance, take the problem of the net income tax you raised.

This Court said, I think, in the Oakcoke Blue Company case that any deduction from gross receipts that was not proportionate to the receipts resulted in an income tax, so that when you are talking about the differences between the taxes in terms of labeled used in (b), it seems to me that that is subsidiary to what was the general pattern of (a) versus (b), and (a) was singling out airlines for discriminatory treatment by indirect means… by directly or indirectly imposing head taxes or comparable taxes.

(b) assured everyone that it did not include any general applicable business taxes.

In my judgment, that is… if you want to get a large framework to look at the statutory language.

Thurgood Marshall:

Am I wrong that the purpose of this tax was to build the airports?

William David Dexter:

Yes, this is true.

Thurgood Marshall:

And if they didn’t build them, you’d have to build them, wouldn’t you?

William David Dexter:

The local governmental units would have had to try to… or states would have to try to do it.

Thurgood Marshall:

Sure.

William David Dexter:

But you see, what we have here–

Thurgood Marshall:

Your real problem here is that gross receipts doesn’t mean gross receipts.

William David Dexter:

–Well, my real… no, my–

Thurgood Marshall:

Isn’t that your problem?

William David Dexter:

–That is not my problem because I can distinguish very much between a public utility tax, you know, a general utility tax–

Thurgood Marshall:

Well, so far as I am concerned, I will take on the problem if what a gross receipt is or happens to be.

William David Dexter:

–Well, even if this were a gross receipts tax, the question is, is it the type of gross receipts tax Congress was directing its attention to in 1513(a)?

Was it talking about specific types of excises for airport development, or was it trying to immunize the airlines from the general business taxes of selected states that historically happen to have measured their general business taxes by gross receipts?

Or let me put it this way.

The issue, the way that it is framed by the airlines, is by Congress imposing a head… user taxes on you and me for the purpose of airport development and improvement, it intended to exempt airlines from their obligation to pay their fair share of general business taxes on the happenstance that those taxes historically were measured in some states by gross receipts.

That in my judgment is the basic issue here, and we don’t think there is anything in the Congressional record or history to support that idea.

John Paul Stevens:

Mr. Dexter, supporting that you had a… say you win this case, and there is another state that doesn’t have the same history of taxing in the way you say Hawaii always has, but just decides, well, since Hawaii can impose this tax, I think it’s a pretty good idea, let’s impose a gross income tax in the language of the Hawaii statute.

Would that statute be valid?

William David Dexter:

Your Honor, we have said in our brief two things.

One, we think that the Congress intended by the legislative history to prevent head taxes or that type of taxes, directly or indirectly; and secondly, that Congress was concerned with the airlines being singled out for discriminatory treatment.

So I would say if somebody wanted to impose a gross receipts tax on airlines and single them out for discriminatory treatment, I think that this would very well be prohibited by this statute.

But I do not think Congress–

John Paul Stevens:

Even if their new statute I described is in exactly the same language as the Hawaii statute?

William David Dexter:

–If it were… no, but if it were, if it were, included everything–

John Paul Stevens:

Concerned about airlines, certain carriers: there shall be levied and assessed upon each airline a tax of 4 percent of its gross income.

Say I am in Ohio or Iowa or someplace like that, would I have to look at the history of Iowa and Ohio taxes to decide whether that was constitutional, I mean, consistent with the federal statute, not constitutional.

William David Dexter:

–Well, I think you have to look to see whether airlines have been singled out for discriminatory treatment.

That was the problem with the Ohio–

John Paul Stevens:

How do you tell that other than by the fact the statute applies only to airlines?

This statute only applies to airlines.

William David Dexter:

–No, but that is part, that is part of the public service company tax.

It applies to all utilities.

That was singled out there because of airlines traveling in interisland transportation under the old decisions of this Court, whether you could use a direct measure of gross receipts.

So they used a property tax… imposed a property tax measured by gross receipts for utility purposes.

John Paul Stevens:

What if they imposed a property tax measured by $10 per passenger flying on the aircraft?

William David Dexter:

Well, I think that that would… that would obviously be, in my judgment, an indirect head tax.

John Paul Stevens:

Well, why isn’t this an indirect gross receipts tax?

William David Dexter:

That’s been in effect since 1933, or companion bills to that.

It has nothing to do with this current legislation.

I think, you know, it’s not, it’s simply not in our judgment that kind of tax.

It certainly has not been a… no general business taxes were discussed in the legislative history.

Two prime sponsors of the legislation were Senator Magnuson from the State of Washington and Representative Brock Adams, and Washington has a business and occupation tax measured by gross receipts.

It includes the intrastate receipts of airlines, and no… and they were… Senator Magnuson and Adams, Representative Adams were prime sponsors of this kind of legislation, made no mention in the legislative history of this act about the Washington tax or any other general business taxes.

In fact, the reason that we have published and printed this 187 page volume is simply to demonstrate to the Court that there is not one word in that volume having to do with general business taxes except one statement, and that was the statement of the representative of the airline industry, Mr. Tipton, and in reference to the Ohio discriminatory tax he said we oppose this tax because it singles out and discriminates against the airlines.

But he very definitely said that the airlines had no objection in Ohio or elsewhere of paying their fair share of general business taxes along with other members of the business community.

And what I think is the real differentiation here is there is a vast difference between being singled out, Congress singling out an industry from general business taxes for preferential purposes on the happenstance that they might… on the happenstance that those taxes are measured by gross receipts.

There is a vast difference between that and singling out the airlines for discriminatory tax treatment by duplicating federal head taxes directly or indirectly.

And I think that is really the underlying question here.

I would like to emphasize, although I know that I have had some problems with it with this Court at the moment, but there is, there is a substantial difference between the public service company tax, a utility tax, and a tax directly on gross receipts.

Now, I know there’s much argument in the briefs of the airlines that there is no difference between a measure and a subject matter of the tax, but I believe if you do some real reflecting, you will have to realize you have got to have a subject of a tax because you can’t measure nothing.

There is in every taxing statute that I have ever seen two things, a subject and a measure.

Now, if the measure, the Court might say the measure is the same as the subject and substitute, then, the measure for the subject, but you always have to have in place these two things.

And we think this–

Byron R. White:

Well, the trouble is the statute says the tax will be on gross income, and that sounds like the subject to me.

William David Dexter:

–Well, but then it turns around, Your Honor, and says it is a means of taxing the personal property of the airlines, including the tangible and intangible and going concern values.

It is–

Byron R. White:

Well, it doesn’t in the taxing part of it.

William David Dexter:

–Yes, it does, yes, that’s the last part of… that’s the last part of 239-6.

So it was a means of taxing, and then if you look at the definition of public utility in 269-1 of the Hawaiian statute, you see that in the definition of the public utilities they were trying to arrive at the growing concern value of these franchises and properties used by the utilities, and the easiest and most direct way to do it was to measure that by capitalizing net income, which we do many times in the utility field today, or taking the gross receipts.

And those really are the same as property taxes because as was indicated, the 1982 amendment to 1513, by adding subsection (d) clearly indicates that in lieu of property taxes were covered by (d), and (d) had to do with the property taxes permitted under (b), so that in lieu of taxes are within the scope of property taxes under 1513.

And I would suggest if other were not, then the Four R legislation under the Railroad Revitalization Act of 1975 and the same language in the Motor Carrier Act of 1980 would not become effective because on those utilities they talk about ad valorem property taxes, but obviously those statutes have been construed by the lower courts to include in lieu of taxes measured by gross receipts.

So we think that traditionally in this country, for over a century, property taxes on utilities have been measured by gross receipts, and there’s many decisions of this Court that uphold it.

So if the question became whether this is indeed a property tax under (b), we submit that it really is.

Byron R. White:

Tell me, have some of the airlines paid the tax and without any objection for some time?

William David Dexter:

Well, as… the airlines in question here, Your Honor, and all the airlines, paid the tax for a number of years without question.

William David Dexter:

We believe that there is nothing, there is nothing in this legislative history that ever indicated that Congress was talking about invalidating any state’s general business taxes.

Byron R. White:

Could I ask you, what has been… what’s the airlines’ practice under this tax?

Do they add it to the fare?

William David Dexter:

No.

They… it’s absorbed.

There’s no, in fact, it’s not separately stated in Hawaii at all.

It’s just part of their general cost of doing business.

Byron R. White:

Put they don’t say on their… they don’t have a separate item they add to the bill for taxes for each passenger.

William David Dexter:

No, no, no.

This is just… well, we think it is a general problem–

Byron R. White:

Does any of them, does any of them do that?

William David Dexter:

–What?

Byron R. White:

Does any of them do that, just automatically add the gross income tax to the fare?

William David Dexter:

Not that I know of.

Most gross income taxes are considered general business taxes and are absorbed.

Now, there’s some taxes are passed on under the Hawaii general privilege, business and privilege 4 percent tax in order to get the federal tax deduction for income tax purposes.

Harry A. Blackmun:

Are there other airlines than these two involved in this controversy directly or indirectly?

William David Dexter:

Well, it involves… it involves, as far as Hawaii, no, there’s… I guess… well, there may be some smaller airlines there, but this is the… these are… the tax here is confined to the intrastate flights in Hawaii, and I think most of the states that apply their gross receipts don’t tax… that have gross receipts privilege taxes don’t include any interstate flight receipts.

We are talking about a local business basically.

I would like to point out what I think is an important example of legislative history, and it is set forth in pages 22 and 25 of the brief of the State of Washington and other states.

In those pages, this was… Senator Cotton of New Hampshire wanted to grandfather in the New Hampshire head tax, so he proposed to Senator Cannon, who was the sponsor of the legislation, an amendment to grandfather in the head tax of New Hampshire until the end of 1973.

In that… and Senator Cannon agreed to it.

And in agreeing to it, he said that this covers only the head tax now in effect in the State of New Hampshire.

Now, the language submitted by Senator Cannon I believe is set forth on page 79 of the legislative history appendix is identical to the language of Sectin 1513(a).

In other words, that shows specifically a legislative intent that they were talking about the subject matter generally of head taxes, the direct or direct imposition of them.

In fact, the language

“or the gross receipts derived therefrom. “

is admitted by the Air Transport Association, the Solicitor General, the airlines in question, to have… to find its place in the statutory language only to take care of the specific excise tax imposed by the State of Ohio.

Ohio had imposed on airlines alone an excise tax on air transportation measured by the empaneling or depaneling of passengers, and the airline association and others were disturbed about that kind of specific discriminatory tax against airlines, and everybody agrees, to the extent there is any legislative history known about this, that the phrase “or gross receipts derived therefrom” had to do with that legislation.

And I would like to close by saying you can go through this 187 pages of legislative history, you will hear the words discriminatory taxes, head taxes, or equivalent taxes and abuses.

William David Dexter:

You will never hear one word about any nondiscriminatory general business taxes of any state in these United States mentioned.

And I want to also tell you that if you decide that Congress… that the airlines’ position is right in this case, you will have decided that Congress for the first time in the history of this nation had singled out one industry from discharging their general obligations to state governments.

Thank you.

Warren E. Burger:

Thank you.

Do you have anything further?

Tom C. Clark:

Just a couple of quick points.

My learned friend has described at length the Ohio tax as a discriminatory one, but I would point out to the Court that the Tax Commissioner of Ohio appeared before the House Commerce Committee and went to great lengths to list the various Ohio taxes and to show that in fact the Ohio tax was not discriminatory as compared to the railroads, the truckers, or other businesses, and he then submitted language to the Congress to permit a nondiscriminatory gross excise tax.

The Congress declined his invitation.

They did not accept his language, and I think that tells us that Congress was concerned about much more than discriminatory taxes.

Finally, I would just point out that the Hawaii statute says that it is levied and assessed upon each airline a tax of 4 percent of its gross income each year from the airline business, and then it goes on later on to say that that tax is in lieu of the Hawaii general excise tax which is also a gross income, gross receipts tax.

I have no further points.

Thank you.

Warren E. Burger:

Thank you, gentlemen.

The case is submitted.

The honorable court is now adjourned until tomorrow at 10:00.