Western Air Lines, Inc. v. Board of Equalization of the State of South Dakota – Oral Argument – November 03, 1986

Media for Western Air Lines, Inc. v. Board of Equalization of the State of South Dakota

Audio Transcription for Opinion Announcement – February 24, 1987 in Western Air Lines, Inc. v. Board of Equalization of the State of South Dakota

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William H. Rehnquist:

We will hear arguments first this morning in No. 85-732, Western Airlines versus Board of Equalization of the State of South Dakota.

You may proceed when you’re ready, Mr. Rasenberger.

Raymond J. Rasenberger:

Mr. Chief Justice and may it please the Court:

The issue in this case is whether the South Dakota Airline flight property tax discriminates against airlines in violation of 49 U.S.C. 1513(d).

That section in a nutshell prohibits states from assessing or from taxing air carrier property at a higher rate than commercial and industrial property in the same jurisdiction.

Now, the South Dakota Supreme Court has held that there was no violation of the statute, even though almost no other property, personal property in South Dakota, is taxed except the property of airlines.

Indeed, property that is not taxed includes aircraft that’s privately owned, it includes corporate aircraft, it includes aircraft used in charter services, it includes even aircraft used in interstate air service.

Only the aircraft of interstate airlines or those in foreign commerce is taxed in South Dakota.

And needless to say, no competing modes of transportation are taxed insofar as their personal property is concerned, such as buses or taxis or rental cars.

Now, the state doesn’t deny that its system is discriminatory and the state agrees, as I understand them, that the purpose of 1513(d) is to prevent discrimination.

And the state also admits that, if it taxed other commercial and industrial property in the state, the assessment ratios and the tax rates could not be any lower for that property than for air carrier property.

But the state says the kind of discrimination it’s practicing in this case is permitted by the statute because it’s exempting all other property from taxation, rather than taxing it at a lower rate.

Now, the South Dakota court has reached that conclusion based on a reading of 1513(d) which it says is clear and unambiguous, so clear and unambiguous, apparently, there was no need to even dwell upon the purpose of Congress in enacting 1513(d), no need to even take a glance at the legislative history of 1513(d), which the court did not do, so clear apparently no need to even consider an opinion of the North Dakota Supreme Court eight months earlier which reached exactly the opposite conclusion as to the meaning of the statute on virtually the same facts.

North Dakota had an airline flight property tax and North Dakota exempted other property.

And the North Dakota court, in holding that the statute had been violated, noted that it was its duty to avoid what it called ludicrous and absurd results.

Now, the language that South Dakota finds to be so clear and unambiguous includes this key phrase:

“subject to a property tax levy. “

That phrase appears in the definition of commercial and industrial property, and that’s the comparison class for purposes of determining whether there is discrimination.

1513(d) says roughly this: you shall not assess air carrier property at a higher percentage of true value than other commercial and industrial property; second, you shall not tax air carrier property at a higher rate than other commercial and industrial property.

And commercial and industrial property is defined in the statute, with few exceptions, as property devoted to a commercial and industrial use and subject to a property tax levy, and those are the key words.

And South Dakota says that means, that definition means, property that’s being put to a commercial and industrial use and is being taxes, as distinguished from capable of being taxed.

Harry A. Blackmun:

In other words, they draw a distinction between subject to and subjected to, I take it?

Raymond J. Rasenberger:

Exactly, Justice Black.

Harry A. Blackmun:

While I have you interrupted, Continental was a party to this at one-time, wasn’t it?

Raymond J. Rasenberger:

Continental was a party in the lower court.

They decided not to pursue the appeal.

Harry A. Blackmun:

Are they a respondent here, then, I suppose?

Raymond J. Rasenberger:

Well, they would benefit from a favorable decision of the Court.

But they have not… they’re not a party to this appeal.

I do not know.

Byron R. White:

Are they still flying in South Dakota?

Raymond J. Rasenberger:

I can’t be sure of that, Justice White, either.

There’s been a reduction in flying in South Dakota.

I don’t know whether it’s got anything to do with the tax here or not.

In any case, the short of it is that South Dakota says, since there is no property being taxed in the state, personal property, there is no property in the comparison class, hence there’s no violation of 1513(d).

Now, the first problem we have with that analysis is the idea that the words

“subject to a property tax levy. “

are all that clear and unambiguous.

I mean, the words “subject to”, as we all know, are often used to refer to things that could happen as well as things that have happened, like in the phrase

“subject to further order of the court. “

or “subject to change without notice”, or

“subject to high winds or flooding. “

or anything.

Those are all things that haven’t happened yet.

Antonin Scalia:

You usually say “subject to further order”, just as here it would be more natural to say “subject to property tax levy”, rather than

“subject to a property tax levy. “

unless you’re referring to a particular one that’s in effect.

Raymond J. Rasenberger:

I think you could make something out of that distinction, Justice Scalia, but it seems to me that is looking at this with a semantic microscope, really, when Congress was painting a picture here with very broad strokes.

As you look at the legislative history, you’ll see that the kind of precision that you’re suggesting went into the fixing of those words is lacking everywhere else in this statute.

And I suggest that it just wasn’t that deliberate a choice as between “a” or not using the letter “a”.

Antonin Scalia:

What do you think it means… what is excluded if it does not refer to a particular property tax?

What do you think was… Congress meant what could constitutionally be subject to a property tax?

Raymond J. Rasenberger:

I think it’s what could constitutionally, and I think it was also probably meant to exclude property that was traditionally nontaxable by the states.

Antonin Scalia:

What commercial or industrial property wouldn’t constitutionally be subject to a property tax levy, commercial or industrial property?

Raymond J. Rasenberger:

Well, there are commercial properties being put to a commercial or industrial use by the Federal Government that are not taxable.

There are certain commercial properties of charitable organizations that are not taxable in some states.

So those are examples.

Antonin Scalia:

Well, but I’m not saying not taxable in some states.

We’re talking about Congress using the language, and you say it doesn’t mean actually subject to.

When you say some states have not made it subject, you’re using actually subject to, and you’re telling us that is not what it means.

Antonin Scalia:

You’re telling us it has to mean constitutionally it could be subject to, and you think that what they’re referring to is only federal property that is being used for commercial or industrial purposes.

Such as what?

Give me, you know, five examples?

Raymond J. Rasenberger:

Could I answer it this way: The words

entered the statute quite long before the words “commercial and industrial property”.

In other words, this statute had like a 15 year history before it finally got enacted, and in the course of that 15 years it was built sort of brick by brick.

And the first brick, one of the early bricks that went in there, were the words

“subject to a property tax levy. “

And when they went in there, of course, the words “commercial or industrial property” were not there.

The reference class was all other property.

So it was all other property subject to a property tax levy.

And in those circumstances, the words obviously served a certain function, because otherwise all property, federal lands in the West for example, would theoretically have been covered within the comparison class.

So when it went into the statute–

Sandra Day O’Connor:

Well, Mr. Rasenberger, at the time that the language referred to all property, wasn’t traditionally exempt property already excluded from all property?

Raymond J. Rasenberger:

–Yes.

Sandra Day O’Connor:

I mean, charitable property wasn’t being taxed at that time, or federal owned, or so forth?

Raymond J. Rasenberger:

That’s right, and an argument can be made that the words

“subject to a property tax levy. “

were in effect unnecessary from the beginning because it was clear–

Sandra Day O’Connor:

Exactly, just pure surplusage, on your argument.

Raymond J. Rasenberger:

–From the very beginning you could regard them that way, yes.

Sandra Day O’Connor:

Well, that’s kind of a curious argument, because usually we think when Congress adds new language like that it must be intended to mean something, and on your interpretation it wouldn’t.

Raymond J. Rasenberger:

Adds new language such as “commercial and industrial property”?

Sandra Day O’Connor:

Adds language, yes.

Raymond J. Rasenberger:

When Congress added the words “commercial and industrial property” it was trying to narrow the comparison class to some extent, to get at what they were really concerned about, which was business property and not all other property.

But I fail to see how choosing a narrower class makes the term

“subject to a property tax levy. “

mean something different.

William H. Rehnquist:

But as I understand Justice O’Connor’s question and your answer, you agreed that the term

“subject to a property tax levy. “

William H. Rehnquist:

under your argument was probably surplusage, that it really didn’t mean anything.

Raymond J. Rasenberger:

Yes.

The original phrase was

“subject to the same property tax levy. “

That was… the original bill was focused only on assessments.

That was the concern the railroads had.

And it was said assessments subject to the same property tax levy.

Later on the railroads began to realize that that wasn’t the kind of protection they wanted, because classifications of tax… tax classifications could be developed which made it possible to discriminate in terms of assessments.

You could have a higher tax rate and have therefore a different assessment.

So they went into the business of adopting a provision which would have protected against tax rates being discriminatory, as well as assessments.

That’s when 1(c) was added to the statute in 1967.

Have I answered the question?

William H. Rehnquist:

Well, as I understood Justice O’Connor’s point, and it commends itself to me to a certain extent, we don’t ordinarily… we’re loath to say that a proviso or a clause in an act of Congress is just surplusage, that it really meant nothing.

Raymond J. Rasenberger:

I understand that, and I’m saying it still means something even today.

Even though the words “commercial and industrial property” exclude a lot of otherwise non-taxable property, there is still property devoted to a commercial or industrial use which is not taxable.

Antonin Scalia:

Federal facilities?

Raymond J. Rasenberger:

Federal facilities: the TVA, Amtrak, property like that.

So it’s not surplusage in any case.

What the state is saying is that the adoption of the words “subject to”… the adoption of the words “commercial and industrial property” suddenly accomplish a radical transformation in the meaning of the statute, that they suddenly created a different meaning for the words

“subject to a property tax levy. “

than it had before.

Antonin Scalia:

That’s a pretty fine line to draw in a statute that you tell us was sort of thrown together.

I mean, you say Congress was being so precise that they thought, well, there is some little bit of commercial and industrial property that can’t be taxed, namely federal facilities.

I would never have thought of that, but you told me that this was a pretty much rush job, this statute.

That’s fairly refined, isn’t it?

Raymond J. Rasenberger:

It was not a rush job in the sense that it took place over a period of 15 years.

But all I’m saying is, if you attribute the adoption of the words “commercial and industrial”… to those words, “commercial and industrial property”, a major change in the meaning of the words

there ought to be some basis for attributing that.

I mean, why would Congress, at the same time that it was narrowing the class to business property, have created an opportunity for a huge exception for business property?

And that’s what the state is basically arguing, that when you changed it from all of the property to commercial and industrial property you changed the meaning of the statute considerably, because the words

Raymond J. Rasenberger:

“subject to a property tax levy. “

thereafter had no meaning.

Antonin Scalia:

Perhaps Congress wanted to leave to states the availability of treating some commercial and industrial property specially and not subjecting them to a tax levy at all, such as in order to attract new business or something of that sort.

Isn’t that a possibility that Congress could have had in mind?

As you would have us read the statute, no state could give an exemption or a lower rate in order to attract new commercial enterprise within the state, without at the same time applying that new rate to interstate airlines.

Raymond J. Rasenberger:

Well, averaging that rate into the total rate for all property in the state, yes, I think that’s right.

Antonin Scalia:

But isn’t that a good reason for Congress conceivably making that exception, that it’s only property that is actually subject to a levy that we’ve talking about?

Raymond J. Rasenberger:

Well, as I say, there is no specific legislative history on the subject, except the railroads at one time were asked what they thought the term

And one of the statements that was made I think was a significant one.

One of the railroad representatives said that the issue here is really state policy versus federal policy, and the states can have their tax policies, they can give tax breaks to people they want to give tax breaks to.

But we have a federal policy as well.

And all that Congress is saying is that that federal policy has to be… is such that if you give a tax break to any commercial or industrial user, that has to be averaged into the way you treat interstate carriers.

And it seems to me that that’s a perfectly reasonable conclusion.

What we do not have here in all this legislative history is anything that says what Congress meant by the words

What we do have is what Congress meant to establish by the statute, and I think that’s the key point.

I mean, you compare the words

which are totally unexplained, with the prohibition on discrimination, which is very clearly explained.

Let me just read you a few lines out of one of the early Senate reports, and this deals with the words that permit… that prohibit tax rate discrimination.

That’s subparagraph (c).

It say:

“The purpose of subparagraph (c) is to forbid state or local classifications, whether based on constitutional provisions, statutory enactment, or administrative order or practice, which are designed or have the effect of discriminating against carrier transportation property. “

Now, that we know is what Congress meant by (c).

We know that what we have in South Dakota is a scheme which has the effect clearly of discriminating against carrier property.

We don’t know precisely what

meant.

It is in some legislative history limbo.

We simply have very little on it, so we have to speculate.

So it’s a question, it seems to me, of balancing the thing we know with the thing we don’t know.

And if we say these words

“subject to a property tax levy. “

Raymond J. Rasenberger:

override what we clearly know Congress meant in the substantive provisions, we’re in effect letting the tail wag the dog here.

William H. Rehnquist:

Mr. Rasenberger, supposing you prevail here.

What happens when this case goes back on remand to the South Dakota courts?

Raymond J. Rasenberger:

They would have to develop an average rate for personal property in the state that is subject, that is eligible for taxation.

William H. Rehnquist:

Well, that really, you could argue, that’s the tail wagging the dog the other way.

In other words, in order to enforce the federal mandate here that there should be no discriminatory taxation of airline or railroad property, a state has to subject to personal property tax all of the personal property in the state that it had decided to exempt.

Raymond J. Rasenberger:

The state has the option of not taxing airlines.

All the statute says, you can tax whoever you want, you can give whatever tax breaks you want, but you have to treat airlines the same as the average way you treat other business property.

Sandra Day O’Connor:

Well, on that point, there is, of course, a statutory exception for an in lieu tax which is used for airport and aeronautical purposes.

In a very curious holding, the court below said this was not an in lieu tax.

Now, apparently no appeal was brought to us on that.

That isn’t raised by the state, is it?

Raymond J. Rasenberger:

Well, the lower court, the South Dakota Supreme Court, rejected the argument that it was an in lieu tax, on the theory that it wasn’t in lieu of anything, which I think was a correct holding.

Sandra Day O’Connor:

Do you suppose whether it is or is not is a matter of federal definition, though, ultimately?

Raymond J. Rasenberger:

Whether it is or is not in lieu?

Sandra Day O’Connor:

Whether it’s an in lieu tax.

Raymond J. Rasenberger:

Well, it seems to me that if you’re asking does the Court have that issue before it, I would say no.

Sandra Day O’Connor:

I think it doesn’t, but I’m also suggesting that certainly in this situation it’s very possible that a state could indeed single out airlines for tax under this in lieu exemption.

Raymond J. Rasenberger:

Yes, it certainly could, it certainly could.

And that was clearly a condition to getting the statute passed, was getting that in there.

But that’s not what South Dakota has chosen to do.

Obviously, if they had taxed other personal property and made the airline tax in lieu of that tax, we wouldn’t be here today.

Antonin Scalia:

What do you make of the fact that the provision that applied to railroads, which did explicitly prohibit all other discrimination against interstate commerce in effect, does not exist with respect to airlines?

I mean, your argument would have a lot more force, you know, if you come and say it’s inconceivable that Congress meant to prohibit just one type of discrimination, but didn’t intend to prohibit the other.

Now, with railroads you could say that, because they had a provision, a general provision that said all other discrimination is prohibited.

That was dropped for airlines.

Why was it dropped?

Raymond J. Rasenberger:

Well, let me start by saying it was put in for railroads at the very last minute in the legislative history, because the railroads called to the attention of the committee a gross receipts tax that New York was imposing on the New York Dock Railway.

That’s what the legislative history tells us.

Now, when we come to the motor carrier statute, which was the next one after the rail statute, it was perfectly clear from the legislative history that Congress did not mean to prohibit highway user taxes, and the reports say that.

Raymond J. Rasenberger:

So there’s a very good reason why, in light of that feeling on Congress’ part, it would not have put in the statute that catch-all clause.

When it came to the airline, the object was… I mean, the purpose of Congress was to adopt the motor carrier provisions, which it did, which excluded that provision.

But in addition, the airlines already had protection against gross receipts taxes in 1315(a).

So the reason the railroads needed that blanket provision was not applicable to the airlines, and in any case the airlines themselves did not seek that provision when the proposed the bill to Congress.

John Paul Stevens:

May I go back to Justice O’Connor’s question, please, on the in lieu tax.

Am I correct in understanding that the proceeds of this tax are used entirely for airport and aeronautical purposes?

Raymond J. Rasenberger:

Yes.

John Paul Stevens:

And is it not possible that Congress, what Congress was saying is that if you’re using… if you’re going to tax airlines for general revenue purposes, then you’ve got to treat them like others who are being taxed for general revenue purposes, but if you’re going to just raise money for airports and aeronautical purposes it’s fair to impose the entire tax on the airlines?

Wouldn’t that make sense out of the statute?

Raymond J. Rasenberger:

If you’re at the same time excusing the airlines from paying another tax.

John Paul Stevens:

Well, that’s the only tax at issue here, is the one that the trial court thought was an in lieu tax.

Raymond J. Rasenberger:

But we’re not being excused from paying any other tax, because no other tax would apply to us.

John Paul Stevens:

Well, they aren’t charging other commercial and industrial purposes this same tax.

So you’re being excused to the same extent that other commerce and industry is excused.

Raymond J. Rasenberger:

Well, I think if the statute said it doesn’t apply to a tax used for aeronautical purposes, that would be the correct answer.

But it says an in lieu tax for aeronautical purposes, not just any tax.

John Paul Stevens:

It doesn’t apply to tax that’s used solely for aeronautical, and that’s what this one is.

Raymond J. Rasenberger:

In lieu.

John Paul Stevens:

Yes.

And another question: Why is not the in lieu issue before us?

Because if we disagreed with the Supreme Court of the state of that issue, we could affirm their judgment on a different ground.

So I think that issue is open to us.

Raymond J. Rasenberger:

Well, neither the state nor the Appellants think it’s an in lieu tax.

John Paul Stevens:

No, but you see, our job is to try and make sense out of the entire statute.

Raymond J. Rasenberger:

I understand.

Well, I think it would be a terrible mistake to regard this as an in lieu tax, unless you can find some other tax that it’s in lieu of.

John Paul Stevens:

Because you’re being very literal here, because the words

“in lieu can’t be the first tax, can’t be… you’re saying it’s got to replace something that previously existed. “

“And now you’re the one who’s being the very literal reader of the statute. “

Raymond J. Rasenberger:

That’s right, yes.

Sandra Day O’Connor:

But maybe “in lieu” means that it’s not an additional tax, but the only tax of a particular type.

And the point is it may have… that term may have a federal definition, not a state definition.

The state court makes it turn on the historical accident of whether there was a previous tax, and maybe that isn’t the meaning of it.

Raymond J. Rasenberger:

Well, yes, of course the Court can read that phrase any way it wants.

It seems to me very hard to reach the conclusion that an in lieu tax is an in lieu tax if it’s not in lieu of anything.

And it isn’t in lieu of anything.

William H. Rehnquist:

Supposing that South Dakota were a newly organized state and this was the first time they set out to tax anybody, and they said: We’re going to tax all of you people on the traditional personal property tax, all of you commercial and business people, but we’re not going to subject you airlines to that; we’re going to have a special airlines tax for you, and we’re going to use it all to fix up airports.

Don’t you think that could be arguable a lieu tax under this statute?

Raymond J. Rasenberger:

Yes, yes.

But that’s not our situation here.

Yes, definitely, that would be an in lieu tax.

William H. Rehnquist:

So but then you would agree, I take it, that the Supreme Court of South Dakota’s opinion about what a lieu tax was is not entirely an accurate reflection of what Congress meant by the term?

Raymond J. Rasenberger:

Well, as I understood the reasoning of the South Dakota Supreme Court, it was that it wasn’t a tax that replaced any other tax, and therefore–

Antonin Scalia:

Well, but your answer to the Chief Justice indicates that it doesn’t have to replace another tax; it’s enough if it’s a tax that adjusts for the fact that you don’t pay another one.

For example, many states have taxes that require you to pay an additional personal property tax on automobiles that you buy in another state, because you don’t pay any sales tax within the home state on that.

I think that would probably be called an in lieu tax.

In lieu of paying the sales tax, if you bought it locally, you can buy it in another state and pay a personal… an additional personal property tax.

Wouldn’t you consider that an in lieu tax?

Raymond J. Rasenberger:

–Sure, Justice Scalia.

But I have trouble understanding what this tax is in lieu of, in this case, on these facts.

Antonin Scalia:

All right.

Raymond J. Rasenberger:

There are really two issues that South Dakota has raised here in terms of legislative history, and it seems to me you have to look at the legislative history here, even if the South Dakota court did not do so.

One is… and both of them involve changes that took place along this 15 year history of the railroad bill that supposedly were of some significance to this, to the determination of this Court.

And one is when they put in the provision on

at the tail end of the definition of commercial and industrial property, instead of where it had previously been and that is in the assessment section.

And they say that that was a determination that suddenly made the words

“subject to a property tax levy. “

mean something far more, mean that it created a loophole that wasn’t here in the bill in the past, even though there is nothing in the legislative history to support that.

And I guess I have said this before.

It seems to me that if you’re going to conclude that the shift of the words from the assessment section to the definition section were intended to have major significance, which is what the state seems to be saying, you have to have some legislative history to support that.

Raymond J. Rasenberger:

And there’s no explanation for that anywhere in the legislative history.

There’s plenty of explanation as to what Congress was trying to accomplish, but nothing about this switch, no explanation from Senator Hartke, who was the principal proponent of it, nothing in the reports.

And I think that what we’re getting at here is the state is saying there was a major change that took place, but nobody knew it.

And that’s not the stuff that legislative history is made of.

I think I will reserve the rest of my–

Antonin Scalia:

Before you go, can I ask one other question.

You stated earlier in the response to either my question or one of the other Justices that, in the situation where a state gives a special tax break to a business to come in, a lower rate or a lower assessment, whatever, what would their obligation be under your interpretation of the statute with respect to interstate airlines?

You said that they would have to try to average–

Raymond J. Rasenberger:

–The average rate, average tax rate for interstate airlines would have to be… excuse me.

The tax rate for interstate airlines would have to be the average rate applied to other business property in the state.

Antonin Scalia:

–The average rate applied to others?

Raymond J. Rasenberger:

Yes.

Antonin Scalia:

What does that mean?

You would take an average of the special tax rate and everybody else?

Raymond J. Rasenberger:

Lower courts have dealt with this at some length.

You could use a weighted mean, you could use a median.

There are a lot of different ways, but you have to figure out… the legislative history says this… what the average tax was on the other business properties in the state.

And that is taxed no higher than… can be no higher than the tax for aircraft of these airlines.

Thank you.

Raymond J. Rasenberger:

Thank you.

I’ll reserve the rest.

William H. Rehnquist:

Thank you, Mr. Rasenberger.

We’ll hear next from you, Mr. Meierhenry.

Mark V. Meierhenry:

Mr. Chief Justice, may it please the Court:

We are not talking here today about a new tax.

The tax that South Dakota imposes on airlines has been in place since 1961.

And since 1961, the state of South Dakota has only taxed aircraft, and I want to make that clear to the Court.

We don’t tax the trucks that service the airplanes, we don’t tax whatever equipment they have in their office.

We only tax the airframes.

Where did the South Dakota tax come from?

Mark V. Meierhenry:

It came from and can best be explained, I think, from a decision of this Court, Braniff Airlines versus the Nebraska State Board.

If you will harken back to that case, you will find our tax scheme, wherein we use a ratio of how much the airplane is actually used in South Dakota, together with revenue miles and other factors.

That scheme of taxation was approved by this Court and Justice Reed wrote that it was a proper tax on interstate commerce at that time.

Since 1961, although other business and commercial property paid personal property taxes in South Dakota, up until 1979 the airlines did not.

When we imposed this tax on the airframes, the aircraft themselves, we specifically exempted airline companies from other taxes.

And I think my colleague misspoke himself when he said private aircraft is not subject to tax.

As an aircraft owner, I can tell you it is.

If you live in South Dakota and you buy an airplane, you pay a four percent use tax on the purchase price of the airplane.

As an airman in South Dakota, I pay an annual fee.

We have a statute–

John Paul Stevens:

Yes, but if you ran a business and you used your airplane in your business, would that tax then be subject–

Mark V. Meierhenry:

–Yes, it would, if I were a resident of South Dakota, four percent.

John Paul Stevens:

–For commercial property?

Mark V. Meierhenry:

Paid only one time, Justice.

What I’m saying is we have a statute that specifically exempts those businesses in interstate commerce, and so I wanted to make clear that this tax was impacted by the passage in 1982 of the federal law.

But it is not as if we passed the tax afterward.

We had it in place.

And we all recognize that airlines are a unique business.

They’re not the normal business.

They’re not like railroads, which have miles and miles of real estate in the state which is taxed.

So when South Dakota took off or repealed the personal property tax on other commercial and business property, the personal property side of it… there are other taxes.

The history of our state will reveal at that time we were broadening the sale tax and the use tax to other businesses, meanwhile repealing the personal property tax.

Sandra Day O’Connor:

Well, but General Meierhenry, certainly the legislative history of this Act shows a legislative intent to prevent the state from taxing airlines or, in the case of railroads, railroads for ad valorem property tax purposes at a higher rate and putting them in a separate classification.

And that’s the thrust of the bill, and your argument certainly goes counter to that.

Mark V. Meierhenry:

Well, the thrust of the legislation, if I could be so bold as to put it in a sentence, was not to discriminate against interstate commerce and not to penalize in any way companies, like airlines, that operate interstate.

And we are talking here today about a tax that raises totally, from all the airlines in the state of South Dakota, about $200,000 a year.

The result if this particular tax is struck down is we will collect zero.

Now, if we collect zero I think we would all agree that we are not harming the airlines, if we collect no tax.

Sandra Day O’Connor:

Well, if the state imposed a very small ad valorem property tax on private aircraft, for example, instead of none, the result here would have to be that the airlines could not be charged more than that, I guess.

Mark V. Meierhenry:

That’s correct.

Sandra Day O’Connor:

But because the state charges zero ad valorem property taxes against private aircraft and other property, the result you argue for is that the tax stands.

And it just is kind of an odd result.

Mark V. Meierhenry:

Well, I follow through in 1315(d), where it makes clear that states can have property taxes on interstate carriers.

It also says they can have net income taxes.

South Dakota doesn’t have an income tax.

They can have franchise taxes.

We chose not to do that, because it is most fair, as our brief points out, and we try to be fair to airlines.

What the airlines say is that, because we have attempted to be fair to the airlines and we have arranged a scheme that was in effect 25 years unchallenged, that this Congressional legislation immediately struck it down.

But yet, what are the meaning… when they define “subject to a property tax”, can we assume, as courts have in other cases, that Congress was aware of our tax?

After all, Justice O’Connor, we followed the model that was put into effect, recognized by this Court, by the then Civil Aeronautics Board.

It was the typical type of tax across the United States.

I saw nothing that specifically said in the legislative history they wanted to strike down this type of fair tax.

Sandra Day O’Connor:

May I also ask you why you dropped the in lieu argument on your response in the appeal in this Court?

Mark V. Meierhenry:

Well, our trial court, as you’re aware, found that it was an in lieu tax and our Supreme Court did not.

In reading some of the prior cases about appeals and cross-appeals and the procedure, I guess it’s our feeling that if you wish to define under the federal law that it’s an in lieu tax, we would willingly accept it and we think that–

Sandra Day O’Connor:

But you didn’t make that argument, certainly.

Mark V. Meierhenry:

–No, we have not, because it was–

Sandra Day O’Connor:

I just wondered why.

Mark V. Meierhenry:

–Well, it was our feeling that we had to take this case up under what our South Dakota Supreme Court’s definition of in lieu tax was, and so we have done it that way, hoping that if we were incorrect this Court would correct that ruling by our court.

Byron R. White:

But at least it was a statement by your court that the state hadn’t intended to enact an in lieu tax?

Mark V. Meierhenry:

That’s true, Your Honor, because part of the problem here is this was the initial approach at taxation of the airlines.

See, when we passed this tax in 1961, we also allowed the counties where the airlines had their receiving facilities to tax the other personal property, and just the aircraft was centrally taxed and they would tax the items.

When we continued this tax, we took off the personal property totally, and so it remained only centrally assessed, as are utilities, railroads, and other factors.

So when this federal statute came into effect, it really was as a result of this federal statute that the airlines have challenged it.

Antonin Scalia:

General Meierhenry, suppose your legislature, when it enacts a tax, says we do not… this is not an in lieu tax, we’re not adopting this in order to replace something else, we just want to tax this business, and it says that in the statute.

Could we find that to be an in lieu tax?

Mark V. Meierhenry:

Well, yes, I think you can.

I think this Court–

Antonin Scalia:

What causes a tax to be in lieu unless the fact that it is imposed in lieu of something else?

And whether it is imposed in lieu of something else certainly depends upon the imposer, doesn’t it?

Mark V. Meierhenry:

–I believe it does, Justice.

Antonin Scalia:

So maybe that’s why you didn’t appeal the determination.

What is it in lieu of?

If the legislature can say it determinatively, certainly the Supreme Court can, can’t it, of your state?

Mark V. Meierhenry:

Yes.

Thurgood Marshall:

What is it in lieu of?

Mark V. Meierhenry:

It’s in lieu of every other tax.

This is the only tax–

Thurgood Marshall:

That’s a very precise answer.

[Laughter]

Mark V. Meierhenry:

–But it is true.

This is the only tax collected from any airline, directly from them.

And as was mentioned before–

Thurgood Marshall:

What about all the trucks and things and all?

Are they taxed?

Mark V. Meierhenry:

–No, sir, they are not taxed.

Thurgood Marshall:

You mean the trucks that run around the airport?

Mark V. Meierhenry:

No, we do not tax them.

Thurgood Marshall:

With “Western Airlines” on them; they aren’t taxed?

Do they have tags on them?

Do they pay for the tags?

Mark V. Meierhenry:

Yes, not in excess of perhaps $35.

A license fee, you mean to license?

Thurgood Marshall:

A tax.

Mark V. Meierhenry:

That would be the only other tax.

But I guess as I stand here I don’t recall whether, as long as they’re used on the airport facilities, whether they’d be required to be licensed.

Thurgood Marshall:

If I could imagine that one, I bet you could imagine some others.

Mark V. Meierhenry:

Well, the fact of the matter is that airlines in South Dakota all use public facilities.

They’re all publicly owned airports of one sort, either by the city or the county.

And the income from the airports is from airline rent, landing fees, property taxes of the taxing district, and so forth.

Mark V. Meierhenry:

The only taxes collected directly from the airlines of any property tax nature is by the central assessment of the airframes or the airplanes themselves.

Thurgood Marshall:

There’s no personal property tax at all?

Mark V. Meierhenry:

None.

We have none in South Dakota.

Thurgood Marshall:

For the counters and all that stuff, you don’t pay tax on that?

Mark V. Meierhenry:

Not in South Dakota.

And we have no income tax, so they aren’t taxed that way.

Of the money, the $200,000 approximately received from the airlines–

Thurgood Marshall:

But you pay fees?

You pay fees for landing rights?

Mark V. Meierhenry:

–Yes, they pay landing fees.

Thurgood Marshall:

And fees to have a counter?

Mark V. Meierhenry:

Rent, yes.

Thurgood Marshall:

The difference between a fee and a tax is?

Mark V. Meierhenry:

Well, there’s a big difference between a fee and a tax.

Inasmuch as the airline… the airport property itself is not on the tax roll because it’s publicly owned, a part of their rent certainly does not include that portion that a normal landlord would pay in taxes to the county.

So what they pay rent for is the facility, the building, the runways, all these things, to operate their business.

And to answer one of the Justices’ questions, Continental’s coming back November 8th, and that is the nature of the airline business today now that it’s unregulated.

They come and go out of our state, and we have this huge facility waiting to serve their business purpose, which they now can load all their equipment up on the last plane out of town and we as a state have nothing.

So if you go back and look at our tax structure, it’s even more fair.

It’s only when they do business in our state that they pay the tax, according to the amount of business they do.

And so the whole purpose of the RRRR Act was to stop discrimination, and we have taken note of that in our state.

And we put into our brief and attempted to show this Court that as a state we have ceased the discriminatory practices that many states have used against interstate carriers, and that’s why those cases are there.

Our Supreme Court has told the state and the counties and everybody that taxes, we must be fair.

We have followed the dictates of this Court and we have not discriminated against interstate commerce.

And yet, here we’re faced today with a case, because of the passage of a statute, that says $200,000 by all the airlines is discriminatory.

That’s all we pay, but it’s too much.

And if we come back and we enact a new tax that’s a use tax, and because their business is so unique, how can we come up with a use tax that they won’t be back here six years from now saying, you’re taxing us differently than all these other businesses that are there, that own real estate, that have a plant and equipment, all of which would pay four percent use tax, all of which pay gross receipts taxes.

Congress has exempted them from the gross receipts tax.

William H. Rehnquist:

General Meierhenry, could you focus down maybe on a specific example?

William H. Rehnquist:

Supposing there’s a South Dakota intrastate tour business in the Black Hills that has offices and a fleet of buses that take people through the Black Hills.

What sort of taxes do these people pay?

Mark V. Meierhenry:

Intrastate, in the state?

William H. Rehnquist:

Yes.

Mark V. Meierhenry:

They pay a four percent gross receipts tax.

William H. Rehnquist:

Do the airlines pay any gross receipts taxes?

Mark V. Meierhenry:

No, Congress has… the Aloha case has told us we cannot do that.

And we have never taxed them on their gross receipts.

We call it a sales tax, but it is technically a gross receipts tax on business.

So they would pay a sales tax.

William H. Rehnquist:

Yes.

Mark V. Meierhenry:

They would pay the normal registration fees for a bus, which are very minimal.

It’s not a tax on vehicles in South Dakota.

The maximum registration fee for an automobile is $35, so it’s a registration fee.

They would pay that, if you want to call it a tax.

I don’t.

They would pay real estate property taxes if they had a garage.

The airlines have no real estate that I’m aware of in South Dakota.

Those are the main taxes they would pay.

Byron R. White:

How about a gasoline tax?

Mark V. Meierhenry:

Yes, motor fuels tax in South Dakota.

So to speak, the bus company nor the airlines pay it.

The petroleum dealer pays it.

In the case where–

Byron R. White:

If the airline buys fuel in South Dakota, it pays… in effect, it’s charged for a tax, a fuel tax?

Mark V. Meierhenry:

–Yes, all of which under a statute–

Byron R. White:

But that’s the same sort of tax that everybody else pays?

Mark V. Meierhenry:

–Yes.

It’s non-discriminatory.

And it is all devoted to airport use.

Mark V. Meierhenry:

All the aviation fuel, the petroleum dealer pays a tax, but it is dedicated to airport use.

On the bus company example, it’s all donated–

Byron R. White:

But the airline… as far as you know, the airframes are the only kind of personal property that is subject to an ad valorem tax in South Dakota?

Mark V. Meierhenry:

–That’s correct.

Our statute, S.D.C.L. 10-46-10, exempts all property used to repair, maintain, equip vehicles in interstate commerce, and that’s been the law since 1961, when we made it very clear only the aircraft will be taxed, and only according to a ratio almost exactly like that approved by this Court in the Braniff Airlines case.

William H. Rehnquist:

Then in effect is the intrastate tour business in the Black Hills, it’s paying a gross receipts tax that is probably as rough an equivalent or as much of an equivalent as you can say, as compared to the airlines tax on the airframe?

Mark V. Meierhenry:

Oh, far higher.

William H. Rehnquist:

But I mean, that’s the principal way the state gets money from each of those two businesses, is that right?

Mark V. Meierhenry:

Yes.

Yes, the principal way we would get money from a business within the state would be the gross receipts tax, which is four percent off the top.

In the case of the airlines, that’s the federal tax which they’ve preempted the states.

That’s the eight percent.

And really, I don’t think it’s in the record, but I happen to know, less than six percent of most of the operating money of any of our airports comes from this tax.

It’s a minimal amount per year, $200,000.

Byron R. White:

General, xxx on this airframe tax in lieu of a gross receipts tax which we know is invalid.

Mark V. Meierhenry:

I suppose we could.

John Paul Stevens:

General Meierhenry, can I take xx back to the language of the statute for a minute and suggest to you that, just reading the statute literally, you probably can’t collect this tax, because as I understand your argument the definitional section, “subject to a property tax”, really has the effect of taking… saying these is no commercial and industrial property within the assessment jurisdiction.

There just isn’t any by statutory definition.

And therefore, the ratio of the true value of that property, whatever it may be, to the assessed value, is zero.

And if you can’t tax over the rate of zero, you can’t tax these airlines.

Mark V. Meierhenry:

Well, that is of course this Court’s duty, and I know a heavy responsibility, to determine this statute.

But I read it a little differently, Justice.

I think Congress had to recognize there is 50 states and a number of territories, and that they could not sit here… and, even though, as my colleague said, it took 15 years to pass this statute, there is unique ways to have all kinds of taxes.

And I think they wanted to allow us some latitude down here at the bottom out in South Dakota.

And when they said if… when it says in the definitional section

“devoted to a commercial or industrial use. “

and then they added these words,

“and subject to a property tax levy. “

they recognized that if you in fact are going to tax this property, you have to do it fairly.

We have a statute that says we use the average of all property.

John Paul Stevens:

Well, I understand that.

But the effect of what you’ve done is to remove all of the commercial and industrial property in the state from the statutory definition by not imposing a property tax on it.

Isn’t that right?

There is no… there is no centrally assessed commercial and airline property in the state of South Dakota.

Mark V. Meierhenry:

Well, other than other utilities.

No personal property, that’s correct.

John Paul Stevens:

And if that’s true, then your ratio to market value is zero times market value, which produces zero, which would mean you can’t tax above a zero rate if you just read the statute on its plain language.

Mark V. Meierhenry:

Well, on its face it has to be subject to a property tax before you go up to the ratio.

John Paul Stevens:

Before you get out of the zero category.

Mark V. Meierhenry:

That’s right.

And the only property in this particular class happens to be airline property.

But the saving part of our statute I believe is the fact that it wasn’t challenged in 25 years as being discriminatory because we used an average of all other property.

And so we have been fair, is what I’d like to point out to the Court.

We haven’t overassessed these airlines.

Antonin Scalia:

Well, why does that matter?

You’ve made a lot of the fact that you’re using the kind of a formula that this Court has approved in the past and that it yields only $200,000.

But if we rule the way you want us to today, there’s no reason you couldn’t kick that up to $200 million.

As far as this statute is concerned, there’s nothing that would prevent you from using the same ratio… I mean, you can only tax a certain proportion under our earlier decisions of the value of those aircraft.

But you could tax them at whatever rate you want, you’re telling us.

So even though you’re only deriving $200,000 this year, next year it could be $200 million.

Mark V. Meierhenry:

Well, it’s because of the whole way we come up with the ratio.

First of all, it would be a burdensome act and it would be a discriminatory act, and that was the purpose of all of this statute, and we wouldn’t do it.

And if we did it, they could clearly show that it would be a burden on interstate commerce.

William H. Rehnquist:

But would it violate the statute in a way that this act doesn’t, and if so why?

Mark V. Meierhenry:

Because we would have to change how we come up with… I mean, we’re talking about two different ratios, in effect, because our statute now requires us to take a ratio of the ton-miles they operate in our state, the flight time, and the total tonnage boarded and unloaded.

We come up with the ratio.

They provide that information for us.

Then we come up with the value of the plane.

Once we come up with the value of the planes, we then assess them, and we have a maximum levy that affects everybody in the state, maximum assessment.

Antonin Scalia:

Oh, maximum assessment, fine.

Mark V. Meierhenry:

All right.

Antonin Scalia:

But then you can apply a 300 percent rate to this.

Mark V. Meierhenry:

No.

We can only use the average mill levy on all property within the state.

That’s real and personal, all property.

So we can’t.

And historically, we can’t go out and raise our mill rate on our citizens.

We’d have to change the law, we’d have to change the constitution.

But assume we did, to come up with your example we’d have to raise that mill levy so high that… well, it couldn’t be done.

Antonin Scalia:

As a matter of state law, you’re saying.

Mark V. Meierhenry:

As a matter of state law.

And it would violate–

Antonin Scalia:

Lucky for the Federal Government.

Mark V. Meierhenry:

–Well, as a matter… but the federal law also, the purpose of the RRRR Act was to stop states from going overboard.

And I guess when you interpret this statute, inasmuch as our statute was in place before the federal statute, you still must go back and see whether it’s burdensome, because property taxes are allowed and we have a property tax.

We have a unique industry.

We have a unique way of doing business.

And the first question we must ask is, are they burdensome.

Now, when–

Sandra Day O’Connor:

Well, I’m not sure that’s the question we have to ask.

I thought we had to ask the question whether it violated this particular statute.

Mark V. Meierhenry:

–Well, we do.

But what I’m saying is, section (b) of 1513 allows the property tax.

Section (b) is for this Court to interpret where the words

“devoted to a commercial or industrial use and subject to a property tax levy. “

did Congress intend to take away all the unique methods of taxation across the country, and did they intend that only the slots that we have discussed today are the only methods, because in South Dakota we did change our method of taxation prior to the passage of the statute.

We had always taxed airlines and we do today the same as we did, only on their aircraft, not on their personal property.

Yet today my colleague would have us talk about the fact that we took away the personal property tax levy.

But they were never part of it, Justice.

They were never part of the personal property tax levy.

Mark V. Meierhenry:

They were part of the other type of tax that we had imposed upon them.

So the fact that we have no commercial or industrial personal property today, we didn’t in 1961 or ’71… or I should say, they didn’t pay any personal property tax.

So when we eliminated the personal property tax levy, it really never affected the airlines.

Now they’re coming in here today under 1513 and saying: Aha, we’ve got you, because if we win this case… and I think we all know who else are amicus on this… if we win this case, we don’t have to pay any tax, because as the Attorney General of South Dakota I can’t figure out how we’ll be able to fashion a tax that ever gets to the uniqueness of interstate carriers.

Just as today the personal property of railroads is not taxable in South Dakota, just their real property.

And I think it’s important in construing the statute to look at that.

In closing, I would only like to say that, as was pointed out by this Court, we have frequently reiterated that the commerce clause does not immunize interstate instrumentalities from all state taxation, but that such commerce may be required to pay a non-discriminatory share of the tax burden.

We believe that our South Dakota tax is a non-discriminatory share of the tax burden, and it fits within 1513 as a fair and equitable way to collect a very, very small share of the tax burden from the airlines in South Dakota.

Thank you.

William H. Rehnquist:

Thank you, General Meierhenry.

Mr. Rasenberger, do you have any more?

You have two minutes.

Raymond J. Rasenberger:

Yes, just a couple of brief points.

First of all, on the in lieu issue we pay, the airlines that is, every tax that the state may lawfully impose on us, and that includes principally real property taxes, which is their principal source of revenue.

The only other point I would make–

John Paul Stevens:

Yes, but on that point, if I may add, isn’t it true that with respect to all other taxes the revenues derived by those taxes go into the general revenue of the state, whereas this is the only tax where the money is earmarked for airport use?

Raymond J. Rasenberger:

–That is true, although I think that’s not really–

John Paul Stevens:

Well, it makes some difference in the language, in the definition of in lieu tax.

Raymond J. Rasenberger:

–If it were–

Antonin Scalia:

What real estate do the airlines own that they pay taxes on?

Raymond J. Rasenberger:

–I can’t tell you a specific piece of real estate.

Antonin Scalia:

Do you know that they have any specific piece?

Raymond J. Rasenberger:

No, I do not know.

But if they had it, they would pay it.

Antonin Scalia:

I’m sure.

That’s very nice of them.

Raymond J. Rasenberger:

All I’m saying is that it’s not… this tax is not in lieu of real estate taxes or any other taxes that the state imposes.

The other final point is, remember that this is not just South Dakota that’s involved or just these airlines.

We’re talking about a proposition that would have broad applicability to a lot of states which don’t have personal property taxes, which could imposes taxes on airlines just as South Dakota did, where we have a lot more aircraft and a lot more train rolling stock and buses, and where a lot more money than $200,000 could be involved.

And if those states were to do that on invitation of the Court in the decision in this case, we would basically simply create exactly the kind of property tax discrimination that this whole project, these three pieces of legislation, were designed to eliminate at the time and in conjunction with, as we know, the carriers were being deregulated by the Congress.

Antonin Scalia:

Is there any other state that has a tax structure like this which happens to have no property tax and would be able to impose this kind of a system?

How many other states have that?

Raymond J. Rasenberger:

At this time, none that I can mention.

All I’m saying is that, if the Court holds for South Dakota, other states would be free to impose such taxes.

Thank you.

William H. Rehnquist:

Thank you, Mr. Rasenberger.

The case is submitted.