Tax Type
Aircraft Sales and Use Tax
Retail Sales and Use Tax
Description
Charter Aircraft Service
Topic
Taxability of Persons and Transactions
Date Issued
04-10-1989
April 10, 1989
Re: §58.1-1821 Application/ Retail Sales and Use Tax and
Aircraft Sales and Use Tax
Dear****************
This will reply to your letters of October 7, 1988 on behalf of ********* (taxpayer) appealing retail sales and use tax and aircraft sales and use tax assessments issued to the taxpayer for periods between June, 1982 and February, 1988. This will provide a consolidated response to both appeals.
FACTS
The taxpayer was organized in 1979 to engage in an interstate "for-hire" charter aircraft business. In this connection, the taxpayer purchased and operated several aircraft under a FAR 135 Commercial operating Certificate. The aircraft have been hangared at Washington National Airport and have not been licensed in Virginia. The taxpayer was recently assessed retail sales and use tax on its untaxed aircraft parts purchases from nonresident vendors for use on aircraft based in Virginia; and aircraft sales and use tax on its May, 1986 purchase in Virginia of a particular aircraft.
The taxpayer contests the retail sales and use tax assessment by citing Article 10, §1 of the Virginia Constitution, and the equal protection and interstate commerce clauses of the U.S. Constitution. The taxpayer contests the aircraft sales and use tax assessment, citing its successful appeal of a similar assessment for its purchase of an aircraft in 1980, and since the aircraft purchased in 1986 is neither licensed nor required to be licensed by the Virginia Department of Aviation.
DETERMINATION
Retail Sales and Use Tax
Virginia Code §58.1-608(26) exempts from the retail sales and use tax:
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- tangible personal property sold or leased to an airline operating in intrastate, interstate or foreign commerce as a common carrier providing scheduled air service on a continuing basis to one or more Virginia airports for use or consumption by such airline directly in the rendition of its common carrier service. As used in this subdivision "scheduled air service" shall be defined pursuant to the provisions of §58.1-1501.
- tangible personal property sold or leased to an airline operating in intrastate, interstate or foreign commerce as a common carrier providing scheduled air service on a continuing basis to one or more Virginia airports for use or consumption by such airline directly in the rendition of its common carrier service. As used in this subdivision "scheduled air service" shall be defined pursuant to the provisions of §58.1-1501.
Article 10, §1 of the Constitution of Virginia provides in pertinent part that:
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- All property, except as hereinafter provided, shall be taxed. All taxes shall be levied and collected under general laws and shall be uniform upon the same class of subjects within the territorial limits of the authority levying the tax...
- All property, except as hereinafter provided, shall be taxed. All taxes shall be levied and collected under general laws and shall be uniform upon the same class of subjects within the territorial limits of the authority levying the tax...
Further, the Virginia Supreme Court in East Coast Freight Lines v. City of Richmond, 194 Va. 517, 74 S.E.2d 283 (1953), (copy enclosed), upheld a statute which exempted from local taxation all common carriers operating under a certificate of public convenience and necessity issued by the State Corporation Commission, but which did not exempt similar carriers which were not required to hold such a certificate. This provision had the effect of subjecting purely interstate carriers like the taxpayer to local taxation, while exempting intrastate carriers from such taxation.
The Court held that "[n]o evidence [had] been presented to show that the classification made [between certificated and non-certificated carriers was] arbitrary, discriminatory or unreasonable." Namely, the taxpayer had not shown that, "the business discriminated against [was] precisely the same as that included in the class which [was] alleged to be favored... since the rights, duties and obligations of [the taxpayer]..., were materially different from those imposed upon carriers which [operated] over regular routes under certificates of convenience and necessity issued by the State Corporation Commission. " 194 Va. 517 at 527.
It is also well settled that the legislature has the power to adopt different classifications for tax purposes. Va. Elec. & P. Co. v. Commonwealth, 169 Va. 688, 194 S.E. 775; Caskey Baking Co. v. Commonwealth of Virginia, 313 U.S. 117, 121, 61 S. Ct. 881, 85 L.Ed. 1223. For the reasons given by the Virginia Supreme Court in the East Coast case, I do not agree that denying the taxpayer in this case the benefit of the exemption in Virginia Code §58.1-608(26) violates either the Virginia Constitution or the equal protection clause of the U.S. Constitution.
Furthermore, the assessment in this case does not violate the interstate commerce clause of the U.S. Constitution. In rejecting a similar contention made by the taxpayer in the East Coast case, the Court stated:
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- The interstate commerce clause of the Federal Constitution does not prevent the imposition by a state of ... taxes upon the property of corporations engaged in interstate commerce, where such property has a taxable situs within the borders of the taxing state, even though such property is itself used in carrying on the corporation's interstate business. (Emphasis added) 194 Va. 517 at 526.
- The interstate commerce clause of the Federal Constitution does not prevent the imposition by a state of ... taxes upon the property of corporations engaged in interstate commerce, where such property has a taxable situs within the borders of the taxing state, even though such property is itself used in carrying on the corporation's interstate business. (Emphasis added) 194 Va. 517 at 526.
Prior to July 1, 1984, the aircraft sales and use tax did not apply to, "the sale or use of an aircraft for which no license [from the Department of Aviation was] required." (See, former Virginia Code §58-685.32.) However, effective July 1, 1984, the exemption for aircraft not required to be licensed by the Department of Aviation was repealed. (See, legislative impact statement for House Bill 193, enclosed) . Accordingly, the fact that the taxpayer's aircraft was neither licensed nor required to be licensed by the Department of Aviation at the time of purchase did not prevent the imposition of the aircraft sales tax on such purchase.
In addition, the taxpayer may not rely on provisions in the Virginia Aircraft Sales and Use Tax Regulations which have been superseded by the 1984 law change. The introduction to the regulations specifically provides that, "[t]hese regulations do not reflect statutory changes effective on and after July 1, 1984. " (See copy of introduction enclosed.)
However, based on the department's August 7, 1980 settlement with this taxpayer, I will waive the aircraft sales and use tax assessment in this case upon receipt of full payment of the outstanding retail sales and use tax assessment, within thirty days of the date of this letter.
It should be noted however, that in any future audit, assuming its method of operation remains the same, the taxpayer will be subject to Virginia aircraft sales and use tax on all aircraft purchased or used in Virginia, whether based at National Airport or any other airport in Virginia.
Accordingly, the aircraft sales and use tax assessment issued to the taxpayer will be abated upon receipt of payment for the retail sales and use tax assessment, which currently stands at **********(inclusive of accrued interest since the date of assessment), within thirty days. Payment of this amount should be sent to the department's Technical Services Section, office Services Division, at P.O. Box 6-L, Richmond, Virginia 23282.
Sincerely,
W. H. Forst
Tax Commissioner
Rulings of the Tax Commissioner