Opinion ID: 2464737
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Heading: The Flight Options Fleet of Airplanes Acquired a Tax Situs in Washington

Text: ¶ 13 The due process clause prohibits a state from taxing property unless that property has acquired a tax situs in that state. Frick v. Pennsylvania, 268 U.S. 473, 496, 45 S.Ct. 603, 69 L.Ed. 1058 (1925). Instrumentalities of interstate commerce, such as airplanes, trains, and inland water vessels, may acquire a tax situs in multiple states. Cent. R.R. Co. of Pa. v. Pennsylvania, 370 U.S. 607, 613-14, 82 S.Ct. 1297, 8 L.Ed.2d 720 (1962); Braniff Airways, Inc. v. Neb. State Bd. of Equalization & Assessment, 347 U.S. 590, 600-01, 74 S.Ct. 757, 98 L.Ed. 967 (1954); Ott v. Miss. Valley Barge Line Co., 336 U.S. 169, 170, 174, 69 S.Ct. 432, 93 L.Ed. 585 (1949). The same constitutional analysis applies to each of these instrumentalities, and we may thus rely on case law addressing taxation of each type of instrumentality. Braniff Airways, 347 U.S. at 599-600, 74 S.Ct. 757; Ott, 336 U.S. at 173-74, 69 S.Ct. 432. In determining whether property has acquired a tax situs in a given state, it is appropriate to look at the fleet of instrumentalities as a whole, even if the specific and individual items of property entering the state are not continuously the same, but [are] constantly changing, according to the exigencies of the business. Marye v. Balt. & Ohio R.R. Co., 127 U.S. 117, 123, 8 S.Ct. 1037, 32 L.Ed. 94 (1888); see Alaska Airlines, Inc. v. Dep't of Revenue, 307 Or. 406, 411, 769 P.2d 193 (1989) ([T]he validity [of a tax assessment against an airline] depends upon whether each airline's aircraft property was part of a unit with situs in this state.). ¶ 14 Flight Options contends that, in order to establish a tax situs in a state, its airplanes must operate over fixed routes and regular schedules. This is incorrect; Flight Options confuses a sufficient condition with a necessary one. In Central Railroad, the United States Supreme Court explained that a state could impose an apportioned property tax on railroad cars that traveled through it on fixed and regular routes. 370 U.S. at 614, 82 S.Ct. 1297. It also recognized that a tax situs could be created in a state through [h]abitual employment within the State of a substantial number of cars, albeit on irregular routes. Id. at 615, 82 S.Ct. 1297. Thus, fixed and regular routes are sufficient to create a tax situs for instrumentalities of interstate commerce within a state but are not necessary. See Am. Refrigerator Transit Co. v. Hall, 174 U.S. 70, 71-72, 81-82, 19 S.Ct. 599, 43 L.Ed. 899 (1899) (holding that Colorado possessed authority to tax property of out-of-state business that furnished railroad cars to railroad companies where the cars used in Colorado were not part of regularly run trains, were not run at regular times, and were not constantly the same specific cars). ¶ 15 Flight Options contends that the language relating to habitual employment in Central Railroad is refuted by the Court's disposition of the case. 370 U.S. at 613, 82 S.Ct. 1297. This is not so, as a careful reading of the case demonstrates. The Central Railroad Company was a Pennsylvania corporation that owned 3,074 freight cars, some of which were operated in other states by other companies. Id. at 609, 82 S.Ct. 1297. Pennsylvania imposed its property tax against the value of all the cars owned by the Central Railroad Company. Id. at 608, 82 S.Ct. 1297. The company argued that it was constitutionally entitled to reduce the property tax it owed by a proportion corresponding to the amount of time that its cars spent outside Pennsylvania. Id. at 610 82 S.Ct. 1297. The Court began from the premise that the State of domicile retains jurisdiction to tax tangible personal property which has `not acquired an actual situs elsewhere.' Id. at 611-12, 82 S.Ct. 1297 (quoting Johnson Oil Ref. Co. v. Oklahoma ex rel. Mitchell, 290 U.S. 158, 161, 54 S.Ct. 152, 78 L.Ed. 238 (1933)). If personal property acquires a tax situs in another state, the commerce clause, U.S. Const. art. I, § 8, cl. 3, precludes the state of domicile from taxing the property to the extent it can be taxed in that other state. Cent. R.R., 370 U.S. at 612, 614, 82 S.Ct. 1297. The question, therefore, became whether the Central Railroad Company's cars had acquired an actual situs in another state. The company had the burden to demonstrate that its property had acquired such a situs. Id. at 613, 82 S.Ct. 1297. The Central Railroad Court held that the company had met its burden with respect to those cars that were run on fixed routes and regular schedules within New Jersey; such use was sufficient to create a tax situs and allow for imposition of an apportioned property tax on the value of the Central Railroad Company's fleet of cars. Id. at 613-14, 82 S.Ct. 1297. However, the Court held that the company had not met its burden with respect to the remainder of its cars that were operated outside Pennsylvania. Id. at 614-15, 82 S.Ct. 1297. The Central Railroad Company had shown that those cars were habitually employed outside Pennsylvania but had failed to produce evidence of their habitual presence ... in particular nondomiciliary States. Id. at 615, 82 S.Ct. 1297. The Court clearly indicated that the latter showing would have been sufficient. Id. Flight Options' argument to the contrary is unpersuasive, particularly since it fails to account for the Court's holding in American Refrigerator Transit, which approved a property tax by a nondomiciliary state on the basis of the habitual use of property in that state. 174 U.S. at 71-72, 81-82, 19 S.Ct. 599. ¶ 16 Though Flight Options did not specifically raise the issue in the context of its due process clause challenge, we nonetheless proceed to consider whether its use of its fleet of airplanes in Washington was sufficiently habitual to create a tax situs in Washington. Due process requires `some minimum connection' between the taxing state and the property to be taxed, Quill Corp. v. North Dakota ex rel. Tax Comm'r, 504 U.S. 298, 306, 112 S.Ct. 1904, 119 L.Ed.2d 91 (1992) (quoting Miller Bros. Co. v. Maryland, 347 U.S. 340, 344-45, 74 S.Ct. 535, 98 L.Ed. 744 (1954)), and that `the tax in practical operation has relation to opportunities, benefits, or protection conferred or afforded by the taxing State.' Braniff Airways, 347 U.S. at 600, 74 S.Ct. 757 (quoting Ott, 336 U.S. at 174, 69 S.Ct. 432). We address these requirements in turn. ¶ 17 The minimum contacts test applicable under the due process clause centrally concerns the fundamental fairness of governmental activity. Quill, 504 U.S. at 312, 112 S.Ct. 1904. Notice and fair warning are the touchstones of the due process analysis. Id. The magnitude of the contacts necessary to meet the minimum contacts is quite low. In Smoot Sand & Gravel Corp. v. District of Columbia, 84 U.S.App.D.C. 367, 174 F.2d 505, 505-06 (1949), the Court of Appeals for the District of Columbia held that the district could assess an apportioned property tax against a fleet of water vessels that entered the district an average of once per day. See Canadian Pac. Ry. Co. v. King County, 90 Wash. 38, 44, 46, 155 P. 416 (1916) (approving assessment of property tax where three railroad cars entered Washington each day, though the three were not continuously the same). Flight Options' average of two daily visits to the state of Washington in each year was more than adequate to put it on notice that it would be subject to taxation here. ¶ 18 Further support for the existence of minimum contacts can be found from the large number of cases decided on dormant commerce clause grounds. While the due process clause and the commerce clause are animated in part by differing concerns, Quill, 504 U.S. at 312, 112 S.Ct. 1904, the inquiries are not mutually exclusive. In Trinova Corp. v. Michigan Department of Treasury, 498 U.S. 358, 111 S.Ct. 818, 112 L.Ed.2d 884 (1991), the United States Supreme Court explained that the dormant commerce clause analysis set forth in Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 97 S.Ct. 1076, 51 L.Ed.2d 326 (1977), encompasses as well the due process requirement of minimum contacts. Trinova, 498 U.S. at 373, 111 S.Ct. 818. In other words, a finding that the imposition of a tax does not violate the dormant commerce clause is sufficient to establish that the imposition also does not violate the due process clause, even though the converse is not true. Quill, 504 U.S. at 313 n. 7, 112 S.Ct. 1904. The minimum contacts requirement of the due process clause is contained in the substantial nexus requirement of the test articulated in Complete Auto Transit. 430 U.S. at 279, 97 S.Ct. 1076. We recently held that 50 to 70 visits by sales employees of a company over a seven-year period was sufficient to establish a substantial nexus with the State. Lamtec, 170 Wash.2d at 841, 851, 246 P.3d 788. Other states have reached similar conclusions. See, e.g., Fall Creek Constr. Co. v. Dir. of Revenue, 109 S.W.3d 165, 171 (Mo. 2003) (finding that 42 arrivals or departures of airplanes, together with 24 overnight stays, in one year established a substantial nexus with the state). Flight Options' average of 700 visits to Washington far exceeds the number of visits held sufficient in Lamtec. ¶ 19 We turn next to whether `the tax in practical operation has relation to opportunities, benefits, or protection conferred or afforded by the taxing State.' Braniff Airways, 347 U.S. at 600, 74 S.Ct. 757 (quoting Ott, 336 U.S. at 174, 69 S.Ct. 432). The fact that the tax is apportioned so as to limit its assessment to a proportion of the value of the property commensurate with the proportion of time the property spent in Washington goes a long way toward meeting this requirement. See Ott, 336 U.S. at 174, 69 S.Ct. 432. While in Washington, Flight Options planes enjoyed the benefits and protection of [Washington] criminal laws, the provision of search and rescue services if needed and opportunities for further commerce through contacts with [Washington]. Alaska Airlines, 307 Or. at 412, 769 P.2d 193. We have little difficulty determining that the apportioned property tax imposed on the Flight Options planes is reasonably related to the opportunities, benefits, and protections afforded by the state. In sum, we hold that a state may impose an apportioned property tax on airplanes habitually entering the state, even where those airplanes do not operate over fixed routes or on regular schedules. We further hold that an average of two visits to the state each day is sufficiently habitual to establish a tax situs.