Court Opinion

ID: 2855304
Source: CourtListenerOpinion
Date Created: 2015-09-04 18:39:37.323083+00
Date Added: 2024-06-11T12:46:04.233954
License: Public Domain

COURT OF APPEALS
                        SECOND DISTRICT OF TEXAS
                             FORT WORTH

                             NO. 2-08-199-CV

AVIALL SERVICES, INC.                                            APPELLANT

                                      V.

TARRANT APPRAISAL DISTRICT AND                                    APPELLEES
TARRANT APPRAISAL REVIEW BOARD

                                  ------------

        FROM THE 17TH DISTRICT COURT OF TARRANT COUNTY

                                  ------------

                                 OPINION

                                  ------------

      This appeal involves the interpretation of an ad valorem tax exemption.

Appellant Aviall Services, Inc. appeals the trial court’s grant of summary

judgment in favor of Appellees Tarrant Appraisal District (“the District”) and

Tarrant Appraisal Review Board (“the Board”). Aviall’s sole issue is whether

aviation parts that it shipped to a federal enclave located within the

geographical boundaries of Texas were transported “outside this State” for
purposes of the freeport ad valorem tax exemption as allowed by the

Constitution of the State of Texas and enabling legislation.

I.    Factual and Procedural Background

      A.    Aviall

      The facts are undisputed. Aviall, one of the world’s largest suppliers of

aviation parts, located its central distribution center in Irving because both

Dallas County and the Grapevine/Colleyville Independent School District allowed

the freeport exemption. At its distribution center, Aviall imports, temporarily

stores, and then ships aviation parts to various locations throughout the United

States and other countries.    One of the destinations to which Aviall ships

inventory is the Red River Army Depot (“the Depot”), located in Bowie County

near Texarkana, Texas.

      B.    The Depot

      In 1944, the Depot and its surrounding lands became a federal enclave

under Article I, Section Eight, Clause Seventeen of the United States

Constitution.   This clause provides that Congress shall have the power “to

exercise exclusive Legislation in all Cases whatsoever” over the District of

Columbia and “to exercise like Authority over all Places purchased by the

Consent of the Legislature of the State in which the Same shall be, for the

                                       2
Erection of Forts, Magazines, Arsenals, dock-Yards, and other needful

buildings.” U.S. Const. art. I, § 8, cl. 17.

      The then-governor of Texas signed two deeds ceding exclusive

jurisdiction of more than 18,000 acres of land to the United States, with the

reservation that the State of Texas retains concurrent jurisdiction only for

service of civil and criminal process on the premises. The ceded land remains

physically located within the geographic boundaries of Texas. See Adams v.

Calvert, 396 S.W.2d 948, 949 (Tex. 1965) (recognizing federal enclave

remains within geographic boundaries of State). The Depot currently remains

under the exclusive jurisdiction and control of the United States.

      C.    The shipments at issue

      In 2006, Aviall filed an application for a “freeport exemption” with the

District, seeking an exemption in the amount of $277,990,582 for freeport-

eligible inventory shipped during 2005, including $27,486,322 for aircraft parts

it had shipped to the Depot. Aviall shipped all of the inventory to the Depot

within 175 days from the date it was imported into Texas. The District granted

an exemption in the amount of $243,216,654 but denied the exemption for the

parts shipped to the Depot. Aviall filed a notice of protest with the Board.

After a hearing, the Board granted a higher exemption of $250,504,260 but

                                        3
again denied the exemption for the parts shipped to the Depot in the amount

of $27,486,322.

      Aviall paid the tax under protest and filed suit on August 28, 2006,

challenging the District and the Board’s denial of the freeport exemption for the

aircraft parts it had shipped to the Depot. Aviall moved for summary judgment,

contending that the freeport exemption applied to its shipments of inventory to

the Depot and arguing that, as a federal enclave, the Depot is considered

“outside this State.” The District and Board also filed a motion for summary

judgment, arguing that Aviall’s shipments of inventory to the Depot were not

eligible for the freeport exemption because they were not transported outside

the geographical boundaries of the state and, therefore, were not transported

“outside this State” within the meaning of the freeport exemption’s language

in article VIII, section 1-j(a)(3) of the Texas constitution. The trial court denied

Aviall’s motion and granted the District and Board’s motion. Aviall appeals

from the final summary judgment.

II.   The “Freeport Exemption”

      Article VIII, section 1 of the Texas constitution provides, in pertinent part,

that all real property and tangible personal property in this State, “unless

exempt as required or permitted by this Constitution . . . shall be taxed in

proportion to its value.” Tex. Const. art. VIII, § 1(a), (b). In 1989, Texas

                                         4
voters approved an amendment to the Texas constitution that exempted from

ad valorem taxation personal property temporarily located in this State that is

destined for out-of-State shipment and that is “transported outside this State”

not later than 175 days after the date it is brought into or acquired in Texas.1

See generally Tex. S.J. Res. 11 § 2(a), 71st Leg., R.S., 1989 Tex. Gen. Laws

6415, 6415–17.

      Known as the “freeport exemption,” 2 the language of Texas constitution

article VIII, section 1-j(a) reads, in pertinent part, as follows:

      To promote economic development in the State, goods, wares,
      merchandise, other tangible property, and ores, other than oil,
      natural gas, and other petroleum products, are exempt from ad
      valorem taxation if:

      (1) the property is acquired in or imported into this State to be
      forwarded outside this State, whether or not the intention to

      1
        … An earlier freeport exemption statute adopted without constitutional
authorization was held valid only to the extent that it exempted property in
interstate transit, i.e., for which there was no interruption in the continuity of
transit other than necessary delay or accomodation. See Op. Tex. Att’y Gen.
No. DM-463 (1997) (citing Dallas County Appraisal Dist. v. Brinkman, 701
S.W.2d 20, 23 (Tex. App.—Dallas 1985, writ ref’d n.r.e.); see generally Tex.
Legis. Council, Analyses of Proposed Constitutional Amendments, Nov. 7,
1989, Election (Sept. 1989).
      2
       … Texas law was patterned after federal law on goods coming into
United States ports and not taxed since they were “free” from a port or tax
location. See Window on State Government, “2003 Annual Property Tax
Report: Texas Taxing Units Levy $29 Billion in Local Property Taxes,” (Nov.
2   0    0   4   )   ,        a   v   a   i   l  a   b   l   e         a  t
http://www.window.state.tx.us/taxinfo/proptax/stmt/stmt0411/.

                                         5
      forward the property outside this State is formed or the destination
      to which the property is forwarded is specified when the property
      is acquired in or imported into this State;

      (2) the property is detained in this State for assembling, storing,
      manufacturing, processing, or fabricating purposes by the person
      who acquired or imported the property; and

      (3) the property is transported outside of this State not later than
      175 days after the date the person acquired or imported the
      property in this State.

Tex. Const. art. VIII, § 1-j(a)(1)–(3) (emphasis added). 3

      Chapter 11 of the Texas Tax Code is the enabling legislation for the

amendment.     Tex. Tax Code Ann. § 11.251 (Vernon 2008).              The statute

defines “freeport goods” as “property that under Article VIII, Section I-j of the

Texas Constitution is not taxable” and provides that “a person is entitled to an

exemption from taxation of the appraised value of that portion of the person’s

inventory or property consisting of freeport goods.”       Id. § 11.251(b). Local

taxing jurisdictions may opt out of the freeport exemption and continue taxing

otherwise exempt property. See Tex. S.J. Res. 11, § 2(b).

      3
       … For purposes of section 1-j, tangible personal property includes aircraft
and aircraft parts, property affixed to an aircraft to be transported outside this
State, and property, aircraft, or aircraft parts brought into this State and used
for repair or maintenance of aircraft operated by a certified air carrier. Id. § 1-j
(c).

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III.   Standard of review

       We review the trial court’s summary judgment de novo.           Valence

Operating Co. v. Dorsett, 164 S.W.3d 656, 661 (Tex. 2005). Likewise, review

of constitutional and statutory provisions involve matters of law and are

reviewed de novo. Harris County Hosp. Dist. v. Tomball Regional Hosp., 283
S.W.3d 838, 842 (Tex. 2009). A plaintiff is entitled to summary judgment on

a cause of action if it conclusively proves all essential elements of the claim.

See Tex. R. Civ. P. 166a(a), (c); MMP, Ltd. v. Jones, 710 S.W.2d 59, 60 (Tex.

1986). A defendant who conclusively negates at least one essential element

of a cause of action is entitled to summary judgment on that claim. IHS Cedars

Treatment Ctr. of DeSoto, Tex., Inc. v. Mason, 143 S.W.3d 794, 798 (Tex.

2004); see Tex. R. Civ. P. 166a(b), (c).

       When both parties move for summary judgment and the trial court grants

one motion and denies the other, the reviewing court should review both

parties’ summary judgment evidence and determine all questions presented.

Valence Operating Co., 164 S.W.3d at 661. The reviewing court should render

the judgment that the trial court should have rendered. Id.

IV.    Construing a constitutional provision

       In construing the Texas constitution, as in construing statutes, the

guiding rule is to give effect to the intent of the makers and adopters of the

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provision in question. Harris County Hosp. Dist., 283 S.W.3d at 842; City of

El Paso v. El Paso Community College Dist., 729 S.W.2d 296, 298 (Tex.

1986). We presume the language was carefully selected, and we interpret the

words as they are generally understood.        Harris County Hosp. Dist., 283
S.W.3d at 842 (citing City of Beaumont v. Bouillion, 896 S.W.2d 143, 148

(Tex. 1995)).

      When interpreting a constitution, we rely heavily on its literal text to give

effect to its plain language.    Id.; Doody v. Ameriquest Mortgage Co., 49
S.W.3d 342, 344 (Tex. 2001). We use the same guidelines used in construing

statutes to construe constitutional provisions.      See, e.g., Meador v. EMC

Mortgage Corp., 236 S.W.3d 451, 452 (Tex. App.—Amarillo 2007, pet.

denied).

      Under the plain meaning rule, if a provision is clear and unambiguous,

resorting to extrinsic aids and rules of construction is inappropriate, and the

provision should be given its common everyday meaning. See City of Rockwall

v. Hughes, 246 S.W.3d 621, 626 (Tex. 2008); State v. Shumake, 199 S.W.3d
279, 284 (Tex. 2006). This rule provides an objective guidepost to the

legislature’s intent and ensures ordinary citizens are able to “rely on the plain

language . . . to mean what it says.” Fitzgerald v. Advanced Spine Fixation

Sys., Inc., 996 S.W.2d 864, 866 (Tex. 1999). In applying the plain meaning,

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we may not by implication enlarge the meaning of any word in a provision

beyond its ordinary meaning when intent as to the meaning may be gathered

from a reasonable interpretation of the provision as it is written. Stringer v.

Cendant Mortgage Corp., 23 S.W.3d 353, 354 (Tex. 2000).

V.    Analysis

      Aviall contends that, because neither the Texas constitution nor the

enabling statute limits the exemption to inventory shipped outside the

geographical limits of this State, a shipping destination “outside this State”

includes a federal enclave as a destination beyond the limits of the jurisdiction,

sovereignty, legislation, or control of Texas—even though it remains located

within the geographic boundaries of Texas. The District and Board respond that

the constitutional provision and statute must be given their ordinary meaning,

referring only to the geographic limits of this State, and that terms such as

“outside of this State’s jurisdiction” or “beyond the limits of the sovereignty,

legislation or control” of Texas are not contained in the language of the freeport

exemption and, therefore, cannot be supplied by implication. See Tex. Const.

art. VIII, § 1-j(a)(1)–(3).

      The term “State” is not defined either in the constitutional amendment or

in the tax code.     Aviall advocates a “broad” interpretation of that term to

include   jurisdictional,     legislative,   and   sovereign   power   in   addition   to

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geographical borders. Aviall points out that federal enclaves are created under

the clause that empowers Congress to “exercise exclusive legislation” over

property that a state voluntarily cedes to the federal government, meaning that

there is an “actual transfer of sovereignty.” See Vincent v. Gen. Dynamics

Corp., 427 F. Supp. 786, 795 (N.D. Tex. 1977). Relying upon Paul v. United

States, 371 U.S. 245, 263, 83 S. Ct. 426, 437 (1963), Aviall further maintains

that, absent specific congressional authorization, a state cannot regulate

activities or property within a federal enclave.

      The phrase “outside this State” in the context of the exemption from the

ad valorem tax refers to location, not jurisdiction or power. This case does not

involve the State’s power to exercise jurisdiction or legislation over the property

or residents of the Depot. Nor are the District and taxing entities attempting

to assess taxes on property within the federal enclave that constitutes the

Depot. Those aspects of a “state” within the federal system of these United

States are not implicated. The tax is assessed solely on inventory while it is

located on Aviall’s private property at its distribution center in Irving, Texas.

See Tex. Tax Code Ann. §§ 11.01, 23.01, 32.01 (Vernon 2008).

      Moreover, Aviall’s interpretation would reverse the long-standing rule to

strictly construe tax exemptions against the taxpayer. See River Oaks Garden

Club v. City of Houston, 370 S.W.2d 851, 854 (Tex. 1963); ICAN Enter., Inc.

                                        10
v. Williamson County Appraisal Dist., No. 03-06-00594, 2009 WL 1025084,

*3 (Tex. App.—Austin April 17, 2009, pet. denied) (holding trial court properly

gave narrow interpretation for exemption for stored aircraft parts, denying

taxpayer’s application for its storage of entire aircraft). It is well settled that

language granting exemptions from taxation are not favored and must be

strictly and narrowly construed against the taxpayer. N. Alamo Water Supply

Corp. v. Willacy County Appraisal Dist., 804 S.W.2d 894, 899 (Tex. 1991);

Davies v. Meyer, 541 S.W.2d 827, 829 (Tex. 1976); Am. Hous. Found. v.

Harris County Appraisal Dist., 283 S.W.3d 76, 80 (Tex. App.—Houston [14th

Dist.] 2009, no pet.); Gables Realty Ltd. P’ship v. Travis Cent. Appraisal Dist.,

81 S.W.3d 869, 872 (Tex. App.—Austin 2002, pet. denied). Exemptions are

subject to strict construction because they undermine the goal of equality and

uniformity by placing a greater burden on some taxpaying businesses and

individuals rather than placing the burden on all taxpayers equally. N. Alamo

Water Supply Corp., 804 S.W.2d at 899; Bullock v. Nat’l Bancshares Corp.,

584 S.W.2d 268, 271–72 (Tex. 1979), cert. denied, 444 U.S. 1016 (1980).

      Additionally, an exemption cannot be raised by implication but must

affirmatively appear, and all doubts are resolved in favor of the taxing authority

and against the taxpayer. Bullock, 584 S.W.2d at 272. Thus, the burden of

                                        11
proof of “clearly showing” that an exemption applies is on the taxpayer, with

all doubts resolved against the taxpayer. N. Alamo Water Supply Corp., 804
S.W.2d at 899 (citing Bullock, 584 S.W.2d at 272).

        Considering the plain meaning of the clause’s terms in light of the rules

of strict construction for tax exemptions, we cannot interpret the freeport

exemption in a broad manner by implying additional language that would

exempt Aviall’s shipments to the Depot. See id.; see also Leland v. Brandal,

257 S.W.3d 204, 205 (Tex. 2008) (stating that court may not judicially amend

statute by adding words not contained in the statutory language). We are not

free to enlarge or judicially amend the constitutional amendment or enabling

statute. Leland, 257 S.W.3d at 205. This is particularly so because Aviall

urges an interpretation of the constitutional exemption based on a fiction.

        Aviall relies upon United States v. State Tax Commission of Mississippi,

412 U.S. 363, 378, 93 S. Ct. 2183, 2192 (1973), for a novel argument that

the concept of a “federal island” or a “state within a state” requires that we

interpret the exemption in such a manner that transportation of the aviation

parts to the Depot—as a federal enclave—is “outside this State,” even though

the Depot is located within Texas. But we agree with the District and Board

that this “state within a state” fiction advocated by Aviall has no application

here.

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      In State Tax Commission of Mississippi, Mississippi attempted to regulate

wholesale distribution of alcohol by making the State Tax Commission the

exclusive importer and wholesaler of alcoholic beverages within that State. Id.

at 412 U.S. at 364, 93 S. Ct. at 2185. The Commission adopted a regulation

purporting to impose a markup, essentially a sales tax, on liquor purchased

directly from out-of-state suppliers by post exchanges, officer’s clubs, and

ship’s stores on four military bases located geographically within the State.

Id. at 366, 93 S. Ct. at 2186. Two of the four military bases were federal

enclaves.   Mississippi contended that the Twenty-First Amendment to the

Constitution permitted it to regulate “transportation or importation [of liquor]

into [the] State . . . for delivery or use therein.” Id. at 367, 373, 93 S. Ct. at

2186, 2190. The United States argued that the regulation as to those bases

interfered with its exclusive jurisdiction conferred by Article I, Section Eight,

Clause Seventeen of the Constitution.4 Id. at 369, 93 S. Ct. at 2187–88.

Agreeing with the United States, the Supreme Court reasoned that the

transactions on which the markup was sought to be imposed were strictly

between the out-of-state suppliers and the military facilities, involving goods

delivered within the military bases, and nothing occurred within the State that

      4
       … The other two bases were within the concurrent jurisdiction of the
state and federal governments. Id.

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gave it jurisdiction to regulate the transaction. Id. at 371, 93 S. Ct. at 2189.

Thus, the Court held, the transactions did not involve “transportation or

importation into [the] State . . . for delivery or use thereof,” but only

importation of liquor into the federal enclaves, “which ‘are to Mississippi as the

territory of one of her sister states or a foreign land.’” Id. at 375, 378, 93 S.

Ct. at 2191, 2192 (quoting United States v. State Tax Comm’n of Miss., 340
F. Supp. 903, 906 (S.D. Miss. 1972)).

       Aviall argues that, if liquor shipped from outside a state to a federal

enclave located geographically within a state has not been “transport[ed] or

import[ed] into [t]he State” within the meaning of the Twenty-First Amendment,

then it necessarily follows that the liquor must have been transported outside

the state.     Even if we accept this reasoning as to the liquor in       State Tax

Commission of Mississippi, the case is distinguishable because, as pointed out

by the opinion in that case, Mississippi’s attempt to regulate imported alcohol

within the federal enclave in that case interfered with federal jurisdiction,

requiring a distinction to be made in the relationship between the two

territories.   No one in this case contends the ad valorem tax on Aviall’s

inventory while at Aviall’s distribution center interferes with federal jurisdiction.

Because of this distinction, other cases from the Supreme Court provide clearer

                                         14
guidance regarding the federal enclave and state relationship and the “state

within a state” argument.

      Specifically, in Howard v. Commissioners of Sinking Fund of City of

Louisville, the Supreme Court held that a naval ordnance plant that had been

acquired by the United States and over which the United States exercised

exclusive jurisdiction could nevertheless be subsequently annexed by the City

of Louisville because, although the federal government had exclusive jurisdiction

within the ordnance plant, “[t]he property did not cease to be a part of

Kentucky. The geographical structure of Kentucky remained the same.” 344
U.S. 624, 626, 73 S. Ct. 465, 466 (1953) (emphasis added).              The Court

reasoned that including the enclave within the city’s boundaries did not affect

the use or disposition of the property by the United States, stating that the

“[f]iction of a state within a state can have no validity to prevent the state from

exercising its power over the federal area within its boundaries, so long as there

is no interference with the jurisdiction asserted by the Federal Government.”

Id. at 626–27, 73 S. Ct. at 467 (emphasis added). The Court observed that

the sovereign rights in the dual relationship between the United States and

Kentucky were not antagonistic in that instance, so that it is “friction, not

fiction, which we must give heed.” Id. at 627, 73 S. Ct. at 467; see also

Evans v. Cornman, 398 U.S. 419, 423, 90 S. Ct. 1752, 1755 (1970) (rejecting

                                        15
notion of non-residency in state for voting in Maryland elections by those

residing in a federal enclave and noting that “the relationship between federal

enclaves and the [s]tate in which they are located has changed considerably”);

M.R.S. v. State, 745 So. 2d 1139, 1140 (Fla. Dist. Ct. App. 1999) (recognizing

Howard holding that “fiction of a state within a state” has no validity to prevent

exercise of power by state over federal area within its boundaries, so long as

there is no interference with federal jurisdiction); Cobb v. Cobb, 545 N.E.2d
1161, 1163 (Mass. 1989) (stating state courts have recognized state law may

apply in a federal reservation provided the state does not interfere with the

primary jurisdiction of the federal government); Matter of Salem Transp. Co.,

264 A.2d 47, 49 (N.J. 1970) (per curiam) (permitting regulation of

transportation services to and from military bases); cf. Common Council of

Gloversville v. Town Bd. of Johnstown, 295 N.E.2d 644, 645–46 (N.Y. 1973)

(upholding annexation of state-owned land by townships).5             Just as the

      5
       … The Supreme Court has held that states can regulate and maintain
control over certain activities on federal enclaves, including the right to vote for
enclave residents in state-wide elections. See Evans, 398 U.S. at 422, 90 S.
Ct. at 1754. Thus, states like Texas have the ability to regulate voting within
its own federal enclaves, but not with other states in the union. See, e.g., Tex.
Const. art. VI, § 2 (requiring voters to be residents of the state of Texas); Okla.
Const. art. III, § 1 (requiring voters to be “bona fide residents” of the state of
Oklahoma).

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ordnance plant did not cease to be a part of Kentucky, the Depot in this case

did not cease to be a part of Texas.

      We further note that the Supreme Court made a distinction in State Tax

Commission of Mississippi between the State’s attempt to regulate transactions

occurring solely within the federal enclaves of the military bases, which the

Court determined to be impermissible, and the authority of the State to regulate

shipments destined for such bases while those shipments were passing through

Mississippi. 412 U.S. at 377, 93 S. Ct. at 2192.      The distinction seems

appropriate here.

      The District determined, and the Board agreed, that Aviall was not

exempt from paying taxes on the inventory temporarily located in Texas that

was later shipped to the Depot. The taxing entities did not attempt to interfere

with federal jurisdiction by assessing a tax on a transaction occurring on

federally-owned property nor on property located within the federal enclave;

rather, the District and the Board denied the tax exemption claimed by Aviall on

property while it was in Texas.        Unlike the liquor markup in State Tax

Commission of Mississippi, there was no interference with federal jurisdiction

by the taxing entities; hence, no friction. Therefore, we will not apply the

fiction that the Depot was a foreign country or a sister state to deem that the

aviation parts were shipped by Aviall “outside the State” when they were

                                       17
shipped to a location in Bowie County near Texarkana, within the geographic

limits of Texas.

      Aviall also argues that the purpose, history, and context of the freeport

exemption support the broad interpretation it urges.       Aviall points to the

legislative history of the constitutional amendment that was submitted to voters

as “promoting the economic growth, job creation, and fair tax treatment for

Texans who export goods to other states and nations.” See Tex. S.J. Res. 11.

To promote the amendment, the legislature also noted that “[t]ax incentives

have been an important part of Texas’ successful effort to attract several major

industrial, technological and transportation facilities in recent years, and the

freeport exemption would be a valuable addition to Texas’ arsenal in the battle

to diversify the state’s economy.” Tex. Legis. Council, Analyses of Proposed

Constitutional Amendments, Nov. 7, 1989, Election.

      Mindful of the enticements that the exemption provides to companies like

Aviall to locate their warehouses and distribution centers in this State, when

construing statutes, we must presume that public interests are favored over

private interests. See Tex. Gov’t Code Ann. § 311.021(5); City of DeSoto v.

White, 288 S.W.3d 389, 396–97 (Tex. 2009). It is in the public interest that

the ad valorem tax be applied to property owners to compensate for a variety

of benefits provided by local services such as fire and police protection, street

                                       18
lighting, roads and streets, and other incidents of a modern industrial

infrastructure. Virginia Indonesia v. Harris County Appraisal Dist., 910 S.W.2d
905, 909 (Tex. 1995) (citing Michelin Tire Corp. v. Wages, 423 U.S. 276, 289,

96 S. Ct. 535, 548 (1976)); see also Exxon Corp. v. Wisconsin Dept of Rev.,

447 U.S. 207, 228, 100 S. Ct. 2109, 2122 (1980) (holding tax must be fairly

related to services provided by state, including police and fire protection and

benefit of trained work force). Additionally, as the Supreme Court has held,

exemptions undermine equality and uniformity by placing a greater burden on

some taxpaying businesses and individuals rather than on all taxpayers equally.

N. Alamo Water Supply Corp., 804 S.W.2d at 899. The public interest weighs

against the broad construction urged by Aviall and in favor of a strict

construction of the freeport exemption.

      Finally, Aviall argues that taxing inventory that it later ships to the Depot

on the basis that it is not “transported outside the State” will increase the cost

of aviation parts sold to the United States. Aviall did not raise this issue in its

original brief or in its motion for summary judgment. Nevertheless, it is well

settled that private parties who contract with and do business with the United

States can be taxed even though the increased financial burden will ultimately

fall on the United States. See, e.g., South Carolina v. Baker, 485 U.S. 505,

520, 108 S. Ct. 1355, 1365 (1988); United States v. New Mexico, 455 U.S.
19
720, 733–35, 102 S. Ct. 1373, 1382–83 (1982); James v. Dravo Contracting

Co., 302 U.S. 134, 160–61, 58 S. Ct. 208, 221 (1937).

VI.   Conclusion

      We decline to adopt Aviall’s broad interpretation of the freeport

exemption.     We hold that Aviall’s inventory        shipped to the Depot,

geographically located within this State, was not transported “outside this

State” under the plain language of the freeport exemption. We conclude that

the Board and the District were entitled to summary judgment as a matter of

law on the ground that the freeport exemption’s phrase “outside this State”

does not include the Depot, located wholly within the boundaries of the state

of Texas. We hold that Aviall’s aircraft shipment to the Depot was not entitled

to the freeport exemption under article VIII, section 1-j(a)(1)–(3) of the Texas

constitution and section 11.251 of the tax code. We overrule Aviall’s sole

issue and affirm the trial court’s judgment.

                                                 ANNE GARDNER
                                                 JUSTICE

PANEL: CAYCE, C.J.; LIVINGSTON and GARDNER, JJ.

DELIVERED: October 29, 2009

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