Court Opinion

ID: 9582353
Source: CourtListenerOpinion
Date Created: 2023-08-21 22:25:40.169012+00
Date Added: 2024-06-11T13:37:41.793322
License: Public Domain

CALABRIA, Judge,
dissenting.
The majority affirms the decision of the Property Tax Commission (“the Commission”) that the aircraft (“the aircraft”) owned by *245SAS Institute Inc. (“SAS”) had a tax situs in Wake County, North Carolina on 1 January 2003, and therefore was subject to ad valorem taxation in Wake County in 2003.1 disagree because the facts indicate that the tax situs of the aircraft on 1 January 2003 was in Delaware, and not in North Carolina. Therefore, I respectfully dissent.
We review decisions of the Commission pursuant to N.C.G.S. § 105-345.2. Questions of law receive de novo review, while issues such as sufficiency of the evidence to support the Commission’s decision are reviewed under the whole-record test. Under a de novo review, the court considers the matter anew and freely substitutes its own judgment for that of the Commission. Under the whole-record test, however, the reviewing court merely determines whether an administrative decision has a rational basis in the evidence.
In re Appeal of the Greens of Pine Glen Ltd. P’ship, 356 N.C. 642, 646-47, 576 S.E.2d 316, 319 (2003) (internal quotations and citations omitted). At the hearing before the Commission, SAS had the burden of establishing, by the greater weight of the evidence, the existence of facts from which the Commission could conclude as a matter of law: (1) the aircraft was “more or less permanently located” in Delaware on 1 January 2003; (2) the tax situs of the aircraft on 1 January 2003 was in Delaware; and (3) the aircraft was therefore not subject to ad valorem taxation in Wake County for tax year 2003. See Transfer Corp. v. County of Davidson, 276 N.C. 19, 170 S.E.2d 873 (1969); In re Appeal of Bassett Furniture Industries, 79 N.C. App. 258, 262-63, 339 S.E.2d 16, 18-19 (1986).
The majority contends that SAS’s aircraft was not “situated” in Delaware on 1 January 2003 and therefore did not acquire a tax situs there. Under the majority’s interpretation, the aircraft is not entitled to the tax exemption of N.C. Gen. Stat. § 105-304(f)(3) (2007). I disagree.
Tangible personal property passing through or in the state for temporary purposes only, if it belongs to a nonresident, is not subject to taxation under a statute providing that all real and personal property in the state shall be assessed and taxed. ... A criterion is whether the property is there for an indefinite time or some considerable definite time, and whether it is used or exists there to be used in much the same manner as other property is used in that community. . . .
*246In re Appeal of Finishing Co., 285 N.C. 598, 611, 207 S.E.2d 729, 737 (1974)(quoting 71 Am. Jur. 2d, State and Local Taxation §§ 660 and 661 (1973))(emphases added). As conceded by the majority, SAS would qualify for a tax exemption under N.C. Gen. Stat. § 105-304(f)(3) if evidence provided by the whole record showed that the aircraft was more or less permanently located in Delaware on 1 January 2003. SAS was required to show that the aircraft was used “for an indefinite time or some considerable definite time” and “in much the same manner as other property is used” in Delaware. Finishing Co., 285 N.C. at 598, 207 S.E.2d at 737. The majority determines that SAS did not meet this burden because they incorrectly characterize the work that was conducted on SAS’s aircraft in Delaware as “temporary maintenance or alteration.”
“Situs is an absolute essential for tax exaction.” Transfer Corp., 276 N.C. at 32, 170 S.E.2d at 883 (internal citations omitted). “The state of domicile may tax the full value of a taxpayer’s tangible personal property for which no tax situs beyond the domicile has been established so that the property may not be said to have acquired an actual situs elsewhere.” Id (internal quotations and citations omitted). The majority correctly holds that, pursuant to N.C. Gen. Stat. § 105-304(c) (2007), the default tax situs for SAS’s aircraft would be its principal place of business, Wake County, North Carolina.
The test of whether a tax law violates due process is whether the taxing power exerted by the state bears fiscal relation to protection, opportunities and benefits given by the state. The simple but controlling question is whether the state has given anything for which it can ask return. [N]o state may tax anything not within her jurisdiction without violating the Fourteenth Amendment.
Transfer Corp., 276 N.C. at 24-25, 170 S.E.2d at 878 (1969) (citations and quotations omitted).
On 1 January 2003, the relevant date for taxation purposes, the aircraft was not simply in transit through Delaware — it was undergoing extensive modifications by DeCrane Aircraft Systems Integration Group (“DeCrane”) that were expected to take, at the very least, approximately eleven months to complete. These were not simple repairs, but rather the installation of interior equipment required for the aircraft to be certified as airworthy for use as a passenger aircraft. Such substantial modifications necessarily would take several consecutive months to complete. The time period of approximately eleven months or more contemplated by the parties for the aircraft’s *247modification is properly categorized as a considerable amount of definite time, rather than a temporary period.
The majority places a great deal of emphasis on the fact that the aircraft was not in Delaware for regular use as an airplane. This ignores the fact that, at the time it was shipped to Delaware, the aircraft had never been in regular use as an airplane in North Carolina. As the parties stipulated, “the aircraft could not be used as a passenger aircraft because it had no passenger seats, interior walls, or interior furnishings. The aircraft was in Delaware for the purpose of adding these items to the aircraft so that it could be used as a passenger aircraft.” Therefore, the modifications were not merely aesthetic alterations; they were necessary and required modifications so that the aircraft could be used for its intended puipose as a passenger aircraft. This was the only way the aircraft could conceivably have been utilized as of 1 January 2003. Under the circumstances, the work performed by the DeCrane facility in Delaware, specifically, adding passenger seats, interior walls, and interior furnishings, would be considered using the aircraft in much the same manner as any other passenger aircraft in the same condition would be used in Delaware. SAS’s aircraft should have been considered “situated” in Delaware on 1 January 2003 and therefore exempt from taxation in North Carolina.
Furthermore, as of 1 January 2003, the aircraft, in its unmodified condition, had only been on the ground in North Carolina for one hour and twenty minutes on 25 November 2002 while owned by SAS. Since the aircraft was not in North Carolina on 1 January 2003, it could not be said that the aircraft benefitted from the protection of the laws of North Carolina. From 21 December 2002 until some time after 23 August 2003, the aircraft was in Delaware, entirely under the protection of the laws of the state of Delaware. The aircraft was protected from threats of theft, vandalism, and fire by the law enforcement and fire departments of Delaware, not of North Carolina. The modifications to the aircraft were undertaken entirely by employees of DeCrane, a Delaware company subject to Delaware taxation. Delaware certainly provided benefits to the aircraft during the time the aircraft was modified. By holding that the situs of the aircraft was in North Carolina on 1 January 2003, this Court allows North Carolina the benefit of taxing the aircraft when North Carolina had not “given anything for which it can ask return.” Transfer Corp., 276 N.C. at 24-25, 170 S.E.2d at 878.
*248Finally, the majority’s reliance on N.C. Gen. Stat. § 105-275(25) is misplaced. The majority correctly cites that statute for the proposition that North Carolina exempts from taxation tangible personal property shipped into North Carolina for “the purpose of repair, alteration, maintenance, or servicing and reshipment to the owner outside [North Carolina].” N.C. Gen. Stat. § 105-275(25) (2007). However, this statute has no bearing on this case. SAS’s aircraft was not shipped into North Carolina for any of the purposes stated in the statute and it was not reshipped to an owner outside of North Carolina. The fact that North Carolina would exempt such personal property from taxation is immaterial to the determination of the situs of SAS’s aircraft and therefore N.C. Gen. Stat. § 105-275(25) does not support the majority’s holding.
Because SAS’s aircraft was being used as any passenger aircraft in the same condition would be used in Delaware on 1 January 2003 and because the aircraft was at that time enjoying protection and benefits conferred by that state, its tax situs was in Delaware and, therefore, outside of North Carolina’s tax jurisdiction. “The state of domicile may not levy an ad valorem tax on tangible personal property of its citizens which is permanently located in some other state throughout the tax year. This is forbidden by the Due Process Clause of the Fourteenth Amendment.” Transfer Corp., 276 N.C. at 30, 170 S.E.2d at 883. For North Carolina or Wake County to levy an ad valorem tax on the aircraft while at the same time conferring no benefit on that aircraft is a violation of SAS’s due process rights. I would hold that SAS owed no ad valorem tax on the aircraft for the tax year 2003 and would reverse the decision of the Property Tax Commission.