                                     April   22,    1974


The Honorable      Giles E. Miller                         Opinion   No.   H-   281
Assistant   District Attorney
Dallas County                                              Re: Validity of apportionment
6th Floor Records       Building                           formula   used by Board of Equali-
Dallas,   Texas     15202                                  zation to determine taxable value
                                                           of airline flight equipment.

Dear     Mr.   Miller:

       You have asked our opinion as to the validity of the apportionment
formula used by the Dallas County Board of Equalization     in taxing the
flight    equipment      of interstate   air carriers.

        Pursuant to statutory authority,    Dallas County imposes an ad
valorem property tax on interstate air carriers       residing within its borders.
Article   7153, V. T. C. S. The t:ax on flight equipment is computed under a
formula based on the percentage      of miles flown within the state compared
to total miles flown both within and without the state.

        Your question to us is whether it is correct for the Board of Equali-
 zation to use this formula to the exclusion of any other.   The answer is
 not simple.

       Article    1, Sec. 8 of the Constitution     of the United States, in the so-
 called Commerce       Clause,   grants to the Congress       the power “To regulate
 Commerce      with foreign Nations,    and among the several States, and with
 the Indian Tribes. ” No tax laid by a state may unduly burden interstate
 commerce.       However,    the fact that aircraft    is used in interstate or foreign
 commerce      does not itself render it immune or exempt from non-discriminatory
 local taxation.     See Annotation,. 31 L. Ed. 2d 975 (1973) “Validity.       under
 Commerce      Clause of Federal Constitution,        of State Tolls or Taxes on,
 or Affecting,    Interstate or Foreign Air Carriers         or Passengers.  ”




                                               p.   13d9
The Honorable    Ciles   E. Miller    page 2    (H-281)




       Aircraft engaged    in foreign commerce   are subject to the “home-port”
doctrine that originally   held that a vessel engaged in foreign commerce,
plying international waters,   could only be taxed by the jurisdiction   of its
home port -its true domicile- and that the jurisdiction   of such domicile
could tax on a full value basis.   Scandinavian Airlines System,     Inc. v.
County of Los Angeles,     363 P. 2d 25 (Cal. 1961) cert. den. 368 U.S.      899
(1961).

        The home port doctrine does not apply, however,         to aircraft  engaged
in interstate   commerce.     Braniff Airways,   Inc. v. Nebraska State Board
of Equalization    and Assessment,    347 U. S. 590 (1954).    Nevertheless,    a
similar   doctrine was applied in Northwest Airlines,      Inc. v. Minnesota,
322 U. S. 292 (1944) where the airline did not urge that it would or could
be taxed by jurisdictions    other than that of its home port.

       However,    in determining the degree to which the flight equipment of
interstate airlines may be taxed, a distinction must be made between taxes
levied by the jurisdiction   of the home port and those where the aircraft
merely touch down, at terminals       along their routes - terminal jurisdiction.

        Because airlines engaged in interstate       commerce      are subject to the
taxing jurisdiction   of more than one state, the full value of their flight
equipment normally may not constitutionally          be stijsctedb    the property
tax by any one jurisdiction.      In a long line of decisions,      the Supreme Court
has held that, as a matter of due process,         state taxes on interstate      commerce
must be reasonably      related to the opportunities,     benefits,    or protection   which
the taxing state provides.      Braniff Airways,     Inc. v. Nebraska State Board -of
Equalization   and Assessment,       supra; Standard Oil Co. v, Peck,          342 U. S.
 382 (1952); and Ott v. Mississippi     Valley Barge Line Co.,          336 U. S. 169
(1949).   The requirements     of due process    are satisfied if the state tax is
fairly apportioned to the commerce         carried on within the state.        Ott v.
Mississippi    Valley Barge Line Co.,       336 U. S. at 174.     The rule that
 requires taxation of interstate commerce        by several states to be on an
apportioned basis in effect precludes       taxation of the full value of an inter-
 state business’ property by any one terminal jurisdiction.             Standard Oil
 Co. v. Peck, 342 U.S. at 384.




                                         p.   1310
    The Honorable   Giles   Miller,   page 3        (H-281)




            Texas has no uniform apportionment       rule; the formula to be used
    is within the discretion  of the local taxing authority. Attorney       General
    Opinion WW-818 (1960).     All that is required is that the formula selected
    comport with the traditional    requirements    of due process,   e. g. that it
    be reasonably   related to the opportunities,    benefits,  or protection con-
    ferred or afforded by the taxing state.      Ott v. Missisrippi    Valley Barge
    Line Co.,     336 U.S. at 174.    In Greyhound Lines, Inc. v. Board of
    Equalization,   419 S. W. 2d 345 (Tex. 1967). the Texas Supreme Court
    had occasion   to consider the validity of an apportionment formula based
    on mileage travelled within the state as applied to the property of an
     interstate bus company.     The Court held that such a formula fully satis-
    fied all federal due process    requirements  and approved its use by the
    Board.     Greyhound Lines,    supra at 352.   But while an apportionment
    formula based on mileage travelled within the state is properly applicable
    to interstate bus companies     engaged in surface travel,  its applicability
    to air travel has raised some question.      See Pan American    World Airways,
     Inc. v. Virgin Islands,   315 F. Supp. 74b (D. C., Virgin Is. 1970) and _~
     Flying Tiger Line v. County of Los Angeles,      333P. 2d 323 (Cal. 1959)
     (dissenting  opinion).  All miles logged by an interstate bus company are
    presumably   subject to tax in some jurisdiction.     The miles flown by an
    interstate airline are not necessarily    all subject to tax in some jurisdic-
    tion, however,    because the mere use of air space over neighboring       states,
    without more,    is insufficient contact to support taxation by those states.
    Braniff Airways,     supra and Pan American     World Airways,    supra.

           If each state having tax jurisdiction   over an interstate airline were
    to use an apportionment    formula based on mileage flown within its borders,
    then the percentage   of that airline’s, property value corresponding     to non-
    taxable “bridge time” would escape taxation altogether.         A taxing jurisdic-
    tion which uses such a formula in effect foregoes the opportunity to tax
    interstate air carriers   to the fullest extent possible and in addition the
    resulting tax may not be truly commensurate        with the percentage   of their
    business done within the state.

           This deficiency  does not, however,   render the Board’s  use of such
     a formula in taxing terminal  interstate air carriers illegal or improper.          An




I



i                                              p.    1311
The Honorable   Giles   Miller   page 4      (H-281)




apportionment      formula based on mileage travelled within the state is
sufficiently   related to the businers done by interstate air carriers within
the state to satisfy the due proce6s   requirement6    of the federal and‘state
Constitution6.

       However, the Texar Constitution   goes further and hold6      that all
taxation must be uniform and equal.    Article 8, Sec. 1, Texar       Constitu-
tion.  While taxation of aircraft   owned by interrtate airline6 domiciled
elrewhere    than Texa6,   on the bar{6 presently ured by the Board of
Equalization,    a6 set out in your letter, may satisfy thir requirement,
we doubt that it doe6 when, because of the inclusion of “bridge time” in
the formula,    aircraft of Texas domiciled companies are taxed upon far
less than the value of their equipment.      We believe the Texa6 Constitution
requires the adoption of a formula under which interstate aircraft      owned
by Texae domiciled companies     will be taxed at substantially  full value
when the taxation by other jurisdictions   is taken into consideration.
Otherwise  intrastate aircraft, which can be taxed at 100% of their value
by the Texas county of their domicil6,would     be unfairly and unequally
taxed.

       You have not furnished    us any fact6 concerning the actual application
of the formula employed by the Dallas Board.          Therefore,   we should not
be understood to hold that the apportionment based on mileage within the
state, even as to home-port     aircraft,   necessarily    results in taxation which
is not uniform and equal.     We do say. however,       that the Board,   as to all
aircraft,  but particularly  as to home-port     aircraft which may not be taxed
elsewhere,   has an affirmative    duty to see that those aircraft and aircraft
used in intrastate commerce      as well as those used solely in foreign com-
merce are taxed uniformly      and equally.

                                 SUMMARY

               Taxation of aircraft  engaged in interstate commerce
           must be under a formula which bears some relationship
           to the opportunities,  benefits, or protection conferred
           by the taxing state and which, as to aircraft owned by




                                       p.   1312
The Honorable   Giles   Miller   page      5        (H-281)




          companies     domiciled   in Texa6,           result6    at the
          rame time in taxation which ie uniform and equal
          when conrideririg aircraft used in intrastate com-
          merce or solely in foreign commerce.     A formula
          based on miles travelled within the state may
          6atisfy these requirement6  depending upon the factr.

                                                             Very truly your6,




                                                              Attorney   General   of Texas




kdTilcAc*
DAVID M. KENDALL,          Chairman
Opinion Committee




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