2. GENERAL TERMS AND CONCEPTS

2.06 Constitutional Limitations

The federal Constitution and federal Laws places a number of limitations on the ability of the states to tax aircraft and aircraft operations.

Commerce Clause

The Commerce Clause gives Congress the power "[t]o regulate Commerce with foreign Nations, and among the several states".¹

Domestic Commerce

Where a state is attempting to tax an activity which involves only domestic commerce, the Commerce Clause has been interpreted as prohibiting the state from imposing a tax which:

• Applies to an activity lacking a substantial nexus to the taxing state;
• Is not fairly apportioned;
• Discriminates against interstate commerce; or
• Is not fairly related to the services provided by the state.²

The Supreme Court has struck down schemes which create a significant risk of multiple taxation. On the other hand, the Court has allowed taxes which are either imposed on an apportioned basis or which allow a credit for taxes paid to other states, including:

• Apportioned state income taxes.³
• Apportioned state property taxes on airline companies.⁴
• Unapportioned state use taxes which allow a credit for taxes paid to other states.⁵

The Supreme Court has also struck down schemes which tend to impose a higher tax on nonresidents than on residents. For example, an exemption allowed only to carriers which are headquartered in the state is clearly unconstitutional.⁶

At one time, there was a belief that the states could not tax aircraft which have been placed in interstate commerce.⁷ However, this is no longer true. States have shown no hesitation to tax business aircraft, or even airlines.⁸

Foreign Commerce

Where the state is attempting to tax foreign commerce, the Supreme Court has held that, in addition to the above requirements, the tax cannot:

• Pose a risk of subjecting foreign commerce to multiple taxation; or
• Interfere with the ability of the federal government to speak with one voice when regulating commercial relations with foreign governments.⁹

Applying these tests, an apportioned property tax on containers used in foreign commerce was held unconstitutional.¹⁰ However, a sales tax on the domestic sale of such cargo containers was held not to violate the commerce clause.¹¹

The Fourteenth Amendment

The Fourteenth Amendment prohibits any state from "depriving any person of life, liberty, or property, without due process of law" or from denying "to any person within its jurisdiction the equal protection of the laws".¹²

The Due Process Clause

The due process clause has been interpreted as setting limits on the taxing power of the states. As interpreted by the Supreme Court, the due process clause "requires some definite link, some minimum connection, between a state and the person, property or transaction it seeks to tax".¹³ As such, this Clause prevents the states from imposing a sales tax on sales taking place outside the state.¹⁴ This Clause also prevents a state from imposing a property tax on an aircraft which has not acquired a "situs" in the state.¹⁵

The Equal Protection Clause

The equal protection clause prohibits the states from denying "to any person within its jurisdiction the equal protection of the laws".¹⁶ In matters of taxation, this clause generally takes a backseat to the commerce clause.

Supremacy Clause

The supremacy clause prohibits the states from taxing the federal government.¹⁷ However, this limitation does not prevent the states from imposing a license tax on a person doing business with the federal government even though the tax is based on a percentage of sales to the federal government.¹⁸

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1. U. S. Constitution, Article I, Section 8, clause 3.
2. Complete Auto Transit, Inc. v. Brady, 430 U.S. 274, 279 (1977).
3. Moorman Mfg. Co. v. Bair, 437 U.S. 267 (1978).
4. Braniff Airways, Inc. v. Nebraska State Bd. of Equalization, 347 U.S. 590 (1954).
5. See, e.g., Oklahoma Tax Commission v. Jefferson Lines, Inc., 514 U.S. 175 (1995).
6. See, e.g., Worldcorp, Inc., 944 P.2d 824 (Nev. 1997).
7. W.R. Grace Company, 258 A.2d 740 (Md. 1969); L&L Marine Service, Inc., 647 S.W.2d 524 (Mo. 1983), overruled by Superior Aircraft Leasing, Inc., 734 S.W.2d 504 (Mo. 1987).
8. See e.g., The New York Times Company, Federal Express Corp., 693 N.E.2d 682 (Mass. 1998).
9. Barclays Bank PLC v. Franchise Tax Bd. of Cal., 512 U.S. 298 (1994).
10. Japan Line, Ltd. v. County of Los Angeles, 441 U.S. 434 (1979).
11. Itel Containers, Int' l v. Huddleston, 507 U.S. 60 (1993).
12. U.S. Constitution, 14th Amendment, Clause 1.
13. Miller Bros. Co. v. Maryland, 347 U.S. 340, 344-45 (1954).
14. American Oil Co. v. Neill, 380 U.S. 451 (1965).
15. Northwest Airlines v. Minnesota, 322 U.S. 292 (1944).
16. U.S. Constitution, 14th Amendment, Clause 1.
17. See, e.g., Kern-Limerick, Inc. v. Scurlock, 347 U.S. 110 (1954) [Arkansas sales tax].
18. Alabama v. King & Boozer, 314 U.S. 1 (1941) [Alabama sales tax].