Tax Type
BPOL Tax
Description
Provide aircraft and aviation services to medical air transport programs
Topic
Assessment
Exemptions
Date Issued
04-08-2005
April 8, 2005
Re: Application for Correction of Final Local Determination
Taxpayer: *****
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- Locality: *****
Dear *****:
This final state determination is issued upon the application for correction filed by you on behalf of ***** (the "Taxpayer"), with the Department of Taxation. You appeal a final local determination denying a refund of BPOL tax paid to the ***** (the "City") as a result of assessments issued for tax years 2003 and 2004.
The following determination is based on the facts presented to the Department as summarized below. The Code of Virginia sections, regulations and public documents are available on-line in the Tax Policy Library section of the Department of Taxation's web site, located at www.policylibrary.tax.virginia.gov.
FACTS
The Taxpayer is a provider of aircraft and aviation services to medical air transport programs. The Taxpayer has a contract with ***** (the "Center") to provide air transport services under the auspices of the Center's air medical transport program. The Taxpayer's business situs is at the Center's facility in the City.
The contract between the Taxpayer and the Center stipulates that the Taxpayer will provide the Center with a medical transport helicopter and the operational and maintenance services associated with the aircraft. The operational services include 24-hour, seven-day-a-week pilot staffing, record maintenance, and operational maintenance in compliance with Federal Aviation Administration regulations. Maintenance services include all aircraft maintenance, including the provision of a full-time mechanic to perform the maintenance necessary to keep the aircraft mission ready. The Center provides the heliport and additional training for the pilots in the particular aspects of its air medical transport program that are specific to the Center's needs.
For purposes of the contract, the Taxpayer is defined as an independent contractor and "no agent, employee or servant of [the Taxpayer] shall be deemed to be an agent, employee or servant of [the Center]." The Center is also declared to be an independent contractor for purposes of the contract, and is required to provide certain services including inspections of the aircraft, and audits of aviation management and safety assurances of the program and the Taxpayer.
The City assessed the Taxpayer as a business service for purposes of the BPOL tax. The Taxpayer contends that under the provisions of 49 U.S.C. 40116(b)(4), it is exempt from local gross receipts tax. The City disagrees, stating that because the aircraft takes off and lands in the City, the Taxpayer is subject to a local license tax, pursuant to 49 U.S.C. § 40116(c). The City further notes that while it does exempt regularly scheduled air carriers from it local license tax, the Taxpayer is not a regularly scheduled air carrier and therefore is not entitled to the exemption in the City's ordinance for air carriers.
ANALYSIS
Federal Preemption
Virginia Code § 58.1-3700 et seq. authorizes localities to impose, by ordinance, a license tax on all businesses, trades, professions, occupations and callings and upon the persons, firms and corporations engaged therein. This authority, however, is limited in those instances when a federal statute preempts a local ordinance or tax.
State and Local Taxation of Aviation
The Airport Development Acceleration Act limits the ability of states and localities to impose taxes on both passengers and the sales of air transportation services. The provisions of the Act are currently codified in 49 U.S.C. § 40116. Subsection (b) provides:
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- Except as provided in subsection (c) of this section and section 40117 of this title, a State, [or] a political subdivision of a State . . . may not levy or collect a tax, fee, head charge, or other charge on
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- (1) an individual traveling in air commerce;
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- (2) the transportation of an individual traveling in air commerce;
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- (3) the sale of air transportation; or
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- (4) the gross receipts from that air commerce or transportation. [Emphasis added.]
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For purposes of 49 U.S.C. § 49116, "air commerce" is defined as:
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- foreign air commerce, interstate air commerce, the transportation of mail by aircraft, the operation of aircraft within the limits of a Federal airway, or the operation of aircraft that directly affects, or may endanger safety in, foreign or interstate air commerce. 49 U.S.C. § 40102(a)(3).
The definition of air transportation is less restrictive, in that it applies to all foreign air transportation, interstate air transportation, and the transportation of mail by aircraft. 49 U.S.C. § 40102(a)(5).
The Taxpayer, operating an air medical transport service that encompasses territory within Virginia and in a neighboring state, clearly engages in interstate transportation. The Taxpayer contends that 49 U.S.C. § 40116(b) prohibits the City from imposing the BPOL tax on its business. The City disagrees, citing 49 U.S.C. § 40116(c), which provides:
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- A State or political subdivision of a State may levy or collect a tax on or related to a flight of a commercial aircraft or an activity or service on the aircraft only if the aircraft takes off or lands in the State or political subdivision as part of the flight.
This provision specifies the conditions that must be met prior to a state or locality imposing a tax related to a flight of a commercial aircraft or an activity or service on the aircraft. It does not, however, grant a state or a locality the permission to impose any type of tax on such business activity. The taxes that a state or a political subdivision may levy on, or related to, a flight of a commercial aircraft or an activity or service on the aircraft are clearly specified in 49 U.S.C. § 40116(e):
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- Except as provided subsection (d) of this section, a State or political subdivision of a State may levy or collect taxes (except those taxes enumerated in subsection (b) of this section), including property taxes, net income taxes, franchise taxes, and sales or use taxes on the sale of goods or services. [Emphasis added.]
In summary, although a locality may impose certain taxes on, or related to, a flight of a commercial aircraft or an activity or service on the aircraft, 49 U.S.C. § 40116(b)(4) clearly prohibits a locality from levying a gross receipts tax on air carrier services. This is reaffirmed in 49 U.S.C. § 40116(e)(1).
The United States Supreme Court has clarified any confusion that might be created in the reading of 49 U.S.C. § 40116. In footnote 6 of Aloha Airlines, Inc., v. Director of Taxation, 464 U.S. 7 (1983), the Court stated:
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- Section 1513(a) [40116(b)] 1 pre-empts a limited number of state taxes, including gross receipts taxes imposed on the sale of air transportation or the carriage of persons traveling in air commerce . . . . While neither the statute nor its legislative history explains exactly why Congress chose to distinguish between gross receipts taxes imposed on airlines and the taxes [reserved for state and localities], the statute is quite clear that Congress chose to make the distinction, and the courts are obliged to honor this congressional choice.2
- Section 1513(a) [40116(b)] 1 pre-empts a limited number of state taxes, including gross receipts taxes imposed on the sale of air transportation or the carriage of persons traveling in air commerce . . . . While neither the statute nor its legislative history explains exactly why Congress chose to distinguish between gross receipts taxes imposed on airlines and the taxes [reserved for state and localities], the statute is quite clear that Congress chose to make the distinction, and the courts are obliged to honor this congressional choice.2
DETERMINATION
I find the Taxpayer is correct in its assertion that its activities are exempt from the BPOL tax by virtue of the federal preemption created in 49 U.S.C. § 40116. That the City does not specifically exempt the aircraft from taxation in its local ordinance is not relevant. I am returning this to the City with the instruction to refund to the Taxpayer BPOL taxes paid in 2003 and 2004. The monies should be refunded with interest as provided for in the City's ordinance.
If you have any questions regarding this determination, you may contact ***** in the Department's Office of Policy and Administration, Appeals and Rulings, at *****.
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- Sincerely,
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Kenneth W. Thorson
Tax Commissioner
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AR/51699H
1Section 1513 was renumbered and became section 40116 in the 1994 recodification of the U.S. Code.
2For further discussion of the interpretation of this statute, see State ex rel. Arizona Dept. of Revenue v. Cochise Airlines, 128 Ariz. 432, 626 P. 2d 596 (App. 1980); Air Transport Assn. of America v. New York State Dept. of Taxation and Finance, 91 A.D. 2d 169, 458 N.Y.S. 2d 709 (1983). See also Chief Justice Burger's concurring opinion in Wardair Canada v. Florida Department of Revenue 477 U.S. 1 (1986).
Rulings of the Tax Commissioner