Tax Type
Retail Sales and Use Tax
Description
Foreign airliner; In-flight items; Use tax
Topic
Taxability of Persons and Transactions
Date Issued
12-16-1994
December 16, 1994
Re: §58.1-1821 Application: Retail Sales and Use Tax
Dear*********************
This will reply to your letter of December 1, 1992 in which you seek correction of a retail sales and use tax assessment for your client,************* (the "Taxpayer") for the period March 1991 through August 1992.
FACTS
The Taxpayer is a foreign air carrier engaged in providing air transportation service between the United States and another country. Certain in-flight airline items (food, trays, beverages, flatware, cabin supplies, etc.) owned by the Taxpayer are stored in a U.S. Customs bonded warehouse at **********International Airport and are used exclusively on international flights departing from*************All the in-flight items are imported into the United States from the Taxpayer's home country
An audit of the Taxpayer produced an assessment for its failure to remit use tax on purchases of in-flight items for consumption aboard its nonstop international flights from Dulles. You contend that the in-flight materials are exempt from Virginia use tax by virtue of federal law, specifically the Tariff Act of 1930, 19 U.S.C. §1309, and international agreement.
DETERMINATION
Commercial Airlines - Imposition of Virginia Use Tax
Code of Virginia §58.1-604 imposes the use tax on the use, consumption or storage of tangible personal property in Virginia when the Virginia sales or use tax is not paid at the time the property is purchased.
The department has previously ruled that in-flight items such as those at issue are not used directly in the rendition of common carrier service and, therefore, are subject to tax. See P.D. 88-320 (12/7/88) (copy enclosed). In this case, Virginia sales or use tax was not paid at the time the property was purchased. Therefore, the auditor properly assessed the tax.
Cods of Virginia § 58.1-609.3(6) provides an exemption from the retail sales and use tax for:
-
- [t]angible personal property sold or leased to an airline operating in ... foreign commerce as a common carrier providing scheduled air service, as defined in §58.1-1501, on a continuing basis to one or more Virginia airports for use or consumption by such airline directly in the rendition of its common carrier service.
- [t]angible personal property sold or leased to an airline operating in ... foreign commerce as a common carrier providing scheduled air service, as defined in §58.1-1501, on a continuing basis to one or more Virginia airports for use or consumption by such airline directly in the rendition of its common carrier service.
The facts presented indicate that the Taxpayer operates two scheduled flights weekly from Dulles. Accordingly, the Taxpayer does not satisfy the "scheduled air service" requirement in the statute and does not qualify for the exemption.
Federal Law and International Agreement
You cite 19 U.S.C. § 1309(a)(3) and the Air Transport Services Agreement between the governments of the United States and***** for the proposition that federal law preempts states from imposing sales and use taxes on the items at issue. 19 U.S.C. § 1309(a)(3) provides that articles of foreign or domestic origin may be withdrawn from any customs bonded warehouse free from duty or internal-revenue tax if used as supplies, ground equipment, or for maintenance and repair of "aircraft registered in any foreign country and actually engaged in foreign trade."
The section noted above allows withdrawals from a customs bonded warehouse free from federal duties and taxes. There is no expressed prohibition of state sales and use taxes. Virginia's tax is on the use or consumption of tangible personal property in the Commonwealth, measured by the cost of the item; a federal import duty is a tariff imposed upon the importation of goods into the United States. It is the latter that 19 U.S.C. §1309(a)(3) prohibits if the specified conditions are satisfied .
Similarly, Article 6(c) of the Air Transport Services Agreement provides the "aircraft stores" are exempt from customs duties, excise taxes, inspection fees or other national duties or charges. Since national pertains to duties or charges related to the United States government as opposed to those of the several states, there is no expressed prohibition of state sales and use taxes. Thus, the Taxpayer has not shown that Congress or the parties to the agreement intended to exempt the items at issue from state sales and use taxes.
In a similar case, the department ruled that a bilateral agreement providing an exemption from all "import restrictions, property taxes and capital levies, Custom duties, excise taxes and similar fees and charges imposed by the National authorities" did not bar the imposition of the sales and use tax on property stored and used in Virginia by a foreign flag carrier airline. See P.D. 94314 (10/17/94) (copy enclosed).
You cite several court cases to support your position, including McGoldrick v. Gulf Oil Corp., 309 U.S. 414 (1940) and Xerox Corp. v. County of Harris, 459 U.S. 145 (1982). However, these cases are distinguishable from the Taxpayer's case.
In McGoldrick, the Supreme Court struck down a New York sales tax sought to be imposed on imported petroleum refined at a New York bonded manufacturing warehouse. The court found the express Congressional purpose of the federal legislation ( §601 of the Revenue Act of 1932) was "to enable American refiners to meet foreign competition and to recover trade which had been lost by the imposition of the tax." The purpose behind the legislation would have failed if the state had been free to impose a tax which would lessen the competitive advantage conferred on the importer by Congress. In the Taxpayer's case, there is no evidence that a state use tax would defeat a Congressional purpose.
In the Xerox case, the Supreme Court ruled that federal law preempted the imposition of a non-discriminatory personal property tax on imported goods stored under bond in a customs warehouse and destined for foreign markets. In the Taxpayer's case, the tax at issue is a use tax. Furthermore, the goods which are subject to the tax are not destined for foreign markets, but rather are used and consumed by the Taxpayer in Virginia for preparing meals to be used on international flights originating in Virginia.
The department is sensitive to issues of international trade and will not intentionally take any action inconsistent with federal law or international treaties. In this case, however, the Taxpayer does not qualify for a statutory exemption and has not met the burden of proving the Virginia tax is inconsistent with federal law or the applicable international treaty. Consequently, the imposition of use tax on in-flight items stored in Virginia for use on international flights was proper. Accordingly, the assessment is correct. The Taxpayer will shortly receive an updated bill with interest accrued through the date the Taxpayer's appeal was received.
Sincerely,
Danny M. Payne
Tax Commissioner
OTP/7167F
Rulings of the Tax Commissioner