Western Air Lines, Inc. v. Board of Equalization of SD

1987-02-24

Headline: Airlines’ challenge to South Dakota’s flight property tax fails as the Court upholds the state’s in-lieu airport tax, letting airports keep dedicated revenue while airlines continue to pay.

Holding: The Court held that the South Dakota airline flight property tax is an in-lieu tax wholly used for airport and aeronautical purposes, so it does not violate the federal ban on discriminatory taxes and the tax stands.

Real World Impact:

Requires airlines to keep paying the flight property tax.
Directs tax proceeds exclusively to airports and aeronautical uses.
Allows similar in-lieu taxes that fund airports to remain lawful.

Topics: airline taxes, airport funding, state tax rules, federal tax limits, property taxation

Summary

Background

Four airlines operating in South Dakota paid a state flight property tax in 1983 under protest and sued for refunds. South Dakota’s law, enacted in 1961, defines flight property and taxes it using measures like flight tonnage and revenue ton miles. The statute requires that the tax revenue be allocated to airports and used exclusively for airport purposes. The airlines said the tax was discriminatory because most other personal property in the state was exempt, and they argued that federal law bars discriminatory taxes on air carriers.

Reasoning

The Court first held that the question whether a state tax qualifies as an "in lieu" tax under the federal statute is a matter of federal law. The Court then interpreted the statute to exempt taxes that (1) are applied in place of any other tax on the same property and (2) are wholly utilized for airport and aeronautical purposes. The Court rejected the airlines’ view that an "in lieu" tax must have replaced a previously imposed tax. Because South Dakota’s flight tax is applied to the exclusion of other property taxes and its proceeds are devoted to airports, the Court found no violation of the federal antidiscrimination provision.

Real world impact

The Court affirmed the state-court judgment, so the South Dakota tax remains in force and airports continue to receive the dedicated revenue. Airlines must continue to pay the flight property tax. The decision makes clear that similar state taxes will be lawful when they operate to the exclusion of other property taxes and their proceeds are used solely for airport purposes. The Court did not decide a related question about how to compare airline property to other "commercial and industrial" property.

Dissents or concurrances

Justice White concurred but wrote separately to say he thought the Court should not have raised the in-lieu issue on its own because the state had not defended the tax on that ground.