SC Administrative Law Court Decisions

STATEMENT OF THE CASE

The above-captioned matter is before this tribunal pursuant to S.C. Code Ann. § 12-60-460 (Supp. 2003) and S.C. Code Ann. §§ 1-23-310 et seq. (1986 & Supp. 2003). Petitioner US Airways, Inc. challenges the Final Agency Determination issued by Respondent South Carolina Department of Revenue (Department) on August 26, 2003, which denied Petitioner’s claim for the personal property tax exemption for certain air carriers under S.C. Code Ann. § 12-37-220(B)(33) (2000) for tax years 1998, 1999, and 2000. The Department found that Petitioner did not qualify for the requested exemption because it did not operate an air carrier hub terminal facility, as defined by S.C. Code Ann. § 55-11-500(a) (Supp. 2003), in South Carolina for the tax years in question. Petitioner, however, contends that its operations at the Greenville-Spartanburg International Airport qualify as such a hub facility under Section 55-11-500(a)(2), because of the cargo service it provides on its regularly scheduled passenger flights from the airport.

After timely notice to the parties, a hearing of this matter was held on January 13, 2004, at the Administrative Law Judge Division in Columbia, South Carolina. At the hearing, the parties stipulated to certain facts and introduced several, mostly procedural documents into evidence. Based upon the stipulated facts, documentary evidence, and arguments of counsel presented at the hearing, I find that the Department properly denied Petitioner’s request for a personal property tax exemption under Section 12-37-220(B)(33) for tax years 1998 through 2000.

STIPULATED FACTS

Pursuant to ALJD Rule 25(C), the parties, by a signed, written document, stipulated to the following facts at the hearing of this matter:

1.Petitioner is a certified air carrier under Section 401 of the Federal Aviation Act of 1958, as amended.

2.The Federal Aviation Administration (FAA) defines an air carrier as a company or other organization that carries passengers or cargo for hire or compensation by air.

3.Petitioner is considered by the FAA to be a large certificated air carrier, which is defined as an air carrier that operates aircraft designed to have a maximum passenger seating capacity of more than 60 seats, a maximum payload capacity of more than 18,000 pounds, or conducts international operations.

4.Certain cargo and air freight carriers are exempt from South Carolina personal property tax if certain statutory requirements are met.

5.Among the requirements for the cargo and air freight property tax exemption, the air carrier must fly at least 25 departing flights per week from South Carolina airports for the purpose of carrying cargo and air freight.

6.For each of the tax years at issue, Petitioner flew at least 25 flights per week carrying cargo and air freight, as well as passengers, from the Greenville-Spartanburg International Airport.

7.One of the purposes for Petitioner’s departing flights referred to in Paragraph 6 was to carry cargo and air freight. Another purpose was to carry passengers.

7a.US Airways had no cargo-only flights out of the State of South Carolina during the years at issue.

8.For the tax year 1999, Petitioner had the following departures from South Carolina airports:

Departing FlightsGreenville-SpartanburgCharleston

Cargo-only Flights 0 0

Flights Carrying Cargo,

Air Freight, and Passengers1,975 1,537

Flights Carrying Only Passengers 616 1,140

Total Departing Flights 2,591 2,677

9.For the tax year 2000, Petitioner recorded the following revenue and transported the following tonnages from South Carolina airports:

RevenueTons

Passenger$234,534,39261,844

Cargo$ 4,165,347 1,430

Total$238,699,73963,274

9a.For this year, cargo revenue represented 1.75% of the total revenue, and cargo tonnage represented 2.31% of the total tonnage transported.

10.The number of Petitioner’s departing flights, the revenue derived from such flights, and the tonnages transported set out in Paragraphs 8 and 9 are representative of such items for each of the tax years at issue.

11.Petitioner timely requested the exemption of all its personal property owned and operated by US Airways in South Carolina for the tax year 2000.

12.Petitioner timely filed refund claims for personal property tax paid in South Carolina for the years 1998 and 1999.

13.Respondent denied Petitioner’s claims for refund and request for exemption for the tax years 1998, 1999, and 2000, respectively.

14.Petitioner timely appealed Respondent’s denial of Petitioner’s claims for refund and request for exemption for the tax years 1998, 1999, and 2000, respectively.

15.S.C. Code Ann. § 12-37-220(B)(33) (2000) exempts from ad valorem taxation all personal property, including aircraft, of an air carrier, which operates an air carrier hub terminal facility in the State for a period of ten consecutive years from the date of qualification, if its qualifications are maintained.

FINDING OF FACT

Having carefully considered all stipulated facts, exhibits, and arguments presented at the hearing of this matter, and taking into account the credibility and accuracy of the evidence, I make the following Finding of Fact by a preponderance of the evidence:

1.For the tax years in question, Petitioner operated at least twenty-five common carrier passenger flights per week departing from the Greenville-Spartanburg International Airport. While these flights regularly carried some cargo and air freight as part of Petitioner’s shipping services, these flights were primarily and predominantly operated for the purpose of transporting passengers.

CONCLUSIONS OF LAW

Based upon the Stipulated Facts and Finding of Fact set forth above, I conclude the following as a matter of law:

The sole issue presented by the instant case is one of statutory interpretation. Petitioner claims that, for the tax years in question, it operated an air carrier hub terminal facility in South Carolina within the definition under S.C. Code Ann. § 55-11-500(a)(2) (Supp. 2003), such that its personal property is exempt from taxation for those years pursuant to S.C. Code Ann. § 12-37-220(B)(33) (2000). The Department, however, contends that Petitioner misreads Section 55-11-500(a)(2), and that, under the proper interpretation of that section, Petitioner’s operations do not qualify as an air carrier hub terminal facility, and thus do not entitle Petitioner to the property tax exemption of Section 12-37-220(B)(33). I find that the Department’s interpretation of Section 55-11-500(a)(2) is correct, and, therefore, that Petitioner is not entitled to claim a tax exemption for its personal property for the tax years in question.

S.C. Code Ann. § 12-37-220(B) (2000 & Supp. 2003) sets forth forty-six classes of property that are exempt from ad valorem taxation. The thirty-third of these forty-six categories provides for an exemption for “[a]ll personal property including aircraft of an air carrier which operates an air carrier hub terminal facility in this State for a period of ten consecutive years from the date of qualification, if its qualifications are maintained.” S.C. Code Ann. § 12-37-220(B)(33) (2000). The subsection further cross-references Section 55-11-500 for the definition of an “air carrier hub terminal facility.” Id. That section defines an “air carrier hub terminal facility” as

an airport terminal facility from which an air carrier certified or licensed by the Federal Aviation Administration shall or will operate either:

(1) at least twenty common carrier departing flights a day on which the general public may fly seven days a week, fifty-two weeks a year. No less than seventy percent of all seats on these aircraft arriving at or departing from an air carrier terminal facility must be on jet aircraft capable of carrying at least one hundred passengers on each flight; or

(2) at least twenty-five common carrier departing flights a week on an annual basis for the purposes of transporting cargo and air freight.

S.C. Code Ann. § 55-11-500(a) (Supp. 2003) (emphasis added).

Here, Petitioner concedes that it does not operate a hub terminal facility under Section 55-11-500(a)(1) in South Carolina, because it does not have twenty qualifying passenger flights departing from an airport in the state on a daily basis. However, Petitioner does claim that its operations at the Greenville-Spartanburg International Airport qualify as a hub terminal facility under Section 55-11-500(a)(2), because it has at least twenty-five common carrier passenger flights departing a week from the airport and because those flights, while primarily passenger flights, regularly carry some cargo and air freight as part of its shipping services. The Department maintains that the language of Section 55-11-500(a)(2) cannot be read as broadly as Petitioner would like. Rather, the Department contends that for flights to qualify under that section they must be flown for the primary, or principal, purpose of transporting cargo and freight, and not merely with the transportation of cargo as an incidental activity to the primary purpose–that is, the flights must be cargo flights, not passenger flights incidentally carrying a minimal amount of cargo. I agree.

As a preliminary matter, it must be noted that Petitioner bears the burden of proof in this case. “The burden is on claimants to prove their rights to an exemption by bringing themselves clearly within the conditions imposed by the statute.” TNS Mills, Inc. v. S.C. Dep’t of Revenue, 331 S.C. 611, 618, 503 S.E.2d 471, 475 (1998); see also 84 C.J.S. Taxation § 265, at 338 (2001) (“Thus, the burden is on the claimant to prove or establish clearly his or her right to the exemption, bringing him or herself clearly within the terms of such conditions as the statute may impose, and any doubt is resolved against the one claiming the exemption.”). Further, it is well-settled under South Carolina law that, “[a]s a general rule, tax exemption statutes are strictly construed against the taxpayer,” such that constitutional and statutory language creating such exemptions “will not be strained or liberally construed in the taxpayer’s favor.” Southeastern Kusan, Inc. v. S.C. Tax Comm’n, 276 S.C. 487, 489, 280 S.E.2d 57, 58 (1981); see also Chronicle Publishers, Inc. v. S.C. Tax Comm’n, 244 S.C. 192, 136 S.E.2d 261 (1964); Arkwright Mills v. Murph, 219 S.C. 438, 65 S.E.2d 665 (1951). However, this rule does not mean that this tribunal “will search for an interpretation in the [Department’s] favor where the plain and unambiguous language leaves no room for construction.” Southeastern Kusan, Inc., 276 S.C. at 489, 280 S.E.2d at 58. And, in addition to the strict construction of tax exemption statutes, it is equally settled that a taxpayer must, “in order to be entitled to such exemption, clearly bring himself within the exemption on which he relies.” Guaranty Bank & Trust Co. v. S.C. Tax Comm’n, 254 S.C. 82, 89, 173 S.E.2d 367, 370 (1970); see also York County Fair Ass’n v. S.C. Tax Comm’n, 249 S.C. 337, 154 S.E.2d 361 (1967); Textile Hall Corp. v. Hill, 215 S.C. 262, 54 S.E.2d 809 (1949). Moreover, these general principles of statutory construction have been specifically applied to interpret other property tax exemptions under Section 12-37-220(B). See, e.g., Hibernian Soc. v. Thomas, 282 S.C. 465, 319 S.E.2d 339 (1984). Therefore, in the case at hand, Petitioner has the burden of establishing that its operations at the Greenville-Spartanburg airport clearly fall within the definition of an air carrier hub terminal facility provided by Section 55-11-500(a)(2), such that its personal property is exempt from taxation under Section 12-37-220(B)(33).

Petitioner has not met this burden. In order for an air carrier to qualify its operations as a hub terminal facility under Section 55-11-500(a)(2), the departing flights must be operated “for the purposes of transporting cargo and air freight.” Petitioner argues that this key phrase should be read to include any flights flown with the transportation of cargo as a purpose, no matter how minimal or incidental that purpose is to the predominant reason for operating the flight. Under this construction, Petitioner’s commercial passenger flights from Greenville-Spartanburg would qualify as flights “for the purposes of transporting cargo and air freight,” even though the cargo included on those flights represents less than 3% of the total weight transported and generates less than 2% of the total revenue. See Stipulated Facts #9, 9a. That phrase cannot be interpreted so liberally. See Southeastern Kusan, Inc., 276 S.C. at 489, 280 S.E.2d at 58 (holding that the language of tax exemption statutes cannot be strained or liberally construed in the taxpayer’s favor).

Under a strict, but plain, reading of Section 55-11-500(a)(2), qualifying flights must be flown with the transportation of cargo and air freight as the purpose for the flights, not merely as one ancillary purpose. That is, the departing flights must be operated for the primary, and principal, objective of carrying cargo and air freight in order to satisfy the terms of that section. Stated inversely, a passenger flight, carrying some cargo, but operated overwhelmingly for the purpose of carrying passengers, cannot fairly be considered a flight “for the purposes of transporting cargo and air freight,” and, as such, is not a qualifying flight under the plain language of Section 55-11-500(a)(2).

Further, when this subsection is read together with the preceding subsection, it becomes still more evident that Section 55-11-500(a)(2) only contemplates application to cargo flights. See State v. Gordon, 356 S.C. 143, 152, 588 S.E.2d 105, 110 (2003) (“Furthermore, the court should not consider the particular clause being construed in isolation, but should read it in conjunction with the purpose of the whole statute and the policy of the law.”). The prior subsection, Section 55-11-500(a)(1), which is joined to Section 55-11-500(a)(2) by the disjunctive word “or,” describes the criteria passenger-flight operations (i.e., “departing flights . . . on which the general public may fly”) must satisfy to qualify as an air carrier hub terminal facility. With these two subsections, the statute differentiates between passenger-flight hub facilities, from which at least twenty passenger flights must depart per day, and cargo-service hub facilities, from which fewer than four cargo flights need depart per day (i.e., twenty-five flights per week). Plainly, then, considering Section 55-11-500(a) as a whole, passenger-flight operations, even those carrying some incidental amount of cargo, must meet the requirements of subsection (1) in order to be deemed a hub facility, whereas cargo operations are governed by the standard set forth in subsection (2). In short, the flights described in Section 55-11-500(a)(2) (i.e., “flights . . . for the purposes of transporting cargo and air freight”) are cargo flights–they are flights flown for the primary purpose of transporting cargo and air freight, not passenger flights carrying some cargo as a subsidiary to passenger operations.

The passenger flights Petitioner operates from the Greenville-Spartanburg International Airport are not flown for the primary purpose of transporting cargo and air freight, and thus cannot qualify Petitioner’s operations at the airport as an air carrier hub terminal facility under Section 55-11-500(a)(2). While Petitioner does offer a regular cargo service on its passenger flights, this service, as noted above, is purely incidental to its passenger operations. For the tax years in question, the cargo and air freight carried by Petitioner’s passenger flights amounted to less than 3% of the total tonnage transported on those flights, and the revenues generated by the cargo service amounted to less than 2% of the total revenues produced by those flights. See Stipulated Facts #9, 9a. Moreover, nearly one quarter of Petitioner’s passenger flights departing the Greenville-Spartanburg airport for those years carried no cargo whatsoever. See Stipulated Fact #8. Without question, these flights are passenger flights, operated for the primary purpose of carrying passengers; they are not cargo flights, operated for the primary purpose of transporting air cargo. And, as such, they do not satisfy the requirements of Section 55-11-500(a)(2).

In sum, under a strict construction of the tax exemption offered under Sections 12-37-220(B)(33) and 55-11-500(a)(2) to air carriers operating a cargo hub terminal facility in South Carolina, an air carrier must have at least twenty-five flights departing from an airport per week that are flown for the primary purpose of transporting cargo and air freight in order to qualify for the exemption. In the case at hand, Petitioner failed to meet its burden of establishing that its operations at the Greenville-Spartanburg airport clearly fall within the requirements of this exemption. The passenger flights operated by Petitioner, while carrying some amount of cargo, were not flown for the primary purpose of transporting that cargo, and therefore, simply cannot qualify Petitioner’s operations as an air carrier hub terminal facility under Section 55-11-500(a)(2). Accordingly, the Department properly denied Petitioner’s request for the personal property tax exemption under Section 12-37-220(B)(33) for the tax years in question.

ORDER

Based upon the Stipulated Facts, Finding of Fact, and Conclusions of Law stated above,

IT IS HEREBY ORDERED that the Department’s Final Determination denying Petitioner’s request for the personal property tax exemption under Section 12-37-220(B)(33) for tax years 1998 through 2000 is SUSTAINED.

AND IT IS SO ORDERED.

______________________________

JOHN D. GEATHERS

Administrative Law Judge

January 30, 2004

Columbia, South Carolina