Northwest Airlines v. Wi Dept. of Revenue

Page 280

717 N.W.2d 280

2006 WI 88

NORTHWEST AIRLINES, INC., Plaintiff-Appellant-Cross-Respondent, v. WISCONSIN DEPARTMENT OF REVENUE, Defendant-Respondent-Cross-Appellant Midwest Airlines, Inc., Intervening Defendant-Respondent-Cross-Appellant.

No. 2004AP319.

Supreme Court of Wisconsin.

Argued December 13, 2005.

Decided July 7, 2006.

COPYRIGHT MATERIAL OMITTED

For the plaintiff-appellant-cross-respondent there were briefs by Donald K. Schott, David D. Wilmoth, Kevin M. Long, Brian D. Winters, and Quarles & Brady LLP, Milwaukee, and oral argument by Donald K. Schott.

For the defendant-respondent-cross-appellant the cause was argued by Mary E. Burke, assistant attorney general, with whom on the briefs was Peggy A. Lautenschlager, attorney general.

For the intervening defendant-respondent-cross-appellant there were briefs by Joseph D. Kearney, Milwaukee; Robert H. Friebert, William B. Guis, Matthew W. O'Neill, Michael Mishlove, and Friebert, Finerty & St. John, S.C., Milwaukee, and oral argument by Robert H. Friebert.

ON CERTIFICATION FROM THE COURT OF APPEALS

¶ 1 DAVID T. PROSSER, J

In 2001 the Wisconsin legislature created an ad valorem tax exemption for air carrier companies that satisfy either of two criteria for operating a hub facility in this state. The purpose of the exemption is to maintain Wisconsin's air transportation system, protect existing jobs, encourage the development of additional air transportation facilities, and preserve the state's competitiveness in attracting and retaining business and industry.

¶ 2 Northwest Airlines, Inc. (Northwest), an air carrier company headquartered in Minnesota, did not qualify for the ad valorem tax exemption in 2002. Had Northwest met the criteria for exemption, it would have been exempted from paying more than $1.5 million in ad valorem taxes in that year. Believing itself disadvantaged, the air carrier challenged the constitutional validity of the tax exemption. The case is before us on certification from the court of appeals¹ after the Dane County Circuit Court, John Albert, Judge, held the tax exemption unconstitutional. We reverse.

I. THE HUB EXEMPTION AND PROCEDURAL HISTORY

¶ 3 In 2001 the legislature enacted an absolute exemption from ad valorem taxation for any air carrier that operates a hub facility in Wisconsin. Wis. Stat. §§ 70.11(42) and 76.02(1) (2003-04).² The legislature defined a hub facility in two ways:

a. A facility at an airport from which an air carrier company operated at least 45 common carrier departing flights each weekday in the prior year and from which it transported passengers to at least 15 nonstop destinations, as defined by rule by the department of revenue, or transported cargo to nonstop destinations as defined by rule by the department of revenue.

b. An airport or any combination of airports in this state from which an air carrier company cumulatively operated at least 20 common carrier departing flights each weekday in the prior year, if the air carrier company's headquarters, as defined by rule by the department of revenue, is in this state.

Wis. Stat. § 70.11(42)(a)2.³

¶ 4 The legislature then provided in Wis. Stat. § 76.02(1) that "`[a]ir carrier company' means any person engaged in the business of transportation in aircraft of persons or property for hire on regularly scheduled flights, except an air carrier company whose property is exempt from taxation under s. 70.11(42)(b)." (Emphasis added.)

¶ 5 As this provision implies, the hub exemption is not limited to property physically located at an air carrier's hub facility. Instead, the exemption extends to all "[p]roperty owned by an air carrier company that operates a hub facility in this state, if the property is used in the operation of the air carrier company." Wis. Stat. § 70.11(42)(b).

¶ 6 Midwest Airlines, Inc. (Midwest) and Air Wisconsin Airlines Corp. (Air Wisconsin) qualified for the exemption in 2002. Midwest operated a hub facility as defined by the first test, the Single Airport hub exemption; Air Wisconsin operated a hub facility as defined by the second test, the Headquarters hub exemption. The Legislative Fiscal Bureau estimated that in 2002 the hub exemption relieved Midwest of nearly $2 million in ad valorem taxes, and relieved Air Wisconsin of nearly $600,000 in ad valorem taxes. Legislative Fiscal Bureau, Tax Exemption for Air Carriers with Hub Terminal Facilities (DOT— Transportation Finance), Paper # 899 to Joint Committee on Finance, at 2-3 (May 29, 2001) (hereinafter Legislative Fiscal Bureau Paper # 899).

¶ 7 Northwest received its 2002 ad valorem tax assessment on October 10, 2002, and filed a summons and complaint for re-determination of its assessment in the Dane County Circuit Court on November 11, 2002. Northwest claimed the hub exemption violated (1) the Interstate Commerce Clause, Article I, Section 8 of the United States Constitution; (2) the Equal Protection Clause, Amendment XIV, Section 1 of the United States Constitution; and (3) the Uniformity Clause, Article VIII, Section 1 of the Wisconsin Constitution.

¶ 8 The named defendant, the Wisconsin Department of Revenue (DOR), filed a motion to dismiss because, inter alia, Northwest had failed to serve DOR within 30 days of receiving the assessment notice. On the same day, June 13, 2003, Northwest filed a motion for summary judgment, requesting that the circuit court declare the hub exemption unconstitutional.

¶ 9 The circuit court granted in part the DOR's motion to dismiss. The court held that Wis. Stat. § 76.08(1) required Northwest to serve DOR with a copy of the summons and complaint within 30 days of receiving an assessment notice and that Northwest failed to do so. Northwest did not serve DOR until January 13, 2003. Accordingly, the circuit court held that Northwest was not entitled to a re-determination of its 2002 ad valorem tax assessment and that this denial of re-determination did not deprive Northwest of its due process right to meaningful retrospective relief.

¶ 10 In addition, the circuit court ruled on Northwest's summary judgment motion. The court held that the hub exemption was a facial violation of the dormant Commerce Clause because it benefited in-state air carriers while imposing an extra burden on out-of-state air carriers. The court also concluded that the hub exemption could be severed from the ad valorem tax scheme, allowing the ad valorem tax to be imposed upon all air carriers.

¶ 11 Both Northwest and DOR appealed. Northwest appealed the circuit court's holdings that (1) the hub exemption was severable; (2) Wis. Stat. § 76.08(1) required it to serve DOR with a copy of the summons and complaint within 30 days; and (3) the denial of the re-determination claim did not violate Northwest's due process right to meaningful retrospective relief. DOR cross-appealed the circuit court's holding that the hub exemption violates the dormant Commerce Clause.

¶ 12 Faced with the prospect of having to pay the ad valorem tax, Midwest filed a motion to intervene. The circuit court granted Midwest leave to intervene but would not reconsider its constitutional ruling. On appeal, Midwest challenges the circuit court's holdings that (1) the hub exemption is severable; and (2) the hub exemption violates the dormant Commerce Clause. Midwest contends that a federal statute, 49 U.S.C.A. § 40116 (2000 & West Supp.2005), forecloses review of the constitutionality of the hub exemption under the dormant Commerce Clause. DOR joins Midwest in this argument.

¶ 13 The parties also ask us to determine whether the hub exemption violates either the Equal Protection Clause or the Uniformity Clause even though the circuit court reached neither issue.

¶ 14 We conclude: (1) 49 U.S.C.A. § 40116 precludes dormant Commerce Clause review of the hub exemption; (2) the hub exemption does not violate the Equal Protection Clause of the United States Constitution; and (3) the hub exemption does not violate the Uniformity Clause of the Wisconsin Constitution. Because we have determined that the hub exemption is valid, we need not reach the questions associated with whether Northwest complied with the procedural requirements for re-determination of its assessment. Accordingly, we reverse the circuit court's decision that the hub exemption violates the dormant Commerce Clause.

II. BACKGROUND

¶ 15 Wisconsin taxes in-state property by means of either a general property tax or an ad valorem property tax. Wis. Stat. chs. 70 (general property tax) and 76 (ad valorem property tax). The property of all "air carrier companies"⁴ is exempt from general property taxes. Wis. Stat. §§ 70.11(42)(b) and 70.112(4) and (6).

¶ 16 Wisconsin taxes air carrier companies under an ad valorem tax in Wis. Stat. ch. 76.⁵ See Wis. Stat. §§ 76.01, 76.02, and 76.23. Each air carrier's property is valued on a company-wide basis, and a percentage of this amount is attributed to Wisconsin for purposes of calculating the ad valorem tax. Wis. Stat. § 76.07(4g)(b). As noted, not all air carrier companies are subject to an ad valorem tax. See Wis. Stat. § 76.02(1). Any air carrier company that operates a "hub facility,"⁶ as defined by Wis. Stat. § 70.11(42)(a)2., is exempt from the ad valorem tax.

¶ 17 At present, Midwest and Air Wisconsin are the only air carrier companies that qualify for the hub exemption.

¶ 18 As initially drafted, the hub exemption was tailored to benefit Midwest. See Department of Revenue Fiscal Estimate to 1999 S.B. 411 (Mar. 1, 2000); Department of Transportation Fiscal Estimate to 1999 S.B. 411 (Feb. 29, 2000). The legislature first proposed the hub exemption to induce Midwest to push forward with a nearly $1 billion expansion in Wisconsin rather than elsewhere.⁷ Sarah Wyatt, Airline won't expand in state without tax relief, Wis. St. J., Oct. 15, 1999, at 10B (noting the combination of income and property taxes paid by Midwest in Wisconsin was two to six times greater than the amount it...