AMERICAN AIRLINES, INC. v. STATE ex rel. OKLAHOMA TAX COMMISSION
2014 OK 95
| Okla. | 2014Background
- American Airlines (AA) operates a large aircraft maintenance complex in Tulsa (over 3 million sq ft; ~6,000 employees) and paid Oklahoma sales tax on electricity and natural gas purchased for 2006 operations.
- AA sought a refund for 2006 sales tax on utility services (and other items), asserting exemption under two Sales Tax Code provisions: §1357(28) ("services employed in" aircraft repair) and §1357(20) (parts exemption); the appeal concerns only utility services under §1357(28).
- OTC Division denied the refund because many purchases did not become part of the aircraft and thus were not exempt; AA argued "services employed in" covers utilities even though utilities do not become part of the aircraft.
- Administrative Law Judge (ALJ) denied AA’s protest, reasoning: (1) utilities are "used or consumed," not "sold" as services for repair; (2) a 2003 amendment defines electricity/gas as "tangible personal property," suggesting they are not "services" for the exemption; and (3) a 2012 statutory amendment expanding the parts exemption would have been unnecessary if §1357(28) already covered such items.
- The Oklahoma Supreme Court reviews statutory interpretation de novo and must construe tax exemptions strictly but sensibly; it remanded for further proceedings on methodology after ruling on the exemption question.
Issues
| Issue | Plaintiff's Argument (AA) | Defendant's Argument (OTC) | Held |
|---|---|---|---|
| Whether §1357(28) ("sales of services employed in" aircraft repair) exempts electricity and natural gas utility services purchased by AA in 2006 | "Services" includes taxable utility services provided by utilities; utilities were predominantly "employed in" aircraft repair, so tax refund allowed | Definition of "tangible personal property" (amended 2003 to include electricity/gas) and other Code provisions show utilities are not "services" for the exemption; 2012 amendment demonstrates legislature did not intend §1357(28) to cover such items | Court held §1357(28) includes electricity and natural gas utility services when employed in aircraft repair and maintenance (remanded to OTC to determine refund amount/methodology) |
| Whether the 2012 amendment to §1357(20) renders AA's interpretation absurd or the statute meaningless | AA: 2012 amendment expands exemptions for property used in repair but does not negate that §1357(28) already exempted utilities as services | OTC: amendment would be unnecessary if utilities were already covered, so §1357(28) must not include utilities | Court found both provisions can coexist; 2012 amendment prospectively expanded property-specific exemptions but did not render §1357(28) void or redundant |
| Whether the Services Exemption requires AA to be the vendor of the services (i.e., sell utilities) rather than the purchaser who consumes them in repair operations | AA: "employed" means "used"; exemption applies to sales of services that are used/employed in repair, regardless of whether AA resold the service | ALJ/OTC: exemption language contemplates sales of services by a vendor; AA did not sell utilities to customers, so exemption inapplicable | Court held exemption does not require AA be the vendor; it covers services employed (used/consumed) in repair, including utilities consumed by AA |
| Whether AA must show methodology (predominant-use / square-footage) to quantify exempt portion of metered utilities | AA presented expert predominant-use study (square-footage method) showing majority of utility use related to repair; AA argued predominant-use is appropriate where meters serve mixed uses | OTC argued AA failed to prove all metered usage was for exempt activity and that statutory/rule guidance for predominant-use was lacking | Court did not decide the correct quantification method on the merits; remanded to OTC to determine appropriate methodology and amount of refund consistent with holding |
Key Cases Cited
- Blitz U.S.A., Inc. v. Oklahoma Tax Comm'n, 75 P.3d 883 (Okla. 2003) (tax exemptions strictly construed; but statutes given sensible construction when warranted)
- Colcord v. Granzow, 278 P. 654 (Okla. 1928) (strict-construction rule applies only where ambiguity remains after ordinary interpretation)
- Moran v. City of Del City, 77 P.3d 588 (Okla. 2003) (statutes read to render all parts operative and avoid superfluity)
- Strelecki v. Oklahoma Tax Comm'n, 872 P.2d 910 (Okla. 1993) (legislature not presumed to intend vain or absurd results)
- Neer v. State ex rel. Oklahoma Tax Comm'n, 982 P.2d 1071 (Okla. 1999) (standard for appellate review of tax commission orders)