AMERICAN AIRLINES, INC. v. STATE ex rel. OKLAHOMA TAX COMMISSION
2014 OK 95
| Okla. | 2014Background
- American Airlines (AA) operates a large aircraft maintenance facility in Tulsa (over 3M sq ft; >6,000 employees) and sought a refund of sales tax paid in 2006 on electricity and natural gas used at that facility.
- AA claimed exemption under the 2006 "Services Exemption" (68 O.S. Supp. 2006, § 1357(28)): "sales of services employed in the repair, modification and replacement of parts of aircraft engines, aircraft frame and interior repair and modification, and paint."
- The Oklahoma Tax Commission (OTC) denied the refund, originally reasoning the purchases did not become part of the aircraft and later asserting electricity/gas were "tangible personal property" (per §1352(23)) and thus not covered by the Services Exemption.
- Administrative Law Judge (ALJ) found the exemption ambiguous, concluded AA failed to prove entitlement, and recommended denial; OTC adopted that recommendation.
- On appeal the Oklahoma Supreme Court considered whether "services" in §1357(28) includes utility services (electricity/natural gas), whether the 2012 legislative amendment to §1357(20) affects the analysis, and whether the exemption requires AA to be the vendor of the services. The Court remanded for determination of refund amount/methodology after resolving coverage.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether "sales of services employed in" (§1357(28)) includes electricity and natural gas utility services | "Services" includes taxable services under §1354; electricity and gas are taxable services when provided by utilities, so utility purchases employed in aircraft repair are exempt | The 2003 amendment defining "tangible personal property" to include electricity/gas shows Legislature treated them as property, not services; thus §1357(28) did not cover utility services | Court held "services" in §1357(28) includes electricity and natural gas utility services used in aircraft repair and maintenance (exemption applies) |
| Whether the 2012 amendment to §1357(20) (prospectively exempting machinery, tools, supplies, related tangible personal property and services) makes AA's 2006 claim inconsistent or renders the Services Exemption superfluous | AA: 2012 amendment is prospective and expands/clarifies exemptions for property; it does not negate that §1357(28) already covered utility services in 2006 | OTC: If §1357(28) already covered utilities, the 2012 amendment would be vain/absurd and therefore suggests utilities were not intended to be covered earlier | Court held the 2012 amendment is prospective and meaningful (it added exemptions for items not previously covered); its enactment does not nullify that §1357(28) already exempted utility services in 2006 |
| Whether the Services Exemption requires the claimant to be a vendor (i.e., to have sold the services) or only to have "employed" the services | "Employed" means "used"; exemption covers sales of services that are employed (used) in repair — it does not require AA to have sold those services to customers | ALJ/OTC suggested the exemption contemplates sales by a vendor and AA only bought/consumed utilities, so exemption might not apply | Court held the exemption does not require AA to be the vendor; purchaser use/consumption of utility services in qualifying repair activities may qualify for the exemption |
Key Cases Cited
- Blitz U.S.A., Inc. v. Oklahoma Tax Comm'n, 75 P.3d 883 (Okla. 2003) (tax exemptions are strictly construed against claimant)
- Colcord v. Granzow, 278 P. 654 (Okla. 1928) (strict construction rule and its application when ambiguity exists)
- Moran v. City of Del City, 77 P.3d 588 (Okla. 2003) (statutes should be read to render every part operative and avoid surplusage)
- Strelecki v. Oklahoma Tax Comm'n, 872 P.2d 910 (Okla. 1993) (Legislature will not be presumed to intend a vain or absurd result)
- Neer v. State ex rel. Oklahoma Tax Comm'n, 982 P.2d 1071 (Okla. 1999) (standard for appellate review of administrative orders)
- Schulte Oil Co. v. Oklahoma Tax Comm'n, 882 P.2d 65 (Okla. 1994) (practical construction of exemption language where administrative interpretation imposes unwarranted restriction)