816 F. Supp. 2d 941
D. Haw.2011Background
- Schuman Aviation challenged the IRS Air Transportation Tax on its Hawaii air tours for 2003–2004, arguing small aircraft on nonestablished lines were exempt.
- Schuman operated four preset tours (Holoholo, Pali Makani, Sacred Falls Ali'i, Night Tour) in aircraft with max takeoff weight ≤6,000 lb using an FAA on-demand certificate.
- Tours began and ended at Schuman's heliport, with flights often multiple times daily and sometimes combined for longer durations.
- Passengers bought seats; tours were prepackaged with designated sights and durations, though pilots could accommodate reasonable passenger requests within flight time constraints.
- Schuman also conducted other non-tour charters charged hourly, but the IRS taxed only the air-tour flights as transportation; some flights were deemed pure charters.
- The IRS issued Certificates of Assessment in 2003–2004, including penalties; Schuman sought refunds in 2006–2007, which were denied.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the air tours operated on an established line. | Tours were circular, starting and ending at the same point, not two definite points. | Tours began and ended at the heliport, thus between definite points and within an established line. | The tours operated between definite points, satisfying established line when considering the route and points involved. |
| Whether the tours were operated with some degree of regularity. | Regularity requires a strict schedule; tours depend entirely on demand. | Regularity can exist even with demand-driven tours if flights occur with predictable frequency between points. | Tours were operated with some degree of regularity between definite points, satisfying the exemption criterion. |
| Whether Schuman exercised sufficient control over route, time, and passengers to fall under the established line exemption. | Schuman did not control every aspect, as passengers could request variations and delays. | Schuman controlled predetermined routes, sights, durations, and departures; pilots could approve passenger requests but remained bound by schedules. | Schuman maintained control over route, time, and passenger count, meeting the established line requirement. |
| Whether Schuman was obligated to collect the tax and whether penalties were properly assessed. | Only the payer or selling tour company should bear the tax; penalties perhaps improper. | Carrier liability under §4263(c) for uncollected tax; penalties proper after notice. | Schuman was obligated to collect the tax; penalties sustained. |
Key Cases Cited
- Gray Line Co. v. Granquist, 237 F.2d 390 (9th Cir. 1956) (established line requires regularity between definite points; test applied to ground transportation)