Minnesota Cases August 25, 2021: Sheridan v. Comm'r of Revenue

Case Description

Randall A. Kins, Sheridan & Dulas P.A., Eagan, Minnesota for relators.

Keith Ellison, Attorney General, Kristine K. Nogosek, Mawerdi A. Hamid, Assistant Attorneys General, Saint Paul, Minnesota for respondent.

OPINION

MOORE, III, Justice.

The issue in this case is whether the sales or use tax imposed on the purchase of aircraft, Minn. Stat. § 297A.82 (2020), violates article X, section 5 of the Minnesota Constitution, which allows the Legislature to tax aircraft using the airspace over Minnesota "in lieu of all other taxes." Jeffrey Sheridan and Kirk Lindberg ("relators") purchased aircraft outside Minnesota, paid the use tax, paid a separate annual tax imposed on aircraft under Minn. Stat. § 360.531, subd. 1 (2020), and then requested a refund of the use tax, asserting that it is unconstitutional under the "in lieu" clause in article X, section 5. Respondent Commissioner of Revenue denied the refund. In the ensuing litigation, the Tax Court upheld the constitutionality of the Minnesota sales or use tax for aircraft purchases. Because we conclude that article X, section 5 precludes only the application of duplicative personal property taxes to aircraft, we affirm.

FACTS

A brief summary of the relevant taxes is helpful to understanding this dispute. There are two taxes related to aircraft at issue here. Minnesota imposes either a sales tax or use tax on the purchase of aircraft, Minn. Stat. § 297A.82, subds. 1–3, and also imposes an annual tax on aircraft under Minn. Stat. § 360.531, subd. 1. The sales or use tax must be paid before the aircraft is registered or licensed in Minnesota: "An aircraft must not be registered or licensed in this state unless the applicant presents proof that the sales or use tax imposed by this chapter has been paid or that the transaction is exempt from the sales and use tax." Minn. Stat. § 297A.82, subd. 1. This one-time tax is based on a percentage of the purchase price for the aircraft. Minn. Stat. §§ 297A.62 –.63 (generally applying a 6.5 percent tax rate on the purchase price).

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The annual tax on aircraft, by contrast, is based on the manufacturer's list price or, if that is unavailable, the list prices of comparable aircraft. Minn. Stat. § 360.531, subds. 1–4. This tax is imposed for the privilege of operating aircraft in the airspace of Minnesota. See Minn. Stat. §§ 360.54, 360.58 (2020). We now turn to the facts, which are neither complicated nor disputed.

Sheridan purchased an aircraft outside of Minnesota. He paid $2,921.25 for the use tax and $98.35 for the annual tax. Lindberg similarly purchased an aircraft outside Minnesota. He paid $11,515.62 for the use tax and $418.75 for the annual tax. Sheridan and Lindberg then filed for refunds of their use-tax payments, both of which were denied. They sued the Department of Revenue, arguing that the use tax is unconstitutional under article X, section 5 of the Minnesota Constitution. The parties submitted a joint stipulation of facts and made cross-motions for summary judgment. The Tax Court concluded that the "plain meaning of the Minnesota Constitution does not prohibit both" a use tax and an annual personal property tax on aircraft. Sheridan v. Comm'r of Revenue , No. 9366 R, 2020 WL 7250900, at *6 (Minn.). Thus, the court denied relators’ motion and granted the Commissioner's motion. Id. Relators sought review of the decision of the Tax Court by writ of certiorari.

ANALYSIS

We review Tax Court decisions to determine whether "the Tax Court was without jurisdiction," whether the Tax Court's order "was not justified by the evidence or was not in conformity with law," or whether "the Tax Court committed any other error of law." Minn. Stat. § 271.10, subd. 1 (2020). On review to our court, relators present the same argument they made to the Tax Court. They contend that by imposing a tax in addition to the personal property tax authorized by section 360.531, section 297A.82 violates article X, section 5 of the Minnesota Constitution. That provision reads:

The legislature may tax aircraft using the air space overlying the state on a more onerous basis than other personal property. Any such tax on aircraft shall be in lieu of all other taxes. The legislature may impose the tax on aircraft of companies paying taxes under any gross earnings system of taxation notwithstanding that earnings from the aircraft are included in the earnings on which gross earnings taxes are computed. The law may exempt from taxation aircraft owned by a nonresident of the state temporarily using the air space overlying the state.

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Minn. Const. art. X, § 5 (emphasis added). For ease of reference, we refer to this provision as the "Aircraft Amendment," and we refer to the second sentence, emphasized above, as the "in-lieu clause." Constitutional interpretation is an issue of law. Ninetieth Minn. State Senate v. Dayton , 903 N.W.2d 609, 617 (Minn. 2017). We review the Tax Court's application of law de novo. Avis Budget Car Rental LLC v. Cnty. of Hennepin , 937 N.W.2d 446, 449 (Minn. 2020).

Relators’ argument is straightforward. They assert that the phrase "in lieu of"—the phrase used in the in-lieu clause—means "instead of." In their view, this phrase means that the Aircraft Amendment unambiguously restricts the Legislature's taxing authority to just one tax on aircraft for all purposes, in place of all other potential taxes. Because both section 360.531 and section 297A.82 impose taxes on aircraft, but the in-lieu clause limits the taxing authority to one type of tax, relators contend that the use tax amounts to unlawful double taxation under the Aircraft Amendment. They therefore urge us to strike down section 297A.82 as unconstitutional.

The Commissioner agrees that the provision is unambiguous. But, he contends, the in-lieu clause does not limit the Legislature to one type of tax on aircraft. In support, the Commissioner points to preamble language of the session law in which the Legislature proposed the Aircraft Amendment, which stated that the proposed tax would be "in lieu of personal property taxes," see Act of Apr. 24, 1943, ch. 666, § 1, 1943 Minn. Laws 1195, 1195–96 (emphasis added), not "in lieu of all other taxes," which is the language in the amendment itself. Relying on the language from the session law, the Commissioner contends that "all other taxes" must be understood in the context of the only tax at issue when the Aircraft Amendment was passed—personal property taxes. The Commissioner therefore concludes that the in-lieu clause unambiguously prohibits only the application of duplicative personal property taxes on aircraft. And because section 297A.82 is not a personal property tax, it is therefore not a duplicative tax barred by the Aircraft Amendment.

In the alternative, assuming we conclude that the Aircraft Amendment is ambiguous, the Commissioner urges us to defer to the Department's longstanding interpretation of that amendment, which is consistent with his position that the in-lieu clause prohibits only duplicative personal property taxes. The Commissioner points out that the Department's interpretation of the Aircraft Amendment has been applied by the Tax Court since 1972, when similar challenges were first raised. See Lloyd Alsworth & Fairmont Flying Serv., Inc. v. Comm'r of Tax'n , No. 1614, 1972 WL 124, at *2 (Minn. T.C. Nov. 9, 1972) ; see also Onan Corp. v. Comm'r of Tax'n , No. 1892, 1977 WL 952, at *10 (Minn. T.C. Mar. 30, 1977).

I.

As a duly enacted statute, section 297A.82 enjoys a presumption of constitutionality. Olson v. Comm'r of Revenue , 955 N.W.2d 605, 607 n.1 (Minn. 2020). We proceed with caution because the party challenging the constitutionality of a statute bears a heavy burden to overcome that presumption. Kimberly-Clark Corp. v. Comm'r of Revenue , 880 N.W.2d 844, 848 (Minn. 2016).

To resolve the parties’ dispute, then, we must interpret the language of the Aircraft Amendment. We have said that the "rules applicable to the construction of statutes" apply to the construction of the constitution. State ex rel. Mathews v. Houndersheldt , 151 Minn. 167, 186 N.W. 234, 236 (1922) ; see Clark v. Ritchie , 787 N.W.2d 142, 146 (Minn. 2010) (stating the

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rules of statutory interpretation "are equally applicable to the constitution"). Accordingly, we interpret the constitution to effectuate the Legislature's intent. See State v. Twin City Tel. Co. , 104 Minn. 270, 116 N.W. 835, 836 (1908). But in addition to legislative intent, we also strive to effectuate the intent of "the people who ratified" the constitutional provision at issue. Kahn v. Griffin , 701 N.W.2d 815, 825 (Minn. 2005). "[W]here the language used is clear, explicit, and unambiguous, the language of the provision itself is the best evidence of" such intent. State ex rel. Gardner v. Holm , 241 Minn. 125, 62 N.W.2d 52, 55 (1954). If the text of the constitution is unambiguous, "it must be taken as it reads—there is no room for construction." Houndersheldt , 186 N.W. at 236. Thus, we begin by determining whether the Aircraft Amendment is ambiguous.

A.

Ambiguity arises only if the text is "subject to more than one reasonable interpretation." State v. Townsend , 941 N.W.2d 108, 110 (Minn. 2020). In this inquiry, we look to the plain language of the legislative enactment itself, including relevant dictionary definitions of undefined phrases and other sections of the same legislative enactment. See State v. Prigge , 907 N.W.2d 635, 638–40 (Minn. 2018).

We therefore begin with the words of article X, section 5. The first two sentences of the provision are crucial and read as follows: "The legislature may tax aircraft using the air space overlying the state on a more onerous basis than other personal property. Any such tax on aircraft shall be in lieu of all other taxes." Confining our review to the plain text for the moment, there is some persuasive force to relators’ contention that this provision limits the Legislature's taxing authority to one tax on aircraft instead of all other potential taxes. There is also some merit to the Commissioner's argument that the reference in the first sentence to "other personal property" signals an intent to exclude only other personal property taxes.

The problem with both interpretations, however, is that it is ultimately unclear which tax is referenced under this provision. While the first sentence specifically refers to "other personal property" and thus might describe a personal property tax, it also refers to aircraft "using" air space over Minnesota; thus, the sentence could plausibly refer to a use tax, not a personal property tax. As another possibility, the language may refer to a privilege tax. The text itself is not clear, and neither

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party adequately confronts this problem. They each assume without explanation that the tax referenced in the first sentence—the one that is apparently authorized under the provision—unambiguously carries either a broad or narrow meaning, depending on how they read section 360.531. We find no textual support for either assumption.

Relators may have relied on the subdivision title, also known as a headnote, to assume that section 360.531 is the statute that authorizes the tax referenced in the first sentence of the constitutional provision; that is, the tax that the constitution states "shall be in lieu of all other taxes" on aircraft. See Minn. Stat. § 360.531, subd. 1 (using the headnote, "in lieu tax"). But this headnote "has no value as an aid to statutory construction for a determination of the legislative intent," In re Dissolution of Sch. Dist. No. 33 , 239 Minn. 439, 60 N.W.2d 60, 63 (1953), because "headnotes ... are mere catchwords ... and are not part of the statute." Minn. Stat. § 645.49 (2020).

Nor can we conclude that the constitutional language is unambiguous by reading it in light of the text of section 360.531 itself. We have said that we will read multiple parts of a statute together, rather than in isolation. State v. Riggs , 865 N.W.2d 679, 683 (Minn. 2015) (applying the whole-statute canon). But as we explained in Prigge, statutes enacted at two different points in time in the legislative process are not the "same statute" and thus the whole-statute canon does not permit us to read them together in a pre-ambiguity analysis. 907 N.W.2d at 639–40 (distinguishing between the "related-statutes canon," which applies only " after a determination of ambiguity," and the "whole-statute canon," which "does not require ambiguity before it may be applied."). This reasoning is relevant here. In 1943, the Legislature approved the Aircraft Amendment for submission to Minnesota voters in the 1944 election. Act of Apr. 24, 1943, ch. 666, § 1, 1943 Minn. Laws 1195, 1195–96. Two years later and after the amendment passed in the 1944 general election, section 360.531 was enacted by the Legislature. Act of Apr. 19, 1945, ch. 411, § 3, 1945 Minn. Laws. 787, 789 (codified as amended at Minn. Stat. § 360.531 ). Thus, the whole-statute canon does not allow us to interpret a constitutional provision by reference to a statute that was enacted by the Legislature at a later point in time.

Having determined that the text and headnote of section 360.531 are inapplicable in resolving ambiguity in the Aircraft Amendment, we return to the text of that constitutional provision. Looking only to the plain language, the Aircraft Amendment could reasonably be read in several different ways.

To begin with, the Commissioner's interpretation is reasonable. The first sentence explicitly refers to personal property; therefore, the in-lieu clause could be read to prohibit only duplicative personal property taxes, as the Commissioner argues. And relators’ reading—that this provision limits legislative taxing authority to one tax on aircraft instead of all other taxes—is also reasonable. The text itself, however, does not definitively tell us which tax may be imposed and which taxes may not. Thus, relators’ reading spawns two additional reasonable interpretations of the Aircraft Amendment. It could authorize the tax imposed by section 360.531 and prohibit the tax imposed by section 297A.82—as relators contend. But it could also be read for precisely the opposite proposition: It could allow the tax imposed by section 297A.82 and prohibit the tax imposed by section 360.531. Because the Aircraft Amendment is subject to several reasonable interpretations, we conclude

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that the language of this provision is ambiguous.

B.

Having concluded that the language of article X, section 5 is ambiguous, we now turn to the canons of construction to resolve that ambiguity. We examine the circumstances under which the Aircraft Amendment was enacted, legislative history, and the occasion, necessity, and object to be attained by its passage. See Minn. Stat. § 645.16. In doing so, we keep in mind that we must ascertain and effectuate "the intent of the constitution as indicated by the framers and the people who ratified it." Kahn , 701 N.W.2d at 825. Our analysis therefore proceeds by examining these canons to determine what taxes the Legislature and the Minnesota voters were referring to in the phrase "[a]ny such tax on aircraft shall be in lieu of all other taxes."

1.

We begin with the historical circumstances that led to adoption of the Aircraft Amendment. When this constitutional amendment was voted upon in 1944, Minnesota's taxation scheme looked very different from the one we have today. Dating back to the Territorial Legislature, revenue was raised by relying almost entirely on a system of ad valorem property taxes. W.K. Montague, The Development and Present Form of the Minnesota Tax System , Minn. Stat., vol. 18 at 54–55 (1947); see also Minn. Stat. (Terr.) chs. 7, 10 (1849). This general property tax system carried over into Statehood. See generally Minn. Gen. Stat. ch. 9, §§ 1–22 (1858); see also Kathleen A. Gaylord & Susan C. Jacobson, History of Taxation in Minnesota , Tax Study Commission at 11 (1979).

Under the general property tax system, each county in Minnesota assessed the market value of real and personal property located in its borders. Montague, supra at 62, 73. Assessors calculated the property's "assessed value" by applying a statutory rate to the property's market value. Id. This assessed value would then be confirmed and adjusted by the city board, the county board of equalization, and the state commissioner of taxation. Id. at 62–63. From there, property was subject to tax levies at the city, county, and state levels. Id. at 63, 71–73.

A series of tax reforms in the early 1900's generated other sources of revenue. Gaylord, supra at 13. One of those reforms created a new motor-vehicle tax and, at the same time, removed motor vehicles from the general property tax system. See Act of Feb. 21, 1919, ch. 530, § 1, 1919 Minn. Laws 737, 737–52 ("Babcock Amendment"). Aircraft, however, remained subject

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to the general property tax for a time afterward. See State v. Nw. Airlines, Inc. , 213 Minn. 395, 7 N.W.2d 691 (1942) ; see also Montague, supra at 93. In Northwest Airlines , we upheld the application of the general property tax to aircraft. 7 N.W.2d at 698. Because this case dealt with the taxation of airplanes flying across state lines, our holding "raised many problems of public policy with respect to taxation of airplanes, and led to conferences with taxing officials of other states and federal authorities on the subject." Montague, supra at 93. In short, subjecting aircraft to the general property tax made it difficult to foster interstate comity.

To address this difficulty, and also to provide funding for the construction of airports and other air-travel infrastructure, the 1943 Legislature approved the Aircraft Amendment for submission to the voters. See Act of Apr. 24, 1943, ch. 666, § 1, 1943 Minn. Laws 1195, 1195–96. The legislative history for this amendment shows that, initially, the Aircraft Amendment drew heavily from the Babcock Amendment. See Hearing on H.F. 517, H. Comm. Aircraft & Airways, 53rd Minn. Leg., March 11, 1943 (meeting minutes). But after some debate, the Legislature made additional alterations and decided to fund airport construction with a separate aircraft tax. See id. ; Hearing on H.F. 517, H. Comm. Aircraft & Airways, 53rd Minn. Leg., March 5, 1943 (meeting minutes). Once the Aircraft Amendment was approved by the Legislature, it was set to be voted upon at the 1944 general election.

As the Commissioner points out, the preamble language in the session law proposing the Aircraft Amendment described the aircraft tax as one "in lieu of personal property taxes. " Act of Apr. 24, 1943, ch. 666, § 1, 1943 Minn. Laws at 1195 (emphasis added). Public discussion leading up to the election similarly focused on the amendment's impact on the personal property tax system.

For instance, using language provided by the Attorney General, the Secretary of State published notice in Minnesota newspapers explaining that the purpose of the Aircraft Amendment taxation clause was

[t]o permit the legislature to provide by law for the taxation of aircraft on a different basis from other personal property , thus permitting the imposition of taxes on aircraft similar to those now imposed on motor vehicles, in lieu of the personal property tax now imposed on aircraft.

J.A.A. Burnquist, Proposed Amendment to the Constitution of Minnesota , Eveleth News-Clarion, Oct. 5, 1944, at 4 (emphasis added); see Minn. Stat. § 3.21 (1941) (requiring the Attorney General to provide "a statement of purpose and effect" for proposed constitutional amendments to the Secretary of State at least four months preceding the election, and directing the Secretary of State to give "three weeks’ published notice of such statement" in all legal newspapers of the state prior to the election).

Other public information discussed the perceived tax ramifications of the Aircraft Amendment. See Theodore B. Knudson, Air Amendment Vital to Twin Cities’ Development as Great Aviation Center , Hennepin Lawyer, Apr. 1944, at 115. For example, in advocating passage of the

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amendment, Knudson's article explained the desirability of removing aircraft from the general property taxation system, noting that the "ambulatory character of the airplane" created "confusion between local governmental units" as to who was entitled to proceeds from the general property tax as applied to aircraft. Id. at 116.

Finally, the ballot language used in the 1944 election is informative. The Legislature used the following language to explain the tax implications of the amendment when posing the question to voters of whether to amend the Minnesota Constitution:

Shall the Constitution be amended by adding thereto a new article ... authorizing the levy of an excise tax on fluids and other means or instrumentalities used for aircraft and airport power purposes, or the business of selling or dealing therein, and taxes on aircraft in lieu of personal property taxes.

Secretary of State, Minnesota Legislative Manual 1945 , 354–55 (1945) (emphasis added).

Thus, in the legislative process and public discourse leading up to the 1944 general election, Minnesotans were told that the in-lieu clause in the Aircraft Amendment was merely meant to remove aircraft from the general property tax system, similar to the change the Legislature had made for motor vehicles some years earlier. As embodied in the constitution after the election, however, the in-lieu clause excludes "all other taxation thereon," instead of merely excluding personal property taxes. See Minn. Const. of 1857, art. XIX, § 4 (1945). One year later, the Legislature passed section 360.531. Act of Apr. 19, 1945, ch. 411, § 3, 1945 Minn. Laws 787, 789.

2.

The above context reveals that Minnesota voters were told, repeatedly, that the in-lieu clause in the Aircraft Amendment merely removed aircraft from the general property taxation system that existed at that time. Given the historical dominance of the general property tax, the language on the ballot used by voters, communications from the Attorney General, and public discussions regarding the Aircraft Amendment's tax impact, no reasonably-informed voter in 1944 would have understood the phrase "all other taxes" in the Aircraft Amendment to extend to taxes that were not then in existence; that is, to have the meaning championed by relators today.

Instead, voters would have understood the phrase "all other taxes" to refer only to the personal property taxes existing at that time. See State v. M.D.T. , 831 N.W.2d 276, 285 (Minn. 2013) (Stras, J., concurring) (looking to the "widely understood meaning" of a constitutional provision at the time it was ratified). Relators ask us to depart from that understanding based on the changing statutory structure of Minnesota's tax regime. But to do so would be to ignore the constitutional requirement for voters to approve constitutional amendments, see Minn. Const. art. IX § 1 (requiring amendments proposed by the Legislature to be approved "the people"), and our obligation to effectuate the intent of "the people who ratified" the Aircraft Amendment. Kahn , 701 N.W.2d at 825 ; see also State v. Pett , 253 Minn. 429, 92 N.W.2d 205, 207 (1958) ("The right to amend the constitution rests exclusively with the people ..."); Julius v. Callahan , 63 Minn. 154, 65 N.W. 267, 267 (1895) ("[I]t is not the action of the legislature in proposing the amendment, but the action of the people in adopting it, that gives it effect as a part of the organic law of the state.").

Moreover, we have observed that "official representation[s] made to the voters"

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serve as a consideration when we interpret the language of Minnesota's Constitution. City of Golden Valley v. Wiebesick , 899 N.W.2d 152, 159 (Minn. 2017). This is a particularly vital consideration in this case. Official representations to the voters—including the ballot language itself and published statements from the Attorney General—communicated only one message regarding the meaning of the in-lieu clause: It would remove aircraft from the general property tax system. We therefore decline to transform the Aircraft Amendment into an evolving preferential tax protection for aircraft owners when the Minnesota voters who ratified that language never understood it to have that effect. They voted to remove aircraft from the general property taxation system, not from any and all future forms of taxation.

In sum, the circumstances under which the Aircraft Amendment was passed, the occasion and necessity for the amendment, and its legislative history lead us to conclude that the phrase "all other taxes" in article X, section 5 of the Minnesota Constitution means "all other personal property taxes." And given the timing and language used in section 360.531, we further conclude that the Legislature intended to exercise the authority given to it by the voters through the first sentence of the Aircraft Amendment by passing that statute. We therefore hold that the in-lieu clause of the Aircraft Amendment prohibits imposition of personal property taxes on aircraft aside from the annual tax imposed by section 360.531. In other words, it prohibits only the imposition of duplicative personal property taxes on aircraft.

II.

Finally, we consider whether section 297A.82 violates the in-lieu clause of the Aircraft Amendment. Because we have concluded that this constitutional provision excludes only duplicative personal property taxes on aircraft, we must classify the type of tax that is imposed by section 297A.82. If it is a personal property tax, it is unconstitutional.

Relators do not assert a clear position on the type of tax imposed by section 297A.82 because their position is that the "in lieu" tax imposed by section 360.531 is the only one that is permitted by the constitution. The Commissioner, for his part, argues that section 297A.82 imposes a use

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tax on aircraft and is thus a type of excise tax.

We have classified taxes based on the label given to them by the Legislature, see Soo Line R.R. Co. v. Comm'r of Revenue , 377 N.W.2d 453, 455 (Minn. 1985), and the methods by which they are imposed. See State v. Nw. States Portland Cement Co. , 250 Minn. 32, 84 N.W.2d 373, 380 (1957), aff'd , 358 U.S. 450, 79 S.Ct. 357, 3 L.Ed.2d 421 (1959).

Here, the Legislature quite clearly labeled the tax imposed by section 297A.82 as a sales or use tax. See Minn. Stat. §§ 297A.62 –.63. Sales and use taxes are also a type of excise tax. See Excise Tax, Black's Law Dictionary (11th ed. 2019) (defining an "excise tax" as a "tax imposed on the manufacture, sale, or use of goods"). Moreover, the methods used to impose the tax authorized by section 297A.82 confirm that it is an excise tax. The tax is based on a percentage of the purchase price of the sale of an aircraft and it is collected at the time of the sale, Minn. Stat. § 297A.62, subd. 1 ; or for a use tax, when the property is brought into the state for use, again based on the sales price, Minn. Stat. § 297A.63, subd. 1. Additionally, the tax is imposed on a specific transaction—the sale or use of the plane—as measured by the "total amount of consideration" paid. Minn. Stat. § 297A.61, subds. 4, 6–7. All these characteristics indicate that section 297A.82 imposes an excise tax.

We therefore agree with the Commissioner and the Tax Court that section 297A.82 imposes an excise tax on sales and purchases of aircraft. Because it is not a personal property tax on aircraft, we hold that it is does not violate the in-lieu of clause in article X, section 5 of the Minnesota Constitution.

CONCLUSION

For the reasons stated above, we affirm the decision of the Tax Court.

Affirmed.