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IN THE SUPREME COURT OF THE STATE OF WASHINGTON

FLIGHT OPTIONS, LLC, Petitioner, v. STATE OF WASHINGTON, DEPARTMENT OF REVENUE, Respondent.

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No. 84207-8 En Banc

Filed August 25, 2011

OWENS, J. -- Flight Options LLC challenges the constitutional and statutory authority of the Department of Revenue (Department) to assess apportioned property taxes against the fleet of airplanes it manages. Specifically, Flight Options argues that its airplanes do not have a tax situs in Washington and that the due process clause, U.S. Const. amend. XIV, therefore prohibits assessment of taxes on them. Flight Options further contends that chapter 84.12 RCW prohibits the tax assessment because Flight Options is not an "airplane company" within the statutory definition, because the property has not established a statutory tax situs in Washington, and

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because Flight Options does not own the fleet of airplanes. We reject each of Flight Options' contentions and affirm the Court of Appeals. Facts Flight Options is a limited liability company with its principal place of business in Richmond Heights, Ohio. The company has purchased and manages a fleet of approximately 200 private aircraft. These aircraft are used as part of two programs: the JetPass program and a fractional ownership program. In 2004, the aircraft landed at or took off from airports in Washington 1,397 times; in 2005, the aircraft landed in Washington 700 times.1 The JetPass program is a straightforward charter program. JetPass members deposit a predetermined amount of money with Flight Options. Members notify Flight Options of their itinerary at least 24 hours in advance of their desired departure, and Flight Options provides the airplane and pilot. Flight Options maintains operational control of the airplane at all times. Flight Options thereafter deducts an hourly rate, which varies depending on the airplane used and the current fuel surcharge. Once the deposited funds have been used, the JetPass membership is terminated. The fractional ownership program is more complicated. Participants are required to sign four contracts: a purchase agreement, a management agreement, a

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This was not a decrease in the number of visits. The Department simply changed the metric it employed from both landings and takeoffs to just landings.
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master interchange agreement, and an owner's agreement. Under these contracts, participants purchase an undivided interest in a particular airplane in Flight Options' fleet. When participants in the fractional ownership program wish to use an airplane, they notify Flight Options at least 10 hours in advance of the departure time. Flight Options then provides an airplane of the same make or model as that in which the participant owns an interest or, if none is available, an alternative airplane. Participants have no right to use the plane in which they own an interest. Flight Options maintains operational control, provides pilots, and arranges for takeoffs and landings. While participating in the fractional ownership program, participants receive 50 hours of flight time per one-sixteenth ownership interest that are billed at the "Occupied Hourly Rate." Clerk's Papers (CP) at 171. Any hours beyond this assigned number are billed at the "Supplemental Hourly Rate." Id. at 176. In 2004 and 2005, Flight Options charged participants a total of $413 million in hourly rates. In addition to these usage charges, participants also pay a "Monthly Management Fee." Id. at 171, 185. Participants must agree to participate in an interchange program administered by Flight Options. It is from this interchange program that airplanes are provided to

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participants, either of the same make and model or, if that is unavailable or if the participant requests a different make and model, another type of airplane. Flight Options retains possession of all the airplanes in which it sells ownership interests and is responsible for their maintenance and insurance. At the end of 2004, Flight Options owned around a 20-percent interest in the fleet of airplanes it operates.2 Flight Options also has the right to use the airplanes in which participants own fractional interests and retain all compensation earned through such use, such as through use of the airplanes in the JetPass program. In June 2005, the Department notified Flight Options by e-mail that it had to submit an annual return in order to avoid a default assessment and 25 percent penalty. Flight Options complied. In December 2005, the Department issued a property tax assessment against Flight Options. It calculated the amount by multiplying the total value of the Flight Options fleet of planes by the percentage of the fleet's takeoffs and landings that took place in Washington. Flight Options subsequently filed a declaratory judgment action, seeking a declaration that the Department lacked the authority to impose a property tax against it. When the Department issued another assessment the following year, Flight Options amended its complaint to include that assessment as well. The parties filed cross motions for summary judgment, and the

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This interest includes planes owned in whole by Flight Options as well as unsold fractional interests.
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superior court, by letter opinion, granted the Department's motion. Flight Options sought review in this court, and we transferred the case to the Court of Appeals. The Court of Appeals affirmed the superior court's summary judgment order. Flight Options, LLC v. Dep't of Revenue, 154 Wn. App. 176, 178, 225 P.3d 354 (2010). Flight Options petitioned this court for review, which we granted. Flight Options, LLC v. Dep't of Revenue, 169 Wn.2d 1025, 238 P.3d 504 (2010). IssueS 1. Does the due process clause require "fixed routes and regular schedules" in order to establish a taxable situs? 2. Does chapter 84.12 RCW authorize the Department to collect apportioned property taxes from Flight Options? Analysis A. Standard of Review This case involves questions of constitutional interpretation and statutory interpretation and involves review of a summary judgment order. Accordingly, our review is de novo. Lamtec Corp. v. Dep't of Revenue, 170 Wn.2d 838, 842, 246 P.3d 788 (2011), petition for cert. filed, 79 U.S.L.W. 3629 (2011); Optimer Int'l, Inc. v. RP Bellevue, LLC, 170 Wn.2d 768, 771, 246 P.3d 785 (2011). B. The Flight Options Fleet of Airplanes Acquired a Tax Situs in Washington

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The due process clause prohibits a state from taxing property unless that property has acquired a tax situs in that state. Frick v. Pennsylvania, 268 U.S. 473, 496, 45 S. Ct. 603, 69 L. Ed. 1058 (1925). Instrumentalities of interstate commerce, such as airplanes, trains, and inland water vessels, may acquire a tax situs in multiple states. Cent. R.R. Co. of Pa. v. Pennsylvania, 370 U.S. 607, 613-14, 82 S. Ct. 1297, 8 L. Ed. 2d 720 (1962); Braniff Airways, Inc. v. Neb. State Bd. of Equalization & Assessment, 347 U.S. 590, 600-01, 74 S. Ct. 757, 98 L. Ed. 967 (1954); Ott v. Miss. Valley Barge Line Co., 336 U.S. 169, 170, 174, 69 S. Ct. 432, 93 L. Ed. 585 (1949). The same constitutional analysis applies to each of these instrumentalities, and we may thus rely on case law addressing taxation of each type of instrumentality. Braniff Airways, 347 U.S. at 599-600; Ott, 336 U.S. at 173-74. In determining whether property has acquired a tax situs in a given state, it is appropriate to look at the fleet of instrumentalities as a whole, even if "the specific and individual items of property" entering the state are "not continuously the same, but [are] constantly changing, according to the exigencies of the business." Marye v. Balt. & Ohio R.R. Co., 127 U.S. 117, 123, 8 S. Ct. 1037, 32 L. Ed. 94 (1888); see Alaska Airlines, Inc. v. Dep't of Revenue, 307 Or. 406, 411, 769 P.2d 193 (1989) ("[T]he validity [of a tax assessment against an airline] depends upon whether each airline's aircraft property was part of a unit with situs in this state.").

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Flight Options contends that, in order to establish a tax situs in a state, its airplanes must operate over fixed routes and regular schedules. This is incorrect; Flight Options confuses a sufficient condition with a necessary one. In Central Railroad, the United States Supreme Court explained that a state could impose an apportioned property tax on railroad cars that traveled through it on "fixed and regular routes." 370 U.S. at 614. It also recognized that a tax situs could be created in a state through "[h]abitual employment within the State of a substantial number of cars, albeit on irregular routes." Id. at 615. Thus, fixed and regular routes are sufficient to create a tax situs for instrumentalities of interstate commerce within a state but are not necessary. See Am. Refrigerator Transit Co. v. Hall, 174 U.S. 70, 71-72, 81-82, 19 S. Ct. 599, 43 L. Ed. 899 (1899) (holding that Colorado possessed authority to tax property of out-of-state business that furnished railroad cars to railroad companies where the cars used in Colorado were not part of regularly run trains, were not run at regular times, and were not constantly the same specific cars). Flight Options contends that the language relating to "habitual employment" in Central Railroad is refuted by the Court's disposition of the case. 370 U.S. at 613. This is not so, as a careful reading of the case demonstrates. The Central Railroad Company was a Pennsylvania corporation that owned 3,074 freight cars, some of which were operated in other states by other companies. Id. at 609. Pennsylvania

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imposed its property tax against the value of all the cars owned by the Central Railroad Company. Id. at 608. The company argued that it was constitutionally entitled to reduce the property tax it owed by a proportion corresponding to the amount of time that its cars spent outside Pennsylvania. Id. at 610. The Court began from the premise that "the State of domicile retains jurisdiction to tax tangible personal property which has `not acquired an actual situs elsewhere.'" Id. at 611-12 (quoting Johnson Oil Ref. Co. v. Oklahoma ex rel. Mitchell, 290 U.S. 158, 161, 54 S. Ct. 152, 78 L. Ed. 238 (1933)). If personal property acquires a tax situs in another state, the commerce clause, U.S. Const. art. I,

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