Law

Tax Classifications:
Delta Air Lines, Inc. v. Commonwealth of Kentucky Revenue Cabinet

Shortly after the Kentucky General Assembly enacted a sales and use tax on retail sales and the consumption of personal property in 1960, the Revenue Department met with several airlines and developed a formula to calculate the tax to be paid by the airlines. The formula was based on the amount of fuel and meals purchased in Kentucky and consumed within the state's borders. Delta paid the tax according to this formula for the next seventeen years. The Revenue Department, in 1979, indicated that it was discontinuing the use of the formula because it believed it was improper and that in the future Delta would be expected to pay tax on all fuel and food purchases made in Kentucky pursuant to KRS 139.200. No attempt was made by the state to recoup earlier taxes. Delta filed a suit for refund over this question and now challenges the application of the statute by the Revenue Cabinet.

The Board of Tax Appeals, the circuit court and the Court of Appeals upheld the assessment for sales and use taxes against Delta as to fuel purchases. The Court of Appeals remanded the part of the case involving food to the Board of Tax Appeals for a determination of fact questions. The Kentucky Supreme Court granted discretionary review.

The broad discretion to legitimately classify various taxpayers has long been recognized. Delta argued that it should be exempt from paying sales tax on fuel because railroads and barge lines had been exempted from the same tax.

It was the Court's finding that, "the different tax treatment for airlines, truck lines, barge lines, bus lines and railroad lines can be justified by their different competitive environment and their different significance to the overall state economy. The railroads and barges are critical to the marketing of Kentucky coal. The exemption for barge and rail lines can be justified as a reasonable effort to maintain the viability of transportation systems which are necessary to the state's economy and threatened by the great competitiveness of other forms of transportation. The courts cannot assume that the actions of the legislature are capricious and generally they are afforded the presumption of regularity. Taxation may be used to promote competitive conditions and to equalize economic advantage."

• Recommendation to Deny Discretionary Review by Justice Wintersheimer - 1985 [Download]
• Order Granting Discretionary Review - 1985 [Download]
• Opinion of the Court - 1985 [Download]
• Opinion of the Court - 0 [Download]
• Order Granting Discretionary Review - 0 [Download]
• Recommendation to Deny Discretionary Review by Justice Wintersheimer - 0 [Download]