The Intermediate Court of Appeals of Hawai’i has ruled against Hawaiian Airlines in a tax dispute involving general excise tax (GET) on aircraft parts purchased from Boeing. The court affirmed a lower court’s decision, concluding that the airline was not entitled to a refund for the GET it paid on Boeing’s behalf.
The case centered on whether the sale of aircraft parts is considered part of “the servicing and maintenance of aircraft,” which is exempt from GET under Hawai’i law. The court found that the exemption applies to those *performing* the servicing and maintenance, not to those *purchasing* the parts.
Background of the Case
Hawaiian Airlines buys aircraft parts from Boeing under a Customer Services General Terms Agreement. Under this agreement, Hawaiian Airlines is responsible for paying any GET levied on Boeing for those parts.
In 2021, the Hawai’i Department of Taxation notified Boeing that it owed additional GET on aircraft part sales to Hawaiian. Hawaiian paid the tax under protest, then requested a refund from the Department. The airline argued that the payments to Boeing for aircraft parts should be exempt from GET under Hawaii Revised Statutes (HRS) § 237-24.9(a). This statute exempts “amounts received from the servicing and maintenance of aircraft” from GET. The Department did not respond to Hawaiian’s request.
Hawaiian then sued the Department in Tax Appeal Court seeking a refund. The Department challenged the court’s jurisdiction. The Tax Appeal Court initially ruled it had jurisdiction. Both sides then filed motions for summary judgment. The court ultimately sided with the Department, denying Hawaiian’s motion and entering a final judgment against the airline. Hawaiian appealed this decision, and the Department cross-appealed.
The Court’s Decision
The Intermediate Court of Appeals upheld the lower court’s ruling. The court addressed several key issues:
Jurisdiction and Abatement
The Department argued that the Tax Appeal Court did not have jurisdiction over Hawaiian’s refund claim. However, the court found that the Tax Appeal Court *did* have jurisdiction because it involved GET refunds. The court also rejected the Department’s argument that the case should have been “abated” (suspended) in favor of a separate action filed by Hawaiian. The court explained that while both cases involved the same parties and relief requested, the causes of action were different.
Timeliness of the Claim
The Department also argued that Hawaiian’s refund claim was filed too late. The court disagreed, stating that because the Department did not formally deny Hawaiian’s refund request, the airline was within its rights to file the claim when it did.
The Main Issue: The GET Exemption
The central question in the case was whether Boeing’s sale of aircraft parts to Hawaiian qualified for the GET exemption under HRS § 237-24.9. The court found that it did not.
The court’s reasoning was based on the specific wording of the law. HRS § 237-24.9 exempts “amounts received from the servicing and maintenance of aircraft.” The court emphasized that this exemption applies to those *performing* the service and maintenance, not to the *sale* of parts. Boeing, as the seller of the parts, is subject to the GET on the “gross proceeds of sales” of tangible personal property, as defined in HRS § 237-13(2). Hawaiian, as the buyer, is not directly liable for GET under this section.
The court also considered Hawaiian’s argument that the purchase of aircraft parts is a “necessary and included component” of aircraft maintenance. The court rejected this argument, stating that it conflated Boeing’s role as the seller with Hawaiian’s role as the purchaser and user of the parts.
Use Tax and Interstate Commerce
Hawaiian also argued that because of a related exemption in the Use Tax law, the sale of aircraft parts should also be exempt from GET to avoid discriminating against interstate commerce. The court dismissed this argument. The court explained that the Use Tax law is designed to complement the GET. An exemption in the Use Tax law allows for imported materials used for aircraft maintenance to be exempt from use tax. The Court found this did not require a parallel GET exemption. The court concluded that the state’s tax structure did not violate the Commerce Clause of the U.S. Constitution.
Public Policy Concerns
Hawaiian argued that upholding the GET on aircraft parts could incentivize airlines to locate maintenance facilities outside of Hawai’i. The court acknowledged these concerns but stated that it is the legislature’s role, not the courts’, to address such policy matters. The court’s responsibility is to interpret the law as it is written.
The court affirmed the lower court’s judgment, denying Hawaiian’s request for a refund.