Court Rules in Favor of American Airlines in Texas Tax Dispute
The Texas Court of Appeals has sided with American Airlines in its long-running dispute with the State of Texas over whether the carrier must pay a franchise tax on its air transportation revenue.
In a 2-1 ruling, the judges agreed with American Airlines’ argument that the state’s attempt to impose a franchise tax on its passenger, baggage, and freight revenues violates the federal Anti-Head Tax Act (AHTA). The law prohibits states and local governments from taxing individuals traveling in air commerce or the gross receipts derived from air transportation.
Texas’s Comptroller of Public Accounts had argued that the levy was a margin tax, not a revenue tax, and therefore exempt from AHTA restrictions. However, the court found that the tax was effectively based on air transportation income and thus preempted by federal law.
The case stems from American’s 2015 franchise tax report, covering its 2014 fiscal year. A lower court previously ruled in favor of the airline, ordering Texas to refund more than $100,000 and blocking the collection of an additional $1.8 million.
Between 2009 and 2014, the Texas Comptroller had agreed with American’s interpretation but later reversed its stance. After seeking guidance from the U.S. Department of Transportation— which sided with the airline— the state pursued the case in court.
American Airlines, headquartered in Fort Worth, operates its largest hub at Dallas/Fort Worth International Airport, accounting for roughly 15% of its total capacity.
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Sources: AirGuide Business airguide.info, bing.com, ch-aviation.com