High court rules UPS liable for jet-fuel taxes

Posted: Sunday, April 09, 2000

ANCHORAGE (AP) -- The Alaska Supreme Court ruled Friday that United Parcel Service must pay state taxes on all fuel pumped onto its planes in Alaska for domestic flights.

The express shipping company had claimed that, under the Alaska Motor Fuel Tax Act, it should be taxed only on the amount of fuel it consumed in the state or in Alaska airspace.

UPS argued that taxing out-of-state consumption was not right because a state tax can apply only to transactions that are located or take place within the state.

But the high court disagreed with that analysis.

''Neither law nor logic would support the conclusion that the precise moment of jet-fuel combustion is the only permissible moment for triggering tax liability based on consumption,'' the court said in its unanimous decision.

''Since fuel consumption is commonly and conveniently measured at the pump, we find no reason to presume that the Legislature intended to adopt a less common and less sensible measure -- moment of actual combustion.''

Between Dec. 1, 1991 and March 31, 1993, UPS bought 34.2 million gallons of jet fuel in Anchorage. The company burned 17.6 million gallons on domestic flights and 16.6 million gallons on international flights.

The state motor fuel law exempts jet fuel sold for use on foreign flights.

Because UPS bought the fuel in bulk for both foreign and domestic flights, it paid no tax when it was purchased. It eventually reported that 2.2 million gallons was taxable in Alaska -- the amount consumed on domestic flights over the state.

In June 1993, the state Department of Revenue audited the company and found that the other 15.4 million gallons of fuel pumped onto planes for domestic flights was also taxable at 2 1/2 cents per gallon. It assessed additional taxes of more than $385,000 and nearly $40,000 in interest.

UPS appealed to the Alaska Superior Court, which agreed with the revenue department.

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