MADISON, Wis. (AFX) - Property tax exemptions for airlines with Wisconsin hubs are constitutional, the state Supreme Court ruled Friday.
Oak Creek-based Midwest Airlines Inc. and Appleton-based Air Wisconsin Airlines Corp. are the only two airlines that qualify for the exemption under a state law passed in 2001.
Eagan, Minn.-based Northwest Airlines argued the law was unconstitutional because it gives the Wisconsin airlines an unfair advantage, saving them hundreds of thousands of dollars.
But the Supreme Court rejected that argument and ruled federal law allows states to create such exemptions, reversing a decision by Dane County Circuit Judge John Albert.
Attorney General Peg Lautenschlager, whose office defended the state Department of Revenue in the case, said the decision would protect Wisconsin jobs.
'This exemption is crucial to the state's economic vitality,' Lautenschlager said in a statement.
Northwest spokesman Kurt Ebenhoch said the ruling could force expanding airlines to avoid Wisconsin. The airline is considering appealing to the U.S. Supreme Court, he said.
'Northwest continues to believe that providing these types of tax breaks for Midwest Airlines and Air Wisconsin is unconstitutional and creates a playing field that is neither level nor fair,' he said in a statement.
The dispute stems from a law the state Legislature passed in 2001 that wiped out state taxes on airlines' land and equipment if they operate hubs in Wisconsin. The Legislature adopted the exemptions to encourage Midwest to go ahead with a $1 billion expansion in the state, according to the Supreme Court opinion.
Northwest, Midwest's strongest competitor in Milwaukee, has protested the exemption every year since 2001. The court's opinion notes Northwest paid $1.5 million in taxes while Midwest and Air Wisconsin paid nothing in property tax in 2002.
The previous year, Midwest paid $1.9 million in property taxes and Air Wisconsin $600,000, the Supreme Court opinion said.
Northwest filed a complaint in Dane County in 2002.
The airline contended the exemption violated the U.S. Constitution's equal-protection clause and the commerce clause, which gives Congress the power to regulate interstate trade. The company also argued it violated the state constitution's uniformity clause, which mandates uniform tax rules.
The Dane County judge found the exemption was unconstitutional because it benefited in-state carriers while imposing a burden on out-of-state carriers. The parties appealed, and a state appeals court sent the case directly to the Supreme Court.
In a majority opinion written by Justice David Prosser, the court concluded the exemption is constitutional and the Legislature was trying to protect jobs. Prosser served in the Legislature from 1979 until 1996.
Congress exercised its commerce-regulating power in a federal law that doesn't block property taxes and authorizes the states to create exemptions without exposing them to commerce-clause challenges, the court said.
The Legislature created the exemption to promote economic growth, reason enough to satisfy the equal-protection clause, the court said.
No one presented an argument that proved beyond a reasonable doubt the exemption violates the state's uniformity clause, the court said, adding the clause gives the Legislature the right to pick and choose what property to tax.
Chief Justice Shirley Abrahamson dissented, saying the exemption imposes an 'impermissible' burden on interstate commerce.
Carol Skornicka, senior vice president of corporate affairs, secretary and general counsel for Midwest Airlines, issued a statement saying the ruling was 'gratifying' and will help Milwaukee remain a business center.
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