The hard-won state law allowing a property tax exemption for Midwest and Air Wisconsin airlines is constitutional, the Wisconsin Supreme Court ruled Friday.
The Madison court issued the 5-2 decision in a case that Northwest Airlines of Eagan, Minn., brought. Northwest contended that because the law favored Wisconsin-based carriers, it violated the U.S. Constitution, under which Congress retains the right to regulate interstate commerce.
But the majority opinion said Congress has passed a law giving states authority to provide such breaks, and that encouraging local air service is a legitimate state function. It overruled Dane County Circuit Judge John C. Albert, who had found the law unconstitutional.
"Fabulous, just fabulous," said Carol Skornicka, senior vice president of corporate affairs for Midwest Air Group Inc., the Oak Creek parent of Midwest Airlines. "It has been a long, long haul, but it is finally over."
In a statement, Northwest said: "We are disappointed in the majority opinion of the court and are considering our next steps. 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, which may hurt consumers by discouraging air service" by other carriers.
Gov. Jim Doyle said in a statement that "The Supreme Court's decision upholds our ability to support airlines that provide essential air service and job opportunities in Wisconsin, and it encourages significant interstate commerce.
"Helping airlines like Midwest Airlines maintain a viable presence in the state is vital to growing Wisconsin businesses and creating good-paying jobs for hard-working Wisconsin families."
Officials of privately owned Air Wisconsin Airlines Corp. in Appleton did not return calls seeking comment.
The law in question, passed in 2001, was specifically tailored to provide a tax break for the two airlines. Midwest had waged a vigorous lobbying campaign for the break over several years, arguing that it was needed to ensure that the airline expanded in Wisconsin rather than elsewhere.
Midwest is the leading carrier at Mitchell International Airport in Milwaukee and the only airline to use it as a hub.
Air Wisconsin is the only other scheduled airline based in the state.
Northwest is the second-leading carrier at Mitchell, but it serves fewer cities with non-stop routes than does Midwest.
After the law was passed, Midwest did expand its presence in Milwaukee, as did Northwest, to a lesser degree. But Northwest does not qualify for the break because it does not have its headquarters in the state or offer 45 daily departures from Wisconsin to at least 15 non-stop destinations.
As a result of the law, Midwest has saved about $2 million a year in taxes and Air Wisconsin has saved about $600,000.
Northwest and its subsidiaries pay about $2 million in property taxes.
When it paid its 2002 property taxes, Northwest began the lawsuit that resulted in the ruling Friday.
Writing for the majority, Justice David T. Prosser Jr. said that in passing a law regulating airlines, "Congress specifically enumerated eight prohibited tax practices and provided that all other practices are 'allowable.' Accordingly, we conclude that because the hub exemption does not run afoul (of the law), Congress unambiguously authorized forms of taxation like Wisconsin's."
For that reason, he did not say whether, absent the federal law, Wisconsin's tax scheme violated the clause of the U.S. Constitution that lets only Congress regulate interstate commerce.
Justices Jon P. Wilcox, N. Patrick Crooks, Patience D. Roggensack and Louis B. Butler Jr. joined Prosser's opinion.
In dissent, Chief Justice Shirley S. Abrahamson said the majority misunderstood the federal law, and that it does not allow for a tax scheme such as Wisconsin's. Given that, she said, the interstate commerce clause of the U.S. Constitution controls the situation.
The Wisconsin law "flies in the face of the purpose of the commerce clause," Abrahamson wrote, and is therefore unconstitutional.
Justice Ann Walsh Bradley joined Abrahamson's opinion.
The case could be appealed to the U.S. Supreme Court, but Northwest spokesman Kurt Ebenhoch said no decision has been made on whether to do so.
Northwest is operating under bankruptcy and would need permission of the federal trustee to spend the money for an appeal.
Had Abrahamson's views been in the majority, the case would have been a good one for U.S. Supreme Court review, said Walter Hellerstein, a professor of tax law at the University of Georgia in Athens who has studied the matter.
The U.S. justices would have had to rule on whether states may provide tax breaks favoring local industries without violating the U.S. Constitution. Because the case was decided on the basis of a law regulating airlines and not a basic constitutional question, however, the matter is of much less legal importance, Hellerstein said.
Rocky B. Cummings, a lawyer and accountant who specializes in interstate tax matters at Reinhart Consulting in Milwaukee and was not involved in the case, said, "This is likely the end of it."
Cummings noted that even if the U.S. Supreme Court agreed with Abrahamson's view that the law is unconstitutional, it would send the matter back to Wisconsin courts for a remedy.
In trading Friday after the ruling was announced, Midwest stock closed up 7 cents, at $5.22. Northwest stock fell a penny to 56 cents.
The case is Northwest Airlines Inc. vs. Wisconsin Department of Revenue, 2004AP319. The opinions are available online at www.wicourts.gov/sc/opinion/DisplayDocument.html?content=html&seqNo=25816.
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