## Facts

- American Airlines, Inc. operated flights out of Nashville International Airport and was qualified to do business in Tennessee.
- American purchased aviation fuel outside Tennessee and transported it into Tennessee by pipeline.
- After the fuel arrived in Tennessee, American stored it in Tennessee for an average of about fourteen days.
- American then pumped the fuel into the fuel tanks of its aircraft in Nashville.
- Using that fuel, American’s aircraft transported passengers and freight from Nashville to out-of-state destinations, consuming much of the fuel after leaving Tennessee airspace.
- From January 1, 1992 through December 31, 1995, Tennessee imposed and American paid more than $7 million in Tennessee use taxes on the fuel loaded into aircraft in Nashville.
- American filed suit against the Tennessee Commissioner of Revenue, seeking a refund, arguing that (a) the fuel was exempt under the import-for-export exemption in Tenn. Code Ann. § 67-6-313(a), or (b) Tennessee could tax only the portion of fuel actually burned before the aircraft crossed the state line.
- The chancery court granted summary judgment for the Commissioner, holding the use tax applied to all fuel loaded in Tennessee and the exemption did not apply.
- American appealed.

## Issues

1. Whether Tennessee’s use tax applies to the full amount of aviation fuel imported into Tennessee, stored there, and loaded into aircraft in Nashville, even though much of the fuel is consumed outside Tennessee.
2. Whether the fuel (or the portion later consumed outside Tennessee) qualified for the import-for-export exemption under Tenn. Code Ann. § 67-6-313(a).
3. Whether Tennessee must apportion the use tax based on the portion of fuel burned within Tennessee airspace versus outside the state.

## Decision

- The Court of Appeals of Tennessee affirmed summary judgment for the Commissioner of Revenue.
- Tennessee’s use tax applied to all aviation fuel American brought into Tennessee, stored in Tennessee, and loaded into aircraft in Tennessee.
- The import-for-export exemption in Tenn. Code Ann. § 67-6-313(a) did not exempt the fuel under these facts.
- Tennessee was not required to reduce or allocate the tax based on where the fuel was later burned during interstate flight.

## Legal Principles

- A state use tax may be imposed when tangible personal property is brought into the state and subjected to in-state “use,” including storage and placement into service, even if later consumption occurs beyond the state’s borders.
- For aviation fuel, the taxable event may occur at the point the fuel is stored in-state and transferred into aircraft in-state for the carrier’s operations; the location of later combustion does not control the tax base when the statute taxes in-state use and storage.
- Although taxing statutes are construed in favor of the taxpayer when their meaning is doubtful, claimed exemptions from tax are construed strictly against the taxpayer, who bears the burden of showing a clear entitlement to the exemption.
- The import-for-export exemption in Tenn. Code Ann. § 67-6-313(a) does not apply where the property is stored in Tennessee and put to operational use in Tennessee (here, fueling aircraft departing from Nashville), rather than being held in Tennessee solely awaiting shipment out of state.
- Absent statutory language requiring allocation, Tennessee need not apportion the use tax on aviation fuel by miles flown or by the percentage of fuel burned inside versus outside Tennessee.

## Conclusion

The court held that American’s importation, in-state storage, and in-state fueling of aircraft in Nashville constituted taxable use in Tennessee, so Tennessee could collect use tax on all fuel loaded into the aircraft, and American was not entitled to either the import-for-export exemption or a reduction based on fuel consumed outside Tennessee.


American Airlines v. Johnson, 56 S.W.3d 502 (2000)