The Sedona-Oak Creek Airport Authority suffered a setback in ongoing legal disputes with Dakota Territory Tours, operator of Sedona Air Tours, when a Yavapai Superior Court judge ruled on Nov. 22 that the “Commercial Activity Fee” that the airport charges all commercial operators violates the federal Anti-Head Tax Act.
The ruling could affect the way the airport does business in the future and have ramifications for SOCAA’s other court cases with Dakota Territory Tours.
The “fee” in question is a 2.5% charge on the monthly gross receipts of commercial lessees of the airport, paid on top of other charges, like rent and fueling fees. Judge Krista Carmen ruled that the 2.5% fee is in effect a tax on aeronautical commerce prohibited under the AHTA.
In her discussion of the ruling, Carmen cited two U.S. Supreme Court cases. In one case, Aloha Airlines, Inc v. Dir. Of Taxation of Hawaii [1983], the court ruled that the AHTA “expressly prohibits States [or an authority acting for a State or political subdivision] from taxing ‘directly or indirectly’ gross receipts derived from air transportation.”
Levies on the revenue of commercial operators is prohibited, according to the AHTA, “because those acts unreasonably burden and discriminate against interstate commerce.”
But under the AHTA, airports are still allowed to charge fees for services provided to commercial users, such as facility rentals, fueling services, internet, etc. SOCAA had argued that its 2.5% “Commercial Activity Fee” fell under the law’s allowance for these “reasonable rental charges, landing fees and other services.”
But Judge Carmen disagreed, ruling that the 2.5% charge on gross receipts is a prohibited tax and a fee in name only. She awarded Dakota Territory Tours restitution of the 2.5% it’s paid to the airport since Aug. 13, 2015, or $110,755 plus the fees Dakota paid the airport in recent months that haven’t been tallied yet.
The ruling, if upheld, could have ramifications for other disputes between Dakota and SOCAA. At the center of much of the legal battles is a 2017 Request for Proposals to select an exclusive air tour operator at the airport that was awarded to Guidance Air, a competitor of Dakota Territory Tours. Dakota has been contesting the RFP process while SOCAA simultaneously fights to evict Dakota from the mesa and put the 2017 RFP into effect.
Since the RFP in 2017 contained the 2.5% fee on gross receipts, Bradley Weechs, an attorney for Dakota Territory Tours, believes the RFP was invalid and cannot be enforced.
“Dakota believes this [commercial fee] ruling is determinative of the other two cases [the RFP and eviction]” Weechs said.
Both sides are expecting SOCAA to appeal after the judgement in the case is officially entered in January.
“Dakota anticipates [SOCAA] will file an appeal, and Dakota may file a cross appeal,” Weechs said.
Harold Idell, president of the SOCAA board of directors, said in an email that the “current ruling affects almost every U.S. airport. This ruling was made by a state-level judge on a federal issue. So we have to appeal.”
