American Airlines Avoids Texas Tax on Transportation Revenue (1)

Federal law bars Texas from imposing franchise taxes on American Airlines Inc.'s air transportation earnings, a state appeals court ruled on an issue of first impression.

In a decision posted Friday, the Texas Court of Appeals, Fifteenth Judicial District, unanimously rejected the state comptroller’s position that the franchise tax isn’t a tax “on” gross receipts—which would be preempted by the federal Anti-Head Tax Act—but instead is a “composite tax” that uses those gross receipts as part of the calculation of the taxpayer’s entire business.

“Although the Texas Legislature did not style the franchise tax as a straight-forward gross-receipts tax, ...