American Airlines Seems to Sway Texas Court on Tax Preemption

American Airlines Inc. appeared to convince two Texas appeals court justices at oral arguments Thursday that federal law bars the state from imposing franchise taxes on its air transportation earnings.

The state comptroller had asked the Texas Court of Appeals, Fifteenth Judicial District, to hold that the franchise tax isn’t a tax “on” gross receipts—which would be preempted by the federal law—but instead uses those gross receipts as part of the calculation of the tax.

“I’m trying to figure out why that’s not covered if you’re starting with the gross receipts,” Justice Scott Brister said. “Why isn’t that what Congress ...