Texas Appeals Court Affirms Airline’s Franchise Tax Refund on Baggage Fees

The Texas Court of Appeals, Fifteenth District, affirmed a trial court judgment granting the taxpayer airline a refund of franchise taxes paid on baggage fee revenue and denying the Acting Comptroller’s counterclaim for additional taxes on transportation revenues. The court held that the federal Anti-Head Tax Act preempts state taxes imposed on or measured by gross receipts from air commerce. It concluded that the Texas franchise tax, as applied to the airline’s baggage, passenger ticket, and freight revenues, functioned as an impermissible gross receipts tax because the airline would effectively pay franchise tax on 70 percent of its gross transportation ...