Southwest Says CBP Can't Collect Passenger Processing Fees for Canceled Flights

Southwest Airlines argued in an April 30 motion for judgment that CBP illicitly exacted Customs Passenger Processing Fees for passengers that canceled ticket purchases with the airline (Southwest Airlines Co. v. United States, CIT # 22-00141).

The company told the Court of International Trade that the statute and regulations "unambiguously allow CBP" to extract a fee only when a passenger "arrives on a plane in the United States," which "undisputedly" didn't "occur here," and that even assuming this wasn't the case, the U.S. wrongly claims that the only way an amount can stop being a collected fee is if it's refunded to the customer. Instead, there's no longer a fee when a ticket is canceled "in exchange for flight credit in the total amount of the ticket purchase."

Should this claim also fail, Southwest said that the government's theory that "flight credit that eventually expires unused cannot qualify as a 'refund'" cuts against the law and facts. The flight credits the company issued here amount to refunds "regardless of whether they eventually expire unused." In all, the company's seeking $378,088.26, plus interest, which CBP collected as fees.

The brief said that the Customs Passenger Processing Fees, which are collected by the airline, apply to the arrival of each passenger on a commercial plane from a place outside the U.S. and are remitted quarterly by the airline to CBP. Here, the U.S. said that CBP can take the fees even when the customers cancel their tickets, since the airlines' liability depends on whether they collect fees from the customer and that the only way to avoid paying to CBP an amont originally collected as a fee is if it's refunded to the customer.

The government says flight credits like those Southwest issued to their customers don't amount to refunds (see 2205090026).

Southwest opened its argument by pointing to the statute, which says that CBP can only collect the fee when there's an arrival of a passenger from a place outside the U.S. The government's claim that the fees are shielded by a "constructive trust" is a "red herring and cannot override the statute's plain meaning," the brief said. "Even if a trust could ever exist as to Fees (which is far from clear), the trust could at most apply to amounts that are actually Fees that are owed to CBP in the first place. Because the amounts here are not owed to CBP, any trust that might apply to Fees is irrelevant.

The airline added that travel credits adequately amount to refunds since various authorities "hold that credit qualifies as a refund and, CBP has never been able to muster a rebuttal." The authorities cited by Southwest for its claim include a legal dictionary, a U.S. Court of Appeals for the 7th Circuit opinion and various IRS revenue rulings.

Authorities aside, the contract signed between a customer and the airline shows that the contract treats the credits "as refunds and explicitly calls for [them] to be the form of refund for 'nonrefundable' tickets," the company said.