CBP Violated the Law in Collecting Customs Fees for Refunded Flights, Southwest Argues

The U.S. cannot demand Customs Passenger Processing Fee payments for trips for which customers have canceled their tickets and are issued refunds in the form of travel vouchers, Southwest Airlines argued in a May 6 complaint at the Court of International Trade. CBP's move to collect the fees violates the statute's plain terms, which lay out that CBP is entitled to this fee only when a passenger actually travels on a plane from outside the U.S. into the U.S., the complaint said (Southwest Airlines Co. v. U.S., CIT #22-00141).

The Customs Passenger Processing Fee is paid by airline passengers, collected by the airlines, then paid to CBP as a means to compensate the agency for providing customs services to international air passengers landing in the U.S. In 2017, CBP audited Southwest's fee compliance for flights from 2014 to 2017, relying on a CBP ruling that says that when fees are collected for unused tickets and not refunded to the passengers, the fees are considered to be held in trust for the U.S. and must still be paid to CBP by the airline.

During the audit, the U.S. looked at a sample of 100 tickets Southwest had marketed as "nonrefundable" that were canceled by customers. In 88 of the cases, Southwest issues a refund in the form of a residual travel fund (RTF) -- essentially, a travel voucher. For 21 of the 88 tickets, CBP said Southwest had not properly collected the passenger processing fee. The agency said the RTFs used in full or in part for other travel with Southwest qualify as "refunds," but a determination as to whether an RTF constitutes a refund of any collected passenger user fees can't be made until the RTF either expires or is used to buy a new flight. Unused RTFs don't qualify as refunds, CBP said.

After the audit, CBP said Southwest had to pay $378,081.75 for nonrefunded tickets refunded via RTFs and $66,585.13 in interest on this sum. The airline protested, then took its case to CIT once that protest was denied.

Southwest now argues that CBP doesn't have the authority to collect the Customs Passenger Processing fees for trips where the passenger didn't actually travel and for which a refund was issued via an RTF. Even if this weren't precluded by the statute, CBP "has no authority to regulate the form of Southwest’s refunds or the disposition of RTFs, both of which are governed by the Contract of Carriage between Southwest and its customers," Southwest said.

Even if that authority existed, CBP has "never before informed Southwest or the public that it does not consider electronic travel credit such as RTFs not to qualify as refunds," the complaint said. "Thus, in addition to the fact that there is no basis for Defendant’s new position that RTFs do not qualify as refunds, Defendant failed to give Southwest fair notice of that position." As a result, the court should find Southwest doesn't have to pay the amount demanded by CBP, the airline said.