US Tells CIT 'Unjust' to Let Southwest Keep Customs Inspection Fees on Canceled Tickets

The U.S. told the Court of International Trade that Southwest Airlines isn't entitled to keep Customs Passenger Processing Fees fees paid by its customers on canceled tickets. Filing a cross-motion for judgment on Aug. 13, the government argued that the airline's cancellation policy, which offers travel credits that Southwest then stores as profits if they go uncollected, can't usurp the law, which requires Southwest to "collect the fee and remit the fees collected to the Government" (Southwest Airlines Co. v. United States, CIT # 22-00141).

At issue in the case, which was originally brought by Southwest, are canceled airline tickets where Southwest collected a customs inspection fee on behalf of the U.S. as required. After the tickets were canceled, the airline issued "nontransferable travel" vouchers which expired one year after being issued. After the vouchers expired, Southwest pocketed the customs inspection fee, along with all other payments from the customer.

CBP audited Southwest in 2017, inspecting 100 nonrefundable canceled tickets and found that for 21 of them, the voucher expired and the airline kept the customs fee. The agency billed Southwest for $378,118.13 -- a number calculated by "extrapolating" the 21 unused travel vouchers "over Southwest's fee remittances during the audit period."

Southwest sued, claiming that its travel vouchers amount to full refunds (see 2405010074). The airline additionally claimed that the relevant statute and regulations only allow CBP to extract a fee when the passenger "arrives on a plane in the United States," which "undisputedly" didn't "occur here." The airline also railed against CBP's claim that the only way an amount can stop being a collected fee is if it's refunded to the customer.

In its own motion for judgment, the U.S. said that since the law requires Southwest to collect and remit the fees to the government, the airline isn't entitled to keep the fee and gain it by "pocketing it as a revenue, as it did with each canceled ticket at issue in this case."