Protest and Application for Further Review; Southwest Airlines Co.; 19 U.S.C. § 58c; 19 CFR § 24.22; Airline Passenger User Fee Audit.

U.S. Department of Homeland Security Washington, DC 20229 U.S. Customs and Border Protection HQ H315191 August 11, 2021 VES-13-02-OT-RR:BSTC:CCR H315191 AMW CATEGORY: Carriers Kara N. Welty Chief, Debt Management Branch Revenue Division, Office of Finance U.S. Customs and Border Protection 6650 Telecom Drive, Suite 100 Indianapolis, IN 46278 RE: Protest and Application for Further Review; Southwest Airlines Co.; 19 U.S.C. § 58c; 19 CFR § 24.22; Airline Passenger User Fee Audit. Dear Ms. Welty: This is in response to your correspondence of June 10, 2020, forwarding for our further review the Protest and Application for Further Review (the “Protest”) filed by counsel of record on behalf of Southwest Airlines Co. (“protestant” or “Southwest”). In its submission, Southwest protests the assessment by U.S. Customs and Border Protection (“CBP”) of certain Customs User Fees collected from Southwest passengers pursuant to 19 U.S.C. § 58c and 19 C.F.R. § 24.22. Our decision is set forth below. FACTS The following facts were extracted from Southwest’s Protest and Application for Further Review, submitted on May 13, 2020. This memorandum also incorporates facts and analysis contained in a supplemental memorandum submitted to this office by the Assistant Chief Counsel, Indianapolis, on May 5, 2021. CBP’s Regulatory Audit and Agency Advisory Services (“RAAAS”) conducted an audit which, in relevant part, focused on Southwest’s treatment of nonrefundable tickets for U.S.-bound international flights occurring between July 1, 2014, and June 30, 2017. In certain instances in which a passenger cancels an international ticket, Southwest issues a “Residual Travel Fund” (“RTF”) in the value of the initial ticket that can be exchanged for future travel within one year. As outlined on Southwest’s website, an RTF is issued to a ticket holder when that individual cancels their ticket, “at least 10 minutes prior to departure, the fare paid for the unused ticket (inducing [sic] taxes, security fees, and Passenger Facility Charges) will be applied as travel funds toward the purchase of future travel….” If a customer fails to redeem an RTF within one year, the RTF expires and, “Southwest debits the Residual Travel Funds Liability account and credits the funds as revenue.” In relevant part, the audit report determined that Southwest incorrectly failed to remit Customs User Fees to CBP in instances in which RTFs expired unused and the user fees, which were included in the initial ticket price and later transferred to the RTF amount, were not refunded directly to the ticket purchaser: The carrier issues non-refundable tickets for international flights and collects and remits the user fees on these tickets. If the passenger cancels the flight, the fare and user fees are transferred to an RTF, which is essentially a credit that can be used to purchase other flight tickets within one year of the original purchase. The carrier nets the user fees against the next quarterly remittance at the time of cancellation. If the non-refundable ticket expires unused, the carrier does not refund the funds back to the customer nor does it remit them back to the agency. See Audit Report Finding Sheet No. 2, p. 2. Based on these findings, RAAAS calculated a liability of $378,118.13, as well as $66,585.13 in interest, related to the unremitted Customs User Fees ISSUE Whether CBP has the legal authority to collect Customs User Fees from Southwest in instances in which an RTF expires and Southwest retains as revenue the entire value of the initial ticket, including the amount assessed as a user fee. LAW AND ANALYSIS Title 19, United States Code, § 58c(a)(5), provides for the imposition of a set user fee (i.e., the “Customs User Fee” or “CUF”) for “each passenger arriving aboard a commercial aircraft from a place outside of the United States.” The statute further requires air carriers to collect such fees from passengers “at the time the ticket is issued.” 19 U.S.C. § 58c(d)(1)(A). Following this, the air carrier collecting the fee “shall remit those fees to the Secretary of the Treasury at any time before the date that is 31 days after the close of the calendar quarter in which the fees are collected.” 19 U.S.C. § 58c(d)(3). The main issue in the present matter is whether CBP has the legal authority to collect CUFs from Southwest in instances in which an RTF expires and Southwest retains as revenue the entire value of the initial ticket, including the amount assessed as a CUF. Based on a plain reading of the statute, 19 U.S.C. § 58c, and applicable regulation, 19 CFR § 24.22(g), it is clear that Southwest must transmit to CBP all CUFs collected from its customers on behalf of CBP. As outlined above, 19 U.S.C. § 58c contains two interlocking requirements: (1) that an air carrier collect customs user fees from passengers “at the time the ticket is issued,” and (2) that the entity collecting the fees “shall remit those fees to the Secretary of the Treasury” within a specified time frame. See 19 U.S.C. § 58c(d)(1)(a) and (d)(3). In interpreting a related statute, the U.S. Court of Appeals for the Federal Circuit recognized that entities collecting immigration user fees must transmit all fees collected to the U.S. government, noting that the phrase “those fees” “plainly refers to the fees collected…not a theoretical total of all fees for all passengers whether or not collected.” See Am. Airlines Inc. v. United States, 551 F.3d 1294, 1300 (Fed. Cir. 2008) (analyzing 8 U.S.C. § 1356, which governs the collection of immigration user fees but is substantially similar in relevant part to 19 U.S.C. § 58c). As such, the language in 19 U.S.C. § 58c is clear that Southwest must remit all CUFs (i.e., “those fees”) collected at the time a ticket is sold. After a CUF is collected from a passenger but before it is remitted to the government, it is CBP’s position that such a fee is held in constructive trust until the fee is remitted or refunded to the customer. CBP has previously advised the commercial airline industry that “[t]o the extent user fees are collected on behalf of CBP for unused tickets and such fees are not refunded to the purchasers, the user fees are considered to be held in trust for the United States and must still be remitted, without credit, to CBP.” CBP’s position that CUFs collected by air carriers from ticket purchasers are held in constructive trust is borne out by applicable case law. In United States v. McConnell, 258 B.R. 869, 874 (N.D. Tex. 2001), the trustee of a commercial airline bankruptcy asserted that immigration user fees collected by an airline debtor but not remitted to the government were property of the bankruptcy estate. The Court disagreed, concluding that the fees “were held in constructive trust” by the airline under federal common law. Id. In reaching this conclusion, the Court observed that the airline “merely acted as a receiving and transmitting agent for the funds.” Id. The airline’s “sole role was to more easily facilitate the collection by the [government] of passenger inspection fees.” Id. Although McConnell’s constructive trust analysis related to the assessment of immigration user fees, the statutory and regulatory authority for collecting CUFs is virtually identical. Even if it is required to remit all CUFs to the government, however, Southwest argues that the issuance of an RTF that eventually expires constitutes a sufficient refund of the CUFs for the airline to take a credit on a future remittance. In relevant part, the CUF regulations provide that “[o]verpayments and underpayments may be accounted for by an explanation with, and adjustment of, the next due quarterly payment to CBP.” 19 CFR § 24.22(g)(5). The CUF regulations do not define “overpayment.” Black’s Law Dictionary, meanwhile, defines “overpayment” as a “payment that is more than the amount owed or due.” Here, Southwest did not overpay CBP because, pursuant to 19 U.S.C. § 58c(d)(3), Southwest owes “those fees” that it collects from ticket sales. The American Airlines decision underscored that commercial airline passenger user fees are imposed on the passenger and not the carrier. Thus, any CUF not returned to the passenger is still collected from the perspective of the party responsible for the party paying the fees. As such, there was no “overpayment” warranting a credit for CUFs kept by Southwest after the expiration of an RTF. HOLDING The subject CUF assessment was consistent with 19 U.S.C. § 58c and 19 CFR § 24.22(g). To the extent Southwest collected CUFs on cancelled tickets, those fees are held in constructive trust for CBP and should be remitted without credit unless refunded to the customer. As such, we recommend you deny the subject Protest and Application for Further Review. In accordance with the Protest/Petition Processing Handbook (CIS HB, January 2007), you are to mail this decision, together with the Customs Form 19, to the protestant no later than 60 days from the date of this letter. Any final duty determination of the entry in accordance with the decision must be accomplished prior to mailing of the decision. Sixty days from the date of the decision the Office of Regulations and Rulings will make the decision available to CBP personnel, and to the public on the CBP Home Page on the World Wide Web at www.cbp.gov by means of the Freedom of Information Act, and other methods of public distribution. Sincerely, W. Richmond Beevers Chief/Supervisory Attorney-Advisor Cargo Security, Carriers and Restricted Merchandise Branch Office of Trade, Regulations and Rulings U.S. Customs and Border Protection