Protest and Application for Further Review; National Air Cargo Group, Inc.; 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 H318630 August 25, 2021 VES-13-02-OT-RR:BSTC:CCR H318630 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; National Air Cargo Group, Inc.; 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 May 18, 2021, forwarding for our further review the Protest and Application for Further Review (the “Protest”) filed on behalf of National Air Cargo Group, Inc. d/b/a National Airlines (“protestant” or “National Airlines”). In its submission, National Airlines protests the assessment by U.S. Customs and Border Protection (“CBP”) of certain Customs User Fees collected from National Airlines 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 National Airlines’ Protest and AFR, submitted on May 13, 2020, as well as the Final Audit Report prepared by CBP’s Regulatory Audit and Agency Advisory Services (“RAAAS”). National Airlines is a U.S. corporation headquartered in Orlando, Florida. The airline participates in the Civil Reserve Air Fleet (“CRAF”) through which it offers air charter flights to U.S. defense contractors as well as to the U.S. Department of Defense (“DoD”). The CRAF program is used by DoD to provide airlift services during situations in which the need for airlift exceeds the available capacity of military aircraft. Pursuant to this arrangement, National Airlines operated international long-haul flights carrying U.S. servicemembers and their dependents. In addition, National Airlines also operated as a substitute carrier on scheduled passenger flights for Primera Scandinavia A/S (“Primera”) and Fly Jamaica Airways Ltd. (“Fly Jamaica”) when these airlines’ aircraft were unavailable. Primera and Fly Jamaica have subsequently declared bankruptcy. RAAAS conducted an audit of National Airlines, which focused on the airline’s transmission to CBP of certain passenger fees, including the Customs User Fee (“CUF”) mandated by 19 U.S.C. § 58c and 19 C.F.R. § 24.22. In its audit report dated July 9, 2020, RAAAS determined: (1) in connection with National Airlines’ flights under the CRAF program, the airline owed CUFs amounting to $91,314.05 that were collected by National Airlines on the basis of the “full capacity load” of its aircraft but not remitted to CBP; and (2) National Airlines owed CUFs in relation to flights it conducted on behalf of Primera and Fly Jamaica. In relation to this latter finding, RAAAS determined that, because Primera and Fly Jamaica have subsequently gone out of business and no record of CUF payments could be found for the relevant flights, National Airlines is therefore responsible for the subject fees. National Airlines subsequently remitted to CBP the relevant CUFs for the Primera and Fly Jamaica flights, but now protests that it is due a refund for these fees. ISSUE Whether CBP has the legal authority to collect Customs User Fees from National Airlines for the “full capacity load” of flights conducted as part of the CRAF program.  Whether CBP has the authority to collect Customs User Fees from National Airlines in relation to the Primera and Fly Jamaica flights. 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 entity 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). As outlined above, 19 U.S.C. § 58c contains two interlocking requirements: (1) that an air carrier collect CUFs 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 Protestant must remit all CUFs (i.e., “those fees”) collected at the time a ticket is sold. The first issue is whether CBP has the legal authority to collect Customs User Fees from National Airlines for the “full capacity load” of flights conducted as part of the CRAF program. Specifically, the July 9 Audit Report finds that National Airlines owes unpaid CUFs in connection with flights operated pursuant to the CRAF program. The report notes that National Airlines transmitted CUFs to CBP in relation to the number of passengers “actually flown” on each CRAF chartered passenger flight. Nevertheless, the audit report states that National Airlines collected CUFs for the full capacity load for each aircraft. As such, RAAAS determined that National Airlines must remit all CUFs collected in relation to the CRAF flights. After a CUF is collected 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 to CBP 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. For CRAF flights conducted during the audit period, National Airlines collected CUFs in an amount equal to the “full capacity load” of its aircraft (i.e., the number of seats available). The airline nevertheless seeks to remit to CBP only those fees that relate to passengers “actually carried” on those flights. It is clear from the authorities above, however, that all CUFs collected are to be held in constructive trust until the funds are either remitted or refunded. As such, all CUFs collected by National Airlines in relation to the subject CRAF flights that have not been refunded must be remitted to CBP. Furthermore, CBP has previously determined that a situation in which a carrier retains CUFs without remission to CBP constitutes unjust enrichment. See HQ 112978 (Nov. 14, 1994) (“[n]otwithstanting their statutory liability, [an airline’s] failure to remit these fees to Customs constitutes unjust enrichment for which restitution must be made”). As a result, we advise that National Airlines’ Protest be denied with respect to the outstanding CUFs assessed in connection with its CRAF flights. The second issue is whether CBP had the authority to collect Customs User Fees from National Airlines in relation to the Primera and Fly Jamaica flights and, if so, whether National Airlines may receive a refund, by way of claiming a credit on future CUF payments. Although National Airlines initially paid the CUFs associated with these flights, it now asserts that it made the payments by mistake and that CBP did not have authority to seek payment of the subject CUFs from the airline. The relevant CBP authority outlining which entities are responsible for remitting CUF fees is found at 19 CFR § 24.22(g)(4)(i). This provision stipulates that “[e]ach air or sea carrier, travel agent, tour wholesaler, or other party issuing a ticket or travel document” is responsible for collecting the CUF. In HQ 112978 (Nov. 14, 1994), CBP nevertheless determined that a charter flight operator was liable to CBP for the payment of CUFs for passengers arriving in the United States when the tour operators that collected the fees had remitted them to the operator. In the present matter, however, the Protest and Audit Report agree that National Airlines’ contract with Primera and Fly Jamaica stated that these airlines were responsible for collecting and remitting to CBP such fees. As such, in contrast to HQ 112978, there is no indication that Primera or Fly Jamaica remitted the relevant CUFs to National Airlines for payment to CBP. As such, because National Airlines did not issue the tickets or travel documents for these flights, and because Primera or Fly Jamaica did not remit the CUFs to National Airlines, CBP did not have authority to seek remission of the subject CUFs from National Airlines. The Audit Report further contends that National Airlines nevertheless owed CUFs for the Primera and Fly Jamaica flights because the auditors were unable to substantiate whether Primera or Fly Jamaica had transmitted the relevant CUFs to CBP. In such a situation, CBP regulations and prior rulings make clear that CBP should instead seek payment from the sureties on the International Carrier Bond for each flight. Specifically, 19 CFR § 113.64(a) clearly specifies that when a principal (carrier or operator) fails to pay a customs processing fee, “the obligors (principal and surety, jointly and severally) agree to pay liquidated damages equal to two times the processing fees not timely paid….” In HQ 112978 (Nov. 14, 1994), furthermore, CBP determined that when a carrier liable for CUFs had gone bankrupt and failed to remit the relevant fees to CBP, the surety for the carrier’s International Carrier Bond was liable for such fees. Similarly, in the present matter, the sureties for the International Carrier Bonds held by Primera and Fly Jamaica are liable for the payment of the subject CUFs. Finally, 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.” In light of the above, it is clear that the CUFs transmitted by National Airlines in relation to the Primera and Fly Jamaica flights constituted an overpayment. National Airlines is therefore entitled to claim an adjustment in the amount of these CUFs on future transfers to CBP. As a result, we recommend you grant National Airlines’ protest with respect to the CUFs related to the Primera and Fly Jamaica flights. HOLDING CBP has the legal authority to collect Customs User Fees from National Airlines for the “full capacity load” of flights conducted as part of the CRAF program. We recommend you deny National Airlines’ Protest with respect to this point. CBP did not have the authority to collect Customs User Fees from National Airlines in relation to the Primera and Fly Jamaica flights. We recommend you grant National Airlines’ Protest with respect to this point. 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, Cargo Security, Carriers and Restricted Merchandise Branch Office of Trade, Regulations and Rulings U.S. Customs and Border Protection