Continental Airlines is requesting that the $12 million in sales taxes it paid to Texas be returned, arguing that the taxes were incurred on improvements that should have been considered tax exempt. According to lawsuit the airline filed against Texas’s Attorney General and Comptroller of Public Accounts, the state audited Continental for sales and tax compliance during a period spanning from April 1, 2003 and Feb. 28, 2007 and forced it to pay $12 million in back taxes. The airline has requested due process, equal protection, judgment under the Texas Tax Code and the return of its $12 million payment.
The lawsuit asserts that the state audit failed to recognize that Continental’s purchases were exempt from taxes under Section 151.309 of the Texas Tax Code, as they were “used or consumed by airports, which are exempt entities.” According the lawsuit, the wrongfully-taxed purchases included “maintenance services, lamps installed at the airport, maintenance supplies, janitorial services, pest control services, waste removal services, landscaping services, security supplies, ID badges, electricity and other supplies.”
Continental also asserts that toiletry items and toilet seat covers are also exempt from taxes under Section 151.309 of the state Tax Code, as they are “necessary for the normal operations of aircraft that are certified carriers of people and the items were placed in the aircraft.”
According to the lawsuit, Texas’s Comptroller of Public Accounts rejected the airline’s claim, categorizing it as “time-barred.” However, the plaintiff argues that the comptroller wrongfully based this assertion on invoice date when it should have been dictated by accrual date. The complaint contends that the office of the comptroller has previously used the date a taxpayer accrues and books a transaction for the purposes of included or removing that transaction from an audit period. “When an agency promulgates a rule with complying with proper rule-making procedures, the rule is invalid,” the lawsuit argues.
Source: Courthouse News Service, “Airline Claims Texas Owes It $12 Million,” David Lee, Nov. 16, 2012