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UNITED AIRLINES, INC. v. UNITED STATES

June 27, 1996

UNITED AIRLINES, INC., Plaintiff, -vs- UNITED STATES OF AMERICA, Defendant.


The opinion of the court was delivered by: LINDBERG

 Plaintiff, United Airlines, Inc., filed this action seeking a refund of excise taxes allegedly overpaid to defendant, the United States of America. A jury returned a verdict in favor of plaintiff and against defendant. Pursuant to the stipulation of the parties as to the amount of damages in the event liability was found, judgment in the amount of $ 4,076,602.00 was entered in favor of plaintiff and against defendant. Defendant has now filed a renewed motion for judgment as a matter of law pursuant to Rule 50(b). FRCP 50(b).

 In its renewed motion for judgment as a matter of law, defendant argues:

 
To the extent the airline refunds to the passenger the amount paid for the air transportation, the collected transportation tax attributable to the amount of such refund may be refunded to such passenger. However, to the extent the airline does not refund to the passenger the amount paid for the air transportation, the collected transportation tax attributable to such nonrefunded amount is to be remitted by the airline to the Government.
 
The plaintiff's claims in this action could not be maintained without a favorable finding on the issue of whether, on cancellation of the restricted fare tickets at issue, the plaintiff refunded the entire amount originally paid for transportation by air. The trial record contains no legally sufficient evidentiary basis for a reasonable jury to find for the plaintiff. In fact, each of the witnesses in this action testified that on cancellation of the restricted fare tickets, the plaintiff did not refund the entire amount originally paid. Therefore, pursuant to F.R.C.P. 50(b), this Court should enter judgment as a matter of law in favor of the United States.
 
. . . .
 
11. The plaintiff's claims in this action could not be maintained without a favorable finding on the issue of whether it refunded the entire amount originally paid for transportation by air to its customers. . . . During trial of this action the plaintiff was fully heard on this issue, and the record contains no legally sufficient basis for a reasonable jury to find for the plaintiff on it. Therefore, pursuant to F.R.C.P. 50(b), this Court should enter judgment as a matter of law in favor of the United States.

 Defendant's argument bears little relationship to the evidence at the trial.

 As it has done frequently before, defendant quotes Revenue Ruling 89-109. It is important to remember that the excise tax at issue is imposed only on amounts paid for transportation by air. 26 USC §§ 4261(a), 4262(a). Based upon the evidence presented in this case, this court is of the opinion that the amounts paid by customers, whether denominated penalties or service charges, to cancel their transportation by air were not subject to the excise tax because they were not amounts paid for transportation by air. It therefore appears that Revenue Ruling 89-109 is contrary to the statute, in that it would impose the federal excise tax on amounts paid other than for transportation by air, and should not be followed. However, even if Revenue Ruling 89-109 correctly stated the law, defendant would not be entitled to prevail.

 The evidence on this question at trial came from the testimony of several witnesses and from exhibits providing examples of the paperwork that was prepared at the time of the cancellation of restricted tickets and of plaintiff's tariffs.

 The witnesses and the examples of the paperwork prepared at the time of the cancellations established that when a restricted ticket was cancelled, plaintiff refunded to its customer the entire amount of the fare and the excise tax and assessed a penalty. The evidence further established that a netting of the amount of the penalty against the total amount of the fare and tax resulted in the amount of cash, credit card credit, or credit toward other transportation by defendant received by the customer.

 The testimony of plaintiff's accounting expert corroborated the other evidence. Plaintiff's accounting expert was of the view that accounting entries should reflect economic reality, and that plaintiff's accounting entries showed that when a customer cancelled a restricted ticket, the amount of penalty owed by the customer to plaintiff was netted against the total amount of fare and excise tax owed as a refund by plaintiff to the customer.

 The court agrees with defendant that, "Tax liability depends not on bookkeeping but on actual economic events." This is why the accounting expert's testimony about plaintiff's accounting is merely corroborative. More important to the decision of this case were the testimony of the other witnesses and the exhibits showing the paperwork prepared at the time of cancellation, both of ...


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