Airline Claims Texas Owes It $12 Million

AUSTIN (CN) - Continental Airlines demands $12 million in sales taxes it paid Texas under protest, claiming money it spent on improvements at Texas airports is tax exempt.

Continental, which merged with United Airlines in 2010, sued Texas Comptroller of Public Accounts Susan Combs and Attorney General Greg Abbott in Travis County Court.

Continental claims it was forced to pay the tax after the state audited it for sales and use tax compliance from April 1, 2003, to Feb. 28, 2007.

"During the relevant period, plaintiff made purchases of property and services used and consumed at airports, including 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," the complaint states.

"Plaintiffs purchase of the property and services were exempt from sales and use tax under Texas Tax Code Section 151.309 because the items were used or consumed by airports, which are exempt entities."

Continental claims that airports are political subdivisions of the state and exempt from state taxes under Texas law. It claims that property attached as a component part or necessary for the normal operations of an aircraft are exempt under the law, as well.

"Plaintiff's aircraft are certified carriers of people," the complaint states. "Plaintiff's purchases of toilet seat covers and other toiletry items were exempt from sales and use taxes under Texas Tax Code section 151.328(e) because the items were necessary for the normal operations of aircraft that are certified carriers of people and the items were placed in the aircraft."

Continental claims that Combs' denial of its claim as time-barred is erroneously based on invoice date rather than accrual date. It claims that this is a "policy change" of which it never received notice.

"Previously, the comptroller has included or excluded transactions from a taxpayer's audit period based on the date the taxpayer booked and accrued tax on the transaction, not the date of invoice," the complaint states. "When an agency promulgates a rule with complying with proper rule-making procedures, the rule is invalid."

Continental seeks judgment under the Texas Tax Code, due process and equal protection-and the $12 million.

It is represented by Eric Hagenswold with Scott Douglass of Austin.

Follow @davejourno

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