Southwest Loses $25 Million Tax Break

DALLAS (CN) - Southwest Airlines will not get a $25 million tax reduction, a Texas appeals court ruled, reversing a trial court judgment.

The trial court found that Southwest had over-reported the value of its aircraft for several years to Dallas County property tax authorities. The airline will now take nothing rather than receive a $25 million tax reduction.

The state's Fifth Court of Appeals reversal centers on a state tax law allowing changes to the appraisal roll for 5 years to correct a "clerical error" that affects a property owner's tax liability.

Dallas-based Southwest sued the Dallas Central Appraisal District and Dallas County Appraisal Review Board, claiming it had made such an error in reporting the value of its aircraft for tax years 2003 through 2007.

After considering cross motions for summary judgment, the trial court agreed with Southwest and ordered the appraised value of Southwest's aircraft reduced and the appraisal rolls corrected for those years.

But the three-judge panel on the appeals court found the tax code excludes errors that result from a mistake in judgment or reasoning in the making of the finding or determination. (Texas Tax Code Ann. § 1.04(18).)

Judge Molly Francis wrote: "Specifically, Southwest argues the tax code mandates the allocation formula be applied to each aircraft individually, but it calculated the allocation on a fleetwide basis and the failure to use the proper allocation formula was a mistake or failure in calculating or computing the allocated value. The taxing authorities argue Southwest made no error in the mathematical calculation; consequently, there is no clerical error. After considering the plain language of the statute, we agree with the taxing authorities. ...

"In short, what Southwest wants is to revise the methodology it used to calculate the renditions. Applying one methodology when another is either called for or would produce better results is simply not a clerical error as that term is contemplated by the statute."

Southwest's fleet of 761 aircraft operates at 72 destinations in 37 states.

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