August 12, 2022


Airlines fight 'Florida box' formula for calculating taxes

Jason Garcia | 4/26/2019

More recently, Allegiant — using the same Deloitte tax strategists as Southwest — initiated litigation seeking $600,000 worth of refunds from 2011, 2012, 2013 and 2014.

“The Florida Legislature, while it has broad discretion in enacting tax statutes, cannot say that black is white or that airspace over international waters lies over Florida,” attorneys for UPS wrote in their lawsuit.

It’s also a matter of fairness, says Mark Holcomb, a shareholder in the Tallahassee office of Dean Mead. “Can you imagine what would happen if other states bordering the Gulf of Mexico took a similar position?” Holcomb says. “What would they draw as their lands? Where does Texas extend? Or Louisiana, Alabama or Mississippi?”

The Department of Revenue doesn’t discuss individual taxpayers or litigation. But in internal documents filed as part of the UPS litigation, the agency doesn’t attempt to defend the law. Instead, it says merely that it must follow the law as written, because only a court can declare a statute unconstitutional. Meanwhile, it keeps settling the cases as they are filed. None has ever made it to a judicial resolution.

The Southwest, American, UPS and Allegiant cases were settled. Though the terms are confidential, it’s likely the agency is settling for pennies on the dollar, as its only leverage appears to be the time and expense it would take for a company to litigate all the way to the end.

Other airlines have sought refunds and negotiated settlements by challenging the Florida box through internal protests that never became public. A document in the UPS litigation, for instance, references two earlier settlements the company negotiated with the Department of Revenue covering another eight years’ of taxes, dating back to 1996.

Because of its size — and a flight network that includes dozens of routes between Florida airports and cities in the southern, midwestern and western parts of the country that take its jets over the Gulf — Southwest made an especially big refund claim. Altogether, the airline says it overpaid its Florida taxes by $6.7 million between 2011 and 2015, or more than $1.3 million annually. Representatives for both Southwest and Deloitte declined to discuss the issue.

Neither the state Legislature nor state regulators have attempted to make legal changes to clarify the issue. Airlines, at least, don’t seem to mind the protest-and-settle status quo. Asked about the issue, a spokesman for Airlines for America, an industry trade group, says the organization “has not been engaged in any discussions regarding corporate income tax structure in Florida.”

But, he added, “A4A and our carrier members appreciate Florida’s competitive, business-friendly environment.”

Read more in our May issue.

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