United Airlines to Settle Suit over Fuel Tax

San Mateo County and United Airlines will enter into mediation, just four months after the county filed a lawsuit against the airline, the city of Oakland and the state Board of Equalization because of a jet fuel sales tax scheme county officials say was used to siphon millions of dollars away from several public entities throughout California.

According to the complaint filed in May, San Mateo County officials allege that in 2001, United Airlines, along with several large accounting firms, lobbied the state Board of Equalization to allow multi-national corporations "to set their own tax rates through creative accounting and economic blackmail."

San Mateo County Deputy Counsel John Nibbelin said the county and United Airlines agreed Friday to enter into mediation by Dec. 1 in a San Francisco federal courtroom. He said no mediation date has been set nor has a third-party mediator been selected. Nibbelin said the county may seek monetary compensation from United Airlines.

United Airlines spokesman Brandon Borrman confirmed the airline has decided to go forward with mediation.

According to the complaint, in 2002, United Airlines and Oakland formed a partnership. As part of the deal, United Airlines formed an Oakland-based subsidiary designed to resell jet fuel back to United. The airline then received a 65 percent jet fuel sales tax revenue kickback from Oakland.

The complaint also states that in late 2003, jet fuel sales tax revenues were first redirected to Oakland and then on to United. Since then, it is estimated that San Mateo and San Francisco counties have lost more than $2 million in tax revenue each year.

In December 2004, the county asked the state Board of Equalization to reverse its decision allowing the tax loophole. However, the board last November opted not to do so.

According to the complaint, a bill to ban such arrangements was passed in 2004, but later vetoed by Gov. Arnold Schwarzenegger. Assembly Speaker pro Tem Leland Yee, D-San Francisco, later introduced AB 451 in 2005. The bill, which becomes law in 2008, was designed to ensure that areas affected by jet fuel pollution, traffic and noise receive jet fuel sales tax revenues.

The county's suit against the city of Oakland and the state Board of Equalization remains in state court.

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