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"Battle over Jet Fuel in Oakland Heads to Court"

Tuesday, December 19, 2006

Battle over Jet Fuel in Oakland Heads to Court
By Kelly Pakula
Inside Bay Area (CA)

REDWOOD CITY -- San Mateo County and United Airlines failed to reach a
settlement during a mediation session Friday in the county's lawsuit against
the airline, the city of Oakland and the state Board of Equalization over
the distribution of tax revenue from jet fuel sales.

The county charges that a pact between United and the city of Oakland is
siphoning millions of dollars away from the county and the state.

"This is our first attempt to try and discuss the issue with United," San
Mateo County Deputy County Counsel David Silberman said. "We may have
different views of United's level of liability."

And, according to Silberman, the two sides did have different views Friday.
He said both parties will return to federal court on Jan. 26, at which point
he said he hopes a trial date will be set for the case.

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."

According to the complaint, which was filed in May, United Airlines and
Oakland formed a partnership in 2002, which allowed United to create 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

"At its simplest, they intentionally redirected taxes to evade them,"
Silberman said. "It doesn't matter what your theories are, evading taxes is
always wrong."

According to the county, in late 2003 jet fuel sales tax revenues were first
redirected to Oakland and then on to United. According to Silberman, the
state of California has lost more than $15 million because of the deal.

In 2004, the county asked the state Board of Equalization to reverse its
decision allowing the tax loophole. That appeal was denied by the board,
Silberman said.

In response to the accusations, United Airlines spokeswoman Megan McCarthy
said the airline's deal with the city of Oakland is legal, as there is
currently no law that prohibits such partnerships.

"It was done to help reduce the impact of increasing fuel costs," McCarthy
said. "We feel that the deal was legal and as a company, we continue to
focus on controlling our fuel costs."

A bill to ban such arrangements was passed in 2004, but later vetoed by Gov.
Arnold Schwarzenegger. Then Assembly Speaker Pro Tem, now state Sen. Leland
Yee, D-San Francisco, later introduced AB 451 in 2005. The bill will become
law in 2008 and will ensure that areas affected by jet fuel pollution,
traffic and noise receive jet fuel sales tax revenues. San Mateo County,
site of San Francisco International Airport, would have to share the revenue
with San Francisco.

Attorneys representing the city of Oakland and the state Board of
Equalization did not return calls for comment.

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