The US government has fined German airline Lufthansa $25,000 for illegal taxation, after the airline inadvertently charged passengers taxes that were not applicable. The taxes that the US government's Department of Transportation is referring to were fees that Lufthansa applied to passengers using frequent flyer reward miles tickets.

Announcing the settlement on June 4th, Lufthansa accepted the Department of Transportation’s $25,000 fine. However, they did not comment on why the fine was imposed in the first place, according to website PaxEx.Aero.

What was the incorrect tax that Lufthansa was charging?

Nearly all counties in the world levy a departure tax on passengers when they are leaving the country by air. This tax may also apply to those who leave a country by ship. For the most part, however, it concerns air passengers who routinely have this tax included in the price of their ticket.

Despite being commonly referred to as airfare taxes, the name is misleading, as all the airline does is collect the tax on behalf of the government where the flight originated. In the case of the United States, the departure tax is currently $18.60 per person and is charged on all income tickets on flights that depart the U.S.A. for an international destination.

While the United States government charges passengers $18.60, this tax only applies to tickets bought with cash or by credit/debit card. Those who book a ticket using reward or air miles have the fee waived. In other words, if you are flying using your air miles you do not have to pay the departure tax.

Whether or not Lufthansa knew this, they continued to apply the tax to all tickets regardless of the method of payment.

How long was Lufthansa incorrectly charging passengers?

This wrongful billing by Lufthansa lasted over a year, and occurred between June of 2017 and November of 2017. In total, it affected 6,900 passengers who were flying on tickets bought with awards.

In Lufthansa’s defence, it doesn't seem as though they were blatantly trying to defraud passengers. All the money collected in fees was, as normal, passed on to the United States government.

When Lufthansa realized its error, the German flag carrier refunded the mistaken fee on nearly every single ticket that it was imposed upon.

What the Department of Transport said about the fine

Despite the fact that Lufthansa had discovered the problem and made amends by refunding the wrongfully charged fee, the Department of Transport went ahead and fined Lufthansa for making the mistake in the first place.

The DoT commented in a statement,

"In response to a consumer complaint received by the Office of Aviation Enforcement and Proceedings   (Enforcement   Office),   the   Enforcement Office investigated whether Lufthansa was engaging in a practice of improperly collecting taxes that were not due on non-revenue international tickets sold through Lufthansa’s U.S.-facing website."

Lufthansa's response was to blame an update by its service provider, claiming that the software the company used for its U.S. tax collection was wrongly modified. The airline then went on to say in the statement that, at first, they thought it was an isolated incident. However, on learning it was more widespread they fixed the problem and refunded the mistakenly collected fees.