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Airlines Benefit More from Ticket Tax Holiday than Passengers

July 25, 2011

Congress’s failure to reauthorize funding for the Federal Aviation Administration last Friday means that airlines can’t collect the federal excise tax on airline tickets, but most airlines quietly raised their fares so they could still pocket the extra money anyway.

There are a few exceptions for now, luckily. Alaska Airlines and Hawaiian Airlines currently aren’t collecting the tax or raising their prices, according to local Hawaiian station Spirit Airlines has also been passing along the extra savings to consumers, according to The Wall Street Journal. Virgin America also gave passengers a break over the weekend, but raised its price Monday morning.

The lack of reauthorization means the FAA had to furlough thousands of employees and close down many of its airport reconstruction projects. However, Congress’s failure to pass the FAA reauthorization also meant the FAA cannot collect its 7.5 percent federal excise tax for now, nor the flat fee of $3.70 per travel segment, and the international arrival and departure taxes of $16.30 per way.

Theoretically that should save airline customers a lot of money, except that most of the major airlines raised their prices over the weekend by 7.5 percent or more, including American Airlines, Delta, Frontier, JetBlue, Southwest and US Airways.

At least they’re making money. The U.S. Treasury will lose an estimated $200 million a week, according to the Transportation Department, at a time when the federal government is in danger of default if the debt limit isn’t raised by August 2.

The Internal Revenue Service is monitoring the situation, as blogger Kelly Phillips Erb noted. “The laws authorizing the airline ticket tax and other aviation-related taxes expired at midnight on Friday, July 22,” the IRS said on its Web site Saturday. “The IRS continues to monitor pending legislation related to this issue. The IRS will continue to work with the airline industry to address issues relating to the collection and payment of the taxes involved. Taxpayers do not need to take any action at this time. The IRS will provide further guidance on this issue in the near future.”

It would be a good idea if the airline companies had to repay all that extra money they charged on passengers’ tickets either to the Treasury or as a refund to passengers.

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