Congress Tells IRS to Ease in Airline Ticket Taxes

After the Senate approved a reauthorization of the Federal Aviation Administration, leaders of the tax-writing committees in both chambers of Congress have asked the Internal Revenue Service to reinstate taxes on airline ticket in an orderly way.

They asked IRS Commissioner Doug Shulman to focus on collecting taxes on tickets going forward, rather than trying to collect ticket taxes retroactively. They asked for a three-day period to allow the airline industry to restart its processes.

The Senate approved an FAA reauthorization bill Friday after Republican and Democratic leaders hammered out a temporary agreement that would allow thousands of furloughed air transportation workers to return to work and airport reconstruction projects to resume. For about two weeks, airlines were not supposed to charge passengers extra taxes on their tickets that normally fund the FAA. However, many airlines quietly raised their fares by about the same amount as the taxes and were criticized for pocketing the extra money (see Airlines Benefit More from Ticket Tax Holiday than Passengers).

Several senators expressed their displeasure to the airlines and the Air Transport Association, and the IRS originally said that some passengers would be entitled to refunds on the taxes collected by the airlines for the period in which the FAA reauthorization had expired (see Senators Pressure Airlines to Refund Tax Savings and IRS Says Air Travelers May Get Refund on Ticket Taxes). On Friday, however, the IRS reversed its stance and said that most passengers would not be entitled to the refunds.

In a letter to Shulman on Thursday, Senate Finance Committee Chairman Max Baucus, D-Mont., and ranking member Orrin Hatch, R-Utah, along with House Ways and Means Chairman Dave Camp R-Mich., and ranking member Sander Levin, D-Mich., urged the IRS to use its discretion and authority as it administers the reinstatement of FAA taxes.  When the FAA temporarily shut down some operations on July 22, the IRS stopped collecting the ticket taxes, which are used to finance industry infrastructure projects like airport repairs and safety upgrades. 

The IRS would normally be required to collect the lost revenue once the FAA resumes normal functions, but the leaders of the Finance and Ways and Means committees, which have jurisdiction over tax policy, asked Shulman to have the IRS concentrate on restarting its FAA tax collection systems and processes going forward, rather than collecting the ticket taxes retroactively.

“We are concerned about the impact on consumers and the aviation industry if these taxes are collected retroactively,” the committee leaders wrote to Shulman.  “Furthermore, we understand that the IRS has limited resources—some of which will be required to restart systems and processes to begin collecting these taxes again going forward—and that the retroactive collection of trust fund taxes would add further strain to those resources.  Therefore, we encourage you to utilize all your discretion and authority to extend relief for passengers and airlines with respect to ticket taxes that were not paid or collected because of the lapse and provide the industry a three-day period of time to restart processes to collect the taxes.”

The taxes include a 7.5 percent federal excise tax, along with a flat fee of $3.70 per travel segment, and international arrival and departure taxes of $16.30 each way.

Later in the day, the IRS released a statement on its Web site indicating that most passengers would not receive a refund on ticket taxes. "Today’s Congressional action extending the Federal Aviation Administration authorization reinstates retroactively the airline ticket taxes for passengers who traveled during the lapse of the FAA's authorization," said the IRS. "As a result of the bill Congress passed today, passengers who purchased tickets prior to July 23 and traveled between July 23 and the date of enactment of today’s legislation are not entitled to a refund of the airline ticket excise tax. Additionally, the IRS intends to provide relief for passengers and airlines with respect to ticket taxes that were not paid or collected because of the lapse. The IRS intends to provide guidance to the airlines which will allow for an orderly restart of the collection of ticket taxes. Airlines will have from the time of enactment of the legislation through 12:01 a.m. on Monday, Aug. 8, to resume collection of the ticket taxes. The IRS is currently reviewing other effects of the legislation and will issue future guidance."

 

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