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US Airline Ticket Tax Approval Runs Out

by Leroy Baker,, Washington

27 July 2011

In what appears to be another example of Democrat and Republican disagreement over federal spending, the United States Congress failed to renew authorization for the airline passenger ticket tax and other aviation-related taxes by midnight on July 22, and several Federal Aviation Administration (FAA) programmes have thereby expired.

The US taxes which have not been extended include the 7.5% passenger ticket tax and flight segment tax of USD3.70 per passenger, together with the passenger facility charge of up to USD4.50 and a federal security charge of USD2.50. It was pointed out that, previously, Congress had extended the FAA’s authorization up to twenty separate times, without controversy.

Transportation Secretary Ray LaHood expressed his disappointment. Because of Congress’s inaction, he said, in addition to the FAA having to furlough 4,000 employees without pay, many US states will have to bear a significant economic burden and many important airport construction projects will be halted. However, air traffic controllers and other essential employees will remain employed.

In an apparent attempt to protect airport subsidies included in the Essential Air Service programmes within the legislation, the Democrat-led Senate failed to approve an extension that the Republican-led House of Representatives had already passed.

Both sides pointed the finger of blame at each other. The House Transportation and Infrastructure Committee Chairman, Republican John L. Mica said that the Democrats “couldn’t find a way to cut even a few million dollars by accepting this minor request to reduce outlandish subsidies”, while Democrat Jay Rockefeller, Chairman of the equivalent Senate Committee, countered that “we had negotiated in good faith for four months, but when senior members of the House leadership admitted that they would try to gain political ‘leverage’ over the Senate, they effectively turned the aviation system into a political prop.”

The extension approved by the House on July 20 would maintain current funding levels for the FAA until September 16, 2011, but would also eliminate passenger ticket subsidies at some airports, including three airports that are subsidized in excess of USD1,000 per ticket. That provision would save USD4.1m, while a limitation of Essential Air Service eligibility to communities that are located 90 or more miles from a large or medium hub airport would result in USD12.5m, in annual savings.

The Internal Revenue Service (IRS) has issued a statement that it is continuing to monitor the situation, and will continue to work with the airline industry to address issues relating to the collection and payment of the taxes involved.

It has confirmed that taxpayers do not need to take any action at this time, and that the IRS will provide further guidance in the near future. In the meantime, airlines are absolved from charging tax on passenger tickets, although this does not seem to be resulting in lower fares as air operators appear to be increasing their prices to reap additional income on, what may be, a temporary basis.

TAGS: individuals | tax | air passenger duty (APD) | aviation | employees | excise duty | Internal Revenue Service (IRS) | legislation | United States

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