The US Government Has Spoken

Way back when Ancillary Revenue charges were new, I opined that there was an issue of taxation. I argued that if the original bundled ticket was taxed then the unbundled elements should also be taxed.

Well the US Government in the form of the IRS has now spoken. And guess what - the charges are not taxable.

Specifically below you will find what is and what is not taxable according to the IRS. So I have pleasure in presenting the potted version of the rules below. However this is likely to send the Congress rushing to the legislation table. if last year $2Billion was generated in these fees by US airlines and this year projected to rise to $10 Billion - all without tax - then the government is going to find that WAY to easy a target to ignore.

So for the formal Air Transportation Excise Tax - Audit Technique Guide click on the link.

Per the IRS, the following services and fees are not taxable:

• Assistance in making travel plans, purchasing tickets and requesting seat assignments, either in person or on the telephone (as opposed to on carrier’s website).
• Applying the fare paid for an unused nonrefundable ticket to a new ticket.
• Standby fees
• In-flight purchase of food, alcoholic beverages and headsets.
• Checked-bag fees, including overweight and oversized baggage.
• Purchase of airport lounge access, on daily or annual basis.
• Purchase of nonrefundable gift cards.
• Optional custodial services to children traveling without an adult.
• Fee for transference of miles to another account.
• Extending the expiration date of miles in a member’s account.
• Fee for redeeming miles for the purchase of air transportation.
• Fee for canceling and changing a ticket purchased with redeemed miles.
• Purchase of elite status in a loyalty program.
• Providing a printout of account details to a member or third party.
• Providing password protection for account inquiries made by telephone.
• Providing personalized luggage tags.

But the following services and fees are taxable:

• Enabling the purchase of upgrades that are paid for at check-in at automated kiosks.
• Enabling the purchase of upgrades to a higher class of service, at check-in or in advance, with money or miles.
• Fuel surcharges added at the time a customer purchases tickets or acquires tickets by redeeming miles.
• Mandatory custodial services to children traveling without an adult.
• A member's purchase of frequent-flyer miles for his or her frequent-flyer account or another member's account.
• A member's purchase of bonus miles for his or her account.

The government however likes to leave itself a little wiggle room.

Here is the disclaimer which means that they can change their mind...

"NOTE: This document is not an official pronouncement of the law or the position of the Service and can not be used, cited, or relied upon as such. This guide is current through the publication date. Since changes may have occurred after the publication date that would affect the accuracy of this document, no guarantees are made concerning the technical accuracy after the publication date."

And this is off IRS.GOV!!!!

Cheers