Alaska Air Carriers Skeptical Regarding Excise Tax Reversal

BY:  Liz Ruskin, APRN

The IRS has given a sliver of ground in how it has applied tax rules to air
taxi flights. Sen. Mark Begich is calling it a win for small air carriers,
but Joy Journeay of the Alaska Air Carriers Association says the
concession is less than it appears.

“It is not clear at this time that it is going to help
anyone.”

The association has said the rules were unclear on when a small plane
operator has to collect federal excise taxes from passengers. Several air
taxi businesses say they didn’t know they were supposed to collect the
money until they were audited and hit with tax bills that, in some cases,
exceeded a million dollars.  The IRS last week wrote a letter to Begich
saying it will refund any excise tax air services paid for day tours. The
IRS letter doesn’t say whether it will also refund the penalties and
interest audited businesses had to pay, and an IRS spokesman said the
agency didn’t want to talk about its decision. But the letter says the
agency is only lifting the tax retroactively. Next month it will apparently
revert to its previous interpretation of the rules, which Journeay
(Joor-NAY) called baffling.

“The letter issued to Sen. Begich from the IRS doesn’t clear
up any of the ambiguous language in the regulations or address any of the
items that the Alaska Air Carriers have asked them to address for multiple
years. ”

The IRS has previously said whether the tax applies to a day trip depends
in part on the purpose of the trip. If the passengers deplane to see a
glacier or watch bears, the air service doesn’t have to collect the tax,
but if they land to fish, that might be taxable, if the pilots fly to the
same places with some degree of regularity. The way the agency has defined
regularity has also exasperated air carriers.