The Ins & Outs of Charter Taxes
NATA-sponsored session provides operators with guidance, clarification
By Jodi Richards, Associate Editor
LAS VEGAS — A seminar designed specifically for Part135 operators was held in conjunction with the National Air TransportationAssociation’s annual meeting held here in May. Led by Nel Sanders-Stubbs,partner, Conklin & de Decker Aviation Consultants, the sessionoffered guidance and clarification for charter operators. Following is a sampling from the session.
Jacqueline Rosser, NATA manager of flight operations, and Eileen Gleimer, Crowell& Moring LLP, also presented during the day-long seminar.
According to Sanders-Stubbs, one of the most confusing aspects of a charter operation can be taxes, particularly because the FAA and IRS do not define commercial aviation in the same manner. The IRS does not consider the FAA’s definition of a commercial operator determinative in deciding which tax applies. While the FAA looks at who has operational control of the aircraft, IRS looks at who has possession, command, and control. This is important to keep in mind when determining if the commercial tax applies to a particular flight, explains Sanders-Stubbs.
Federal excise tax (FET) is a federal sales tax imposed on aviation, says Sanders-Stubbs. There are three different FETs, including noncommercial aviation, domestic commercial aviation, and international commercial aviation. “You are almost always subject to one of the FETs,” she says.
The noncommercial aviation FET is a fuel tax that operators do not normally see. Jet fuel is currently taxed at 21.9 cents per gallon, while avgas is 19.4 cents per gallon.
The domestic commercial aviation FET applies to the transportation of persons and property. In regard to persons, the tax is 7.5 percent of the amounts paid and a segment fee. If it is the transportation of property, the FET is 6.25 percent.
The segment fee for 2004 is $3.10 per person, per leg. However, flights into rural airports are not subject to segment fees, says Sanders-Stubbs. A rural airport is defined as any airport that has less than 100,000 enplanements per year and is located more than 75 miles away from an airport that has at least 100,000 annual enplanements.
International commercial aviation FET rates are as follows: $13.70 international (per person); $6.90 Hawaii and Alaska (departures only). An uninterrupted trip, such as one that takes off from Arizona, stops for fuel in Miami, and then arrives in the Bahamas, explains Sanders-Stubbs, is not subject to domestic commercial FET. “If you’re on the ground for more than 12 hours you owe domestic tax on the first leg, and international tax on the second.”
Who/What Is FET-Exempt?
When it comes to what or who is — or is not — exempt from FET, San-ders-Stubbs offers the following list:
- Not subject to commercial tax: catering (when separately stated); limousine service for the customer; flight phones for the customer; things that the customer can/could do for him or herself.
- Taxable items include: layover time; waiting time; crew expenses; landing fees; state taxes; and other taxes and fees. “If you’re charging them [charter customers] for it, it’s taxable,” says Sanders-Stubbs.> The last thing you do when figuring taxes is apply the FET, stresses Sanders-Stubbs.
This year's Commercial Operators Tax Seminar ("Tax Seminar") will be held in Ft. Lauderdale, Florida, on Aug. 23-24, 2011.
They are partnering again this year to offer the Commercial Operators Tax Seminar, titled, “Back to Basics”. This year's Tax Seminar will be held in Oak Brook, IL, on August 6-7, 2013.
The Tax Seminar will be held in Scottsdale, Arizona, on August 7-8, 2012.
NBAA has compiled the latest information from the IRS and other resources on how FET applies to commercial air transportation of passengers, including the percentage tax on domestic travel and related...