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Air Transportation Tax

The air transportation of persons taxes under section 4261 are collected taxes. The person liable for the tax, the taxpayer, is the person making the payment for the taxable transportation. The person receiving the payment, the collector, is the person that collects the tax and files the Form 720 excise tax return.

Taxes are imposed on amounts paid for:

Transportation of persons by air,

  • Use of international air travel facilities, and
  • Transportation of property by air.
  • Transportation of Persons by Air

The tax on transportation of persons by air is made up of the:

  • Percentage tax, and
  • Domestic-segment tax.

The taxes on transportation of persons by air are the percentage tax and the domestic segment tax. Add the percentage tax and the domestic segment tax to get the total tax on transportation of persons by air. The percentage and domestic segment taxes do not apply on a flight if the surtax on fuel used in a fractional ownership program aircraft is imposed.

Percentage tax

A tax of 7.5% applies to amounts paid for taxable transportation of persons by air. Amounts paid for transportation include charges for layover or waiting time and movement of aircraft in deadhead service.

Mileage awards

The percentage tax may apply to an amount paid (in cash or in kind) to an air carrier (or any related person) for the right to provide mileage awards for, or other reductions in the cost of, any transportation of persons by air. For example, this applies to mileage awards purchased by credit card companies, telephone companies, restaurants, hotels, and other businesses.

Generally, the percentage tax does not apply to amounts paid for mileage awards where the mileage awards cannot, under any circumstances, be redeemed for air transportation that is subject to the tax. Until regulations are issued, the following rules apply to mileage awards.

  • Amounts paid for mileage awards that cannot be redeemed for taxable transportation beginning and ending in the United States are not subject to the tax. For this rule, mileage awards issued by a foreign air carrier are considered to be usable only on that foreign air carrier and thus not redeemable for taxable transportation beginning and ending in the United States. Therefore, amounts paid to a foreign air carrier for mileage awards are not subject to the tax.
  • Amounts paid by an air carrier to a domestic air carrier for mileage awards that can be redeemed for taxable transportation are not subject to the tax to the extent those miles will be awarded in connection with the purchase of taxable transportation.
  • Amounts paid by an air carrier to a domestic air carrier for mileage awards that can be redeemed for taxable transportation are subject to the tax to the extent those miles will not be awarded in connection with the purchase of taxable transportation.

Domestic-segment tax

The domestic-segment tax is a flat dollar amount for each segment of taxable transportation for which an amount is paid. However, see Rural airports, later. A segment is a single takeoff and a single landing. The amount of the domestic-segment tax is in the Instructions for Form 720.

To know more about the Air Transportation Tax check out here

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