Airlines Pocket Uncollected Taxes from FAA Squabble
Life + Money

Airlines Pocket Uncollected Taxes from FAA Squabble


Many airlines refused to lower their air fares to give travelers the benefit of a federal tax holiday that was precipitated by the shutdown of the Federal Aviation Administration. So far, the layoff of 4,000 FAA employees has cost the government $390 million in uncollected taxes.  And even though they're back on the job, the tax issue is not resolved.

Unfortunately for flyers, most airlines have decided to not pass the savings of the tax holiday on to travelers.  In fact just about every major airline has raised fares by the amount they would normally have collected in taxes. That’s roughly $25 on a $300 round-trip ticket. It doesn’t mean flyers will pay more for airline travel, it just means they’ll pay the same amount as before the taxes expired. The only airlines that haven’t raised fares are Alaska, Hawaiian and Spirit, according to Robert W. Mann, Jr., an industry analyst and former industry executive.

As of July 23, airlines stopped collecting a 7.5 percent ticket tax, a separate excise tax of $3.70 per takeoff and landing, and additional taxes. Until Congress decides whether to reauthorize the taxes, airlines cannot collect them.

Senate Majority Leader Harry Reid, D-Nev., announced Thursday afternoon that the Senate and House have reached an agreement that would allow a total of 74,000 transportation and construction workers return to work. “This agreement does not resolve the important differences that remain,” Reid said. “But I believe we should keep Americans working while Congress settles its differences that still remain.”

At the industry level, the amount of extra revenue collected comes to approximately $28 million a day, Mann said.

“It’s all a matter of how the different airlines chose to do this from a business perspective,” said Roberton Williams, a senior fellow at the Tax Policy Center. “Some [airlines] said here’s money we were going to charge them anyway, and that was the price that was going to fill up our seats. And others are saying we can get some good PR out of this.”

There’s also the issue of money collected by the airlines prior to the expiration of the taxes on July 22 for travel occurring during the tax holiday. According to the Treasury Department, passengers could be entitled to a refund. In many cases, however, airlines have simply pocketed that money, while others have sent the money to the IRS or offered their customers refunds, according to Williams.

American Airlines spokesperson Ed Martelle said in an e-mail that passengers who booked their tickets before July 22 for travel beginning after that date may be entitled to a tax refund, though passengers “may direct their refund request to the IRS.”

Martelle also said “we have not changed our ticket prices.” But Mann called Martelle’s statement “a bunch of gobbledy gook.” Other government fees for security and local airport projects are still being collected, boosting the cost of a base $300 fare by as much as $60.