Table of Contents
- Chapter 1: Introduction to the Aviation Market Segment
- Chapter 2: Return Filing and Deposit Requirements and Blind Credits
- Filing Requirements
- Deposit Requirements
- Electronic Deposit Requirements
- Electronic Federal Tax Payment System
- Federal Tax Deposit Coupons
- When To Make Deposits
- 9-Day Rule
- Alternative Method (IRS Nos. 22, 26, 27, and 28)
- 14-Day Rule (IRS Nos. 14, 60, 62, 73, 74, 59, 75, and 76)
- Delayed Deposits
- Amount To Deposit
- Safe Harbor Rules
- Requirements To Be Met
- The Look-Back Quarter Liability Safe Harbor Rule
- Exceptions
- The Current Liability Safe Harbor Rule
- Blind Credits
- Chapter 3: Fuel Taxes
- Chapter 4: Collected Taxes
- Chapter 5: Transportation of Persons by Air
- Chapter 6: Commercial Airlines/Scheduled Flights
- Chapter 7: Air Charter
- Chapter 8: Corporate Flight Departments
- Chapter 9: Tour Operators and Travel Agencies
- Chapter 10: Air Transportation of Property
- Appendix: Synopsis of Tax Rules
- Glossary
Chapter 4 - Collected Taxes
Introduction
The facilities and services taxes (communications taxes and air transportation taxes) apply to an amount charged for a facility furnished or a service rendered. These taxes are reported on Form 720 and are classified as collected taxes. These taxes are paid by the person who receives the service or uses the facility, but they are collected and remitted to the Government by the person providing the service or use of the facility.
Remember that the customer is the taxpayer and the carrier is the collecting agent.
Collected vs. Noncollected Taxes
The essential difference between a collected and noncollected tax is that a noncollected tax is imposed directly on the seller (taxpayer), who must pay it whether or not the customer ultimately pays it. All excise taxes are noncollected taxes except those imposed on facilities and services. A collected tax is levied against parties paying for the service or use of the facility, but the company or agency who sells the service has the duty to collect the tax from the parties and file the Form 720 reporting the tax.
The term "collected tax" stems from the fact that the person furnishing the facility must act as a collecting agent for the tax imposed on the person paying for the facility or service.
The person paying for the service or facility is liable for the tax at the time of payment. Once payment is made to the person required to collect the tax, the amount collected is held to be a special fund in trust for the United States. The amount of such a fund is assessed, collected, and paid in the same manner and subject to the same provisions applicable to the taxes from which the fund arose.
If the person furnishing the facility or service does not collect the tax, the person who paid for the service or the use of the facility is liable, and the tax may be assessed directly against that person.
The Taxpayer Relief Act of 1997 amended IRC section 4263(c) to provide that, if the tax under IRC section 4261 is not paid at the time the payment for transportation is made, the tax must be paid by the carrier providing the initial segment of transportation that begins or ends in the United States. Thus, the carrier is secondarily liable for the tax on the transportation of persons by air. This provision is generally effective for amounts paid on or after October 1, 1997, for travel on or after October 1, 1997.
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Administrative Procedures for Collected Taxes
References
- IRM 4700, Excise Tax Procedure, Sections 4742 and 4784.2(4)
- Rev. Rul. 58-300, 1958-1 C.B. 454; amplified by Rev. Rul. 59-306, 1959-2 C.B. 422
- Treas. Reg. section 301.6601-1
- IRC section 6672 and Treas. Reg. section 301.6672-1
Procedures
Transportation of Persons by Air When the Carrier Is Secondarily Liable
When it is determined that the carrier is secondarily liable, the deficiency will be proposed against the carrier.
Transportation of Property by Air or Transportation of Persons by Air When the Carrier Is Not Secondarily Liable
The duty to collect the collected taxes is imposed on the collecting agencies. However, the consumer or taxpayer is not relieved of his or her liability for the tax. Even though the collecting agency has failed to collect the tax, liability does not shift to the collecting agency. We still must look to the consumer for the tax.
Generally, we will ask the collecting agency to collect the "back taxes" due from the customers. Most of them try to comply.
The procedures can be found in IRM 4742 (8-10-94).
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Trust Fund Recovery Penalty
IRC section 6672 provides for a 100-percent penalty when the collecting agency willfully fails to collect, truthfully account for, or remit collected taxes. When willfulness is indicated, the case is referred to the Collection Division for a determination of the applicability of IRC section 6672.
If the Collection Division accepts the case, it will assess the penalty. The penalty is used as a collection device, and no tax is assessed if the penalty is collected.
If the Collection Division declines to pursue the penalty, the examiner is to proceed with the procedures in IRM 4742 (8-10-94).
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Chapter 5 - Transportation of Persons by Air
Introduction
IRC section 4261(a) imposes a tax on the amount paid for taxable transportation of any person. In the case of amounts paid outside the United States for taxable transportation, the tax imposed applies only if such transportation begins and ends in the United States. IRC 4261(b) extends this tax to any amount paid for seating or sleeping accommodations on or in connection with transportation under IRC section 4261.
The person who pays for the ticket pays the tax. The person receiving the payment must collect the tax and file the return. Tax is reported on Form 720, IRS No. 26.
For transportation on or after October 1, 1997, IRC section 4261(c) imposes a tax of $12 on any amount paid (whether inside or outside the United States) for any transportation of any person by air for both the arrival in and departure from the United States for international travel beginning or ending in the United States. This tax does not apply to any transportation if all of the transportation is taxable under IRC section 4261(a). Before October 1, 1997, the tax was $6 on departure only. Tax is reported on Form 720, IRS No. 27. See Rev. Rul. 72-107 for further explanation.
Thus, domestic passenger transportation and international passenger transportation are subject to tax. The Taxpayer Relief Act of 1997 made many modifications to the "ticket" tax. The following paragraphs summarize the law before and after this change.
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Rate of Tax
Domestic Transportation
The tax on transportation of persons by air is imposed on the amount paid for transportation at the rates shown below.
Date Travel Begins |
Rate of Tax |
Dec 1, 1990, through Dec. 31, 1995 |
10% |
Jan. 1, 1996, through Aug. 26, 1996 |
Expired |
Aug. 27, 1996, through Dec. 31, 1996 |
10% |
Jan. 1, 1997, through Mar. 6, 1997 |
Expired |
Mar. 7, 1997, through Sept. 30, 1997 |
10% |
Oct. 1, 1997, through Sept. 30, 1998 |
9% |
Oct. 1, 1998, through Sept. 30, 1999 |
8% |
Oct. 1, 1999, and thereafter |
7.5% |
For travel beginning August 27, 1996, through December 31, 1996, the tax does not apply to amounts paid before August 27, 1996.
For travel beginning March 7, 1997, through September 30, 1997, the tax does not apply to amounts paid before March. 7, 1997.
For travel beginning on or after October 1, 1997, when payment was made before that date, the 10-percent tax rate applies.
Domestic Segment
In addition to the percentage tax, each domestic segment is taxed as follows:
Date of Segments |
Tax Rate |
Before Oct. 1, 1997 |
None |
After Sept. 30, 1997, and before Oct. 1, 1998 |
$1 |
After Sept. 30, 1998, and before Oct. 1, 1999 |
$2 |
After Sept. 30, 1999, and before Jan. 1, 2000 |
$2.25 |
During 2000 |
$2.50 |
During 2001 |
$2.75 |
During 2003 and thereafter |
$3 multiplied by the cost-of- living adjustment determined under IRC section 1(f)(3) |
The segment tax does not apply when payment was made before October 1, 1997.
Definition of Domestic Segment
A domestic segment is any segment consisting of one takeoff and one landing which is taxable transportation described in IRC section 4262 (a)(1) -- (transportation which begins in the United States or the 225-mile zone and ends in the United States or the 225-mile zone).
Changes in Segments
If there is a change in route between two locations on specified flights that changes the number of domestic segments but there is no change in the amount charged for such transportation, the tax is determined without regard to such change in route. Two examples are (1) if the plane is rerouted to another airport because of weather before it arrives at its final destination and (2) if the plane's schedule is changed.
Rate on International Travel
For international flights beginning before October 1, 1997, the tax applies to departures only. On or after October 1, 1997, the tax rate on any amount paid for transportation of any person by air that begins or ends in the United States is $12 for each arrival and departure, whether the tax is paid inside or outside the United States. The rate will be indexed to inflation for amounts paid after December 31, 1998.
Date Travel Begins |
Rate of Tax |
Applies to |
Dec. 1, 1990, through Dec. 31, 1995 |
$6 |
Departure Only |
Jan. 1, 1996, through Aug. 26, 1996 |
expired |
N/A |
Aug. 27, 1996, through Dec. 31, 1996 |
$6 |
Departure Only |
Jan. 1, 1997, through Mar. 6, 1997 |
expired |
N/A |
Mar. 7, 1997, through Sept. 30, 1997 |
$6 |
Departure Only |
Oct. 1, 1997, through Dec. 31, 1998 |
$12 |
Arrivals and Departures |
Jan. 1, 1999, and thereafter |
Indexed to Inflation |
Arrivals and Departures |
For travel beginning on or after October 1, 1997, the tax applies to amounts paid after August 12, 1997.
Alaska and Hawaii
As under prior law, on flights between the U.S. mainland and Alaska or Hawaii (or between Alaska and Hawaii), there is a tax of $6 (rather than $12), and it applies only to departures. The rate is indexed to inflation for amounts paid after January 31, 1998. Thus, for flights before October 1, 1997, the tax is 10 percent of the ticket price attributable to U.S. miles plus $6. On or after October 1, 1997, the tax is the applicable domestic tax rate times the ticket price attributable to U.S. miles plus $6 plus the applicable segment tax.
Exception for Segments Beginning or Ending at Rural Airports
In general, if any domestic segment begins or ends at an airport that is a rural airport for the calendar year in which the segment begins, the segment tax does not apply to that segment.
Definition of Rural Airport
The term "rural airport" means any airport if:
- There were fewer than 100,000 commercial passengers departing by air during the second preceding calendar year from such airport; and
- Such airport:
- Is not located within 75 miles of another airport which had 100,000 or more commercial passengers departing by air, during the second preceding calendar year, or
- Was receiving essential air service subsidies as of August 5, 1997.
Chief Counsel issues an annual revenue procedure that lists rural airports. For 1997, it was Rev. Proc. 97-46 (as amended by Announcement No. 97-107).
Segments Beginning Before October 1, 1999
The rate of tax applicable to any domestic segment beginning or ending at a rural airport is 7.5 percent.
Multiple Segments
When a flight involves multiple segments of which at least one segment does not begin or end at a rural airport and at least one of which does, the 7.5-percent rate is applied by allocating the amount paid based on the ratio of Great Circle miles in domestic segments involving a rural airport to total Great Circle miles. A Great Circle is an imaginary circle around the globe that divides the globe into two equal parts. The shortest distance between two points on a globe is a segment of a Great Circle.
Example:
Transportation has two segments, one of which begins or ends at a rural airport and one of which does not.
Amount paid on January 1, 1998 = $400
Number of Great Circle miles in the domestic segment involving a rural airport = 250
Number of total Great Circle miles = 1,200
Rural segment tax = $400 x 250/1200 = $83.32 x 7.5% = $6.25
Domestic tax = $316.68 x 9% = $28.50
Segment tax = 1.00
Total tax = $ 35.75
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Definitions
Taxable Transportation. Transportation by air that begins in the United States or in the portion of Canada or Mexico that is not more than 225 miles from the nearest point in the continental United States and ends in the United States or in the 225-mile zone. (IRC section 4262). Taxable transportation includes layover or waiting time, movement of the aircraft in deadhead service, fees paid for landing, sleeping accommodations, and any hourly charges. (See "Air Charter," Chapter 7.) If the domestic transportation is paid for outside the United States, it is taxable only if it begins and ends in the United States.
Continental United States. The 48 contiguous states and the District of Columbia; it does not include Alaska or Hawaii.
Uninterrupted International Air Transportation. Any transportation that (1) does not both begin and end in the United States or in the 225-mile zone and (2) does not have a layover time of more than 12 hours. See Rev. Rul. 72-107, where payment was made outside the United States.
Open Jaw Transportation --Treas. Reg. Section 49.4264(e)-1(b)). Round-trip air transportation is generally considered to be two trips. When a round trip includes international travel, the departing and returning flights are considered to be two separate trips. When the return flight arrives at a point other than the original departure point (fly from point A to point B but return to point C) or the return flight departs from a point other than the destination (fly from point A to Point B but return to point A from point C), a determination must be made whether the IRC section 4261(a) tax or the IRC section 4261(c) tax applies.
If the points of the "open jaw" are within the continental United States or the 225-mile zone, the distance between the points of the open jaw cannot exceed the distance of the shorter part traveled to be considered two separate flights. When the open jaw distance within the continental United States is greater than the shortest segment, the trip is considered to be one trip. For example, New York to New Orleans via Panama is considered to be two flights since the open jaw (New York to New Orleans) is smaller than the shorter leg (Panama to New Orleans). The IRC section 4261(a) tax does not apply to the other flight. New York to Miami via Bermuda is considered to be one flight because the open jaw (New York to Miami) is larger than the shorter leg (Bermuda to Miami). Thus, the IRC section 4261(a) tax applies to the trip from New York to Miami.
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Payments Subject to Tax -- Treas. Reg. Section 49.4261-7
Examples of methods of payment that are subject to tax unless specifically exempted are listed below.
- Cash fares: No ticket issued.
- Scrip books: Tax applies to the amount paid when the scrip book is purchased, not when it is used.
- Additional charges: Amounts paid for changing the route or destination, extending the time limit of a ticket, changing the class of accommodations, or providing exclusive occupancy of a section, etc. are subject to the tax.
- Commutation or season tickets: When a single trip is 30 miles or more and the ticket is good for more than 1 month, the cost of the ticket is subject to tax. Tax is collected from the purchaser at the time of payment, not when the tickets are used.
- Prepaid exchange or similar order for transportation: Tax applies to the amount paid.
- Chartered conveyances: Amount paid for the charter. (See "Air Charter," Chapter 7.)
- All-expense tours: Taxable with respect to the portion that represents transportation of persons.
- Payments remitted to foreign countries by persons in the United States: Payments are considered to be made within the United States, and tax applies.
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Other Payments Subject to Tax
Frequent Flyer Miles in General. Amounts paid after September 30, 1997, to an air carrier for the right to provide mileage awards or other reductions in the cost of any transportation of persons are treated as amounts paid for taxable transportation. For example, if a credit card company pays a carrier for the right to award frequent flyer miles to its customers, the payment is taxable.
Mileage Awards Paid by a Controlled Group. Any amount paid by a member of a controlled group after June 11, 1997, and before October 1, 1997, for a right described above, which is furnished by another member of the group after September 30, 1997, is treated as paid after September 30, 1997. See IRC sections 52(a) and (2) for the definition of a "controlled group."
Payments Not Subject to Tax -- Treas. Reg. Section 49.4261-8
The following types of payments are not subject to tax or are exempt from tax:
- Exchange of prepaid order, scrip, etc. for tickets when the tax is paid at the time of payment for the order or scrip; for example, a gift certificate.
- Caretakers and messengers accompanying freight shipments if no "specific charge" as such is made.
- Special baggage transportation equipment when it is stated separately.
- Circus or show conveyances when the amount is paid pursuant to a contract for movement of performers, laborers, animals, equipment, etc. but not for advance agents, bill posters, etc.
- Tax does not apply to the amount paid for the transportation of a corpse but does apply to the amount paid for the transportation of any person accompanying the corpse. Organs for transplants are taxed as cargo.
- Miscellaneous charges that include storage or transfer of baggage and parcel- checking. Also, admissions, guides, meals, etc. when such items are included in a lump-sum payment for an all-expense tour. Charges must be stated separately.
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Other Payments Not Subject to Tax
Skydiving Flights
IRC section 4261(h) exempts from the tax on transportation of persons, amounts paid for flights that are exclusively for the purpose of skydiving after September 30, 1997. This type of transportation is treated as noncommercial transportation (IRC section 4041(c)), and the fuel used is taxed accordingly.
Exemptions
As a general rule, all users are subject to excise tax on the amount paid for taxable transportation of persons by air. The only exemptions from tax are provided for certain helicopter uses, emergency medical transportation, certain small aircraft, and affiliated groups. (IRC sections 4261(f), 4261(g), 4281, and 4282)
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