Are airlines lying about taxes? By Christopher Elliott | March 28, 2012 How far will an airline go to make an extra buck? Fudge a few numbers on their taxes, maybe? That’s the question Kenneth Babineaux recently raised — with a little help for the airline industry. And to be honest, I’m not sure if I have a definitive answer, except to say, “Watch this space.” This space, meaning airlines and taxes. Before getting to Babineaux’s problem, let me put this into a little context: After the Transportation Department began requiring airlines to quote a fare that includes all mandatory taxes and fees in December, and with Tax Day approaching on April 15, the airline industry decided to take a stand on taxes. Nicholas Calio, president of the airline trade association A4A, complained that passengers now pay 20 percent of a typical domestic round-trip ticket price to the government, and called for tax reforms. Airlines aren’t really concerned that you have to pay these taxes; it’s that their fares look more expensive as a result of this regulation. Those higher prices are costing them business, because air travelers are highly price sensitive. A $1 difference is enough to push air travelers to one airline at the cost of a competitor. You can only imagine what happen if airfares dropped 20 percent overnight, or even 10 percent. Anyway, back to Babineaux’s question. He’s flying on Virgin America in May, and after booking a ticket from Dallas to San Francisco recently, he says he noticed something “disturbing.” “International taxes and customs fees appeared on my itinerary,” he says. “I have written two letters to the president and spoke to a supervisor.” Babineaux’s letter to the airline’s president wasn’t answered, but a supervisor blamed the international fees on a system problem, but insisted the fare was correct. “Bottom line,” he says, “I do not trust their words and wanted an outside opinion.” Before I go on, I have to make a confession: I’m not the guy to ask about taxes. I’m kinda bad with numbers, and I’m terrible at doing my own taxes. After being audited by the IRS a few years ago, I hired a professional, and I refer all tax questions to him. But this isn’t really a tax story. Babineaux seems to be suggesting that these mandatory fees are either part of the fare, or that Virgin America is charging a tax that it shouldn’t, and pocketing it as profit. I asked Virgin America if it could offer a more complete answer. In an email to Babineaux, the airline thanked him for “reaching out” to me. “We apologize for the confusion, the taxes were charged correctly but there is currently an issue with the way they display on the web,” a representative added. Currently an issue? In fact, Virgin’s technology problems are pretty well-known. Here’s a story from last November. Since then, I’ve been sending a fairly steady stream of complaints to my Virgin contact, who I had hardly spoken with in years, except to tell her how much I admire her airline. But Babineaux wasn’t happy with that answer. He replied to Virgin, sending it screen shots of his purchase, which show international taxes being charged on a domestic flight. “So sorry for these issues,” a Virgin representative responded. “But this is a labeling issue, I promise.” The passenger remains incredulous. “I have no confidence in Virgin America now, and I have not even flown them yet,” he says. After reviewing the back-and-forth between Virgin and Babineaux, I have a few thoughts. First, I don’t think Virgin is hiding anything or overcharging passengers for taxes. I’ve done a lot of stories about airline lies, and this doesn’t have the telltale signs of a lie. This really does look like a system problem. Airlines are much smarter when it comes to deceiving their customers. If Virgin were trying to pull a fast one using international taxes, this would be the work of a rank amateur, and the government would quickly catch on to it. So there’s my outside opinion: nothing fishy going on here, probably. The bigger issue that Babineaux’s questions raise is, what are airlines going to do about these taxes? Now that they must include government fees in the price of their ticket, they’re shifting to a strategy of lowering those taxes. But what if they’re unsuccessful? Would an airline charge a tax that wasn’t due and pocket it, hoping no one will notice? I’m sure some of the folks in charge of identifying new revenue streams have thought about it, but dismissed it as too risky. (Never mind the fact that it’s also a crime.) That isn’t to say airlines are completely above board, when it comes to paying taxes. For example, do you ever wonder what happens to the taxes paid on nonrefundable tickets that are unused? Aren’t you entitled to getting that money back? Yet most airlines won’t refund those fees. They don’t have to pay them to the government, either. So where do they go? Babineaux may not realize it, but he’s on to something. And now that the airline industry is making a fuss about its taxes too, it’s only a matter of time before someone digs around and exposes the industry’s real tax cheats. Christopher ElliottChristopher Elliott is an author, journalist and consumer advocate. You can read more about him on his personal website or contact him at email@example.com. Got a question or comment? You can post it on the new forum.More Posts - Website - Twitter - Facebook - LinkedIn - Google PlusFacebookTwitterLinkedInGooglePinterestReddit Related http://inn0vate.blogspot.com/ Peta One way they make money from taxes is in cases where someone has to cancel a no-refund fare. Airline acknowledges cancellation and the non-refundability of the fare but does not offer to refund the tax component. We had to follow up with two airlines when the cheapest flight provider on refunded the tax and we realized the other two were hoping to get away with it. backprop This was really a roundabout story with Babineaux just to say that the airline doesn’t display taxes with its fares. Is that actually the issue? Or did I get lost and miss something? The November story about Virgin didn’t mention taxes as part of its IT problems. emanon256 I don’t get the point of this story at all. All of the airlines have to re write their systems to comply with the new law, so someone missed a label. Sadly in these large organizations, it takes an army to make a small production change like a label displayed on an itinerary. Sorry Chris, but some guy who is obsessed that an airline he hasn’t even flown on is evil because of a simply IT problem is not worthy of your time. I am shocked as to how many people think airlines are cheating on their taxes (481 to 76 right now). These are large businesses that have to file regularly and have divisions entirely related to corporate taxes. While the airlines are constantly coming up with “new revenue streams” I really don’t think they are cheating on their taxes, that’s too amateur for these large companies. While I don’t agree with all of their new methods of revenue, I do not doubt that they are following tax law to the letter. Unfortunately, current tax law says they don’t pay the same tax on add-ons that they do on tickets, so the un-bundling reduced their taxes, but is in no way cheating on their taxes. Also why do airlines have to disclose taxes up front when no other industry does? I don’t get why people are so hard on airlines. Rental cars still don’t have to have their taxes when you look at them. I routinely have to try every rental car shop to find the lowest rate because they don’t disclose all of their taxes and fees. And you think airlines have a lot? Rental car taxes and fees make airlines look like Saints. Hotels keep adding magical mystery fees as well. Also, every retail store I go into doesn’t have to display taxes in their price. While airlines may be nickeling and dimming everyone on add on fees, they are far from the worst offenders, and they are getting far more flack for it than anyone else. And before all you anti-airline people jump on me, I do not, nor have I ever worked for any airline. I simply travel a lot, and am sick of hearing people complain about non-problems when there are plenty of real ones out there. TonyA_says If you are going to accuse anyone of LYING, at least show us the numbers so we can think for ourselves. Can Babineaux give us the breakdown of his ticket? john4868 I answered “no” but not because I think the airlines are great businesses. It’s no for the same reason that casinos don’t cheat the games within their walls. There’s no reason too. Why would an airlines risk a huge lawsuit over taxes they are upset they have to include in the fare? backprop I don’t even know what he says they’re lying about? There are taxes on his “itinerary”? Are they on top of what he paid already? He thought he agreed to less? They charged him after the fact? I’m glad others are confused. http://profile.yahoo.com/4DMVW6EDML54CXFQMZHZCZ7WEY EmilyE What’s the point here? That airlines charge you for taxes as well as fares? Or that you don’t like paying taxes? Nobody is cheating here. Virgin America is having technical problems. Nobody is not paying their taxes. Rachel My understanding is that he was confused as to why he was being charged international taxes and customs fees for a domestic flight. On a domestic flight, you should not be charged these fees. backprop Great catch! Thank you. So it’s even less of an issue; it was labeled wrong, assuming Virgin is correct in saying he was charged correctly. So, a wrong label is “lying about taxes” per the headline. Sigh. Rachel No, the issue is that the OP’s itinerary shows he is being charged international taxes and customs fees on a DOMESTIC flight. He is concerned that the airline is charging these fees and labeling it as a tax (when no such tax is required for a domestic flight) and the airline is simply pocketing the difference. If your state charged a sales tax of 7 percent and you visited a store in that state who charged you a sales tax rate of 14 percent, wouldn’t you question the higher rate and where the extra 7 percent is going? Gregor van der Made Don’t even mentioning the airport tax refunds if you don’t use the ticket! http://www.re-fund.com kcreedy Hey, Chris, nice story. The airlines have been complaining about taxes for decades so there is no cause an effect between having to list fares with taxes and fees included. My problem with this new methodology is that it hides the fact the government is charging such high taxes and fees. Not that passengers took much notice and rebelled when it was broken out. The bigger question, from a consumer point of view, is why they are charged so much in taxes and fees. 20% is higher than tobacco, alcohol and firearms, which are otherwise known as “sin” taxes. What will the airline’s do with these taxes and fees, you ask. They go straight into various government covers to “pay” for aviation related government services. A taxpayer can say, fair enough, let users pay. BUT, aviation is the only transportation mode required to pay its full share of government services while its competition is subsidized by the government. Witness the development of high-speed rail. The airlines have a valid argument there. The problem is, that these taxes and fees, are designed to go into the Aviation Trust Fund to pay for the modernization of the air traffic control system. Except, as with every government trust fund, it has been raided and as Former Senator Moynihan pointed out in the late ’80s, there is little more than cobwebbed-filled IOUs in these coffers. Some would say, okay, modernization is late for a lot of reasons. Except it costs the economy about $30 billion annually because of delays, cancellations, etc… in addition to an additional 12% in carbon emissions. Studies show that if modernization were to really get off the ground and taxes were reduced millions of jobs would result. Every airline job generates 12-15 non airline jobs. The latest effort at taxation would not go into the trust fund but would pay down the deficit. Will rail and bus passengers be zapped? no. So why go after the airline passenger who is an economic drive? Good question. Because of the antiquated perception these people are rich. Look at the space in an aircraft provided for economy vs premium seats and that will tell you that these people are definitely not the 1%. Lest you think I’m an airline apologist, I want to point out that the airlines have already answered the question as to what they would do if these taxes and fees were lowered or eliminated. Last summer the authority for collecting taxes and fees lapsed and, I believe, only one airline (Spirit, I think), lowered its fares to reflect that. The rest of the industry increased the fares to match the amount that would otherwise be charged for taxes and fees. So, the conclusion is, the airlines are right that taxes and fees are too high. But fares will not go down if they are lowered. They will remain the same with airlines, rather than the government, getting the revenue. Given airline balance sheets, I’m not sure that is a bad thing for the industry but rising fares isn’t good for the consumer. The problem is, we already spent any air fare savings since deregulation during three decades of crazy fare wars. Today, as long as fuel prices stay so high, we will have high air fares. The only solution for the consumer is to book as far out as possible. Asiansm Dan As an auditor working for the government, I tend to say NO, Virgin don’t win anything by cheating the government taxes. It doesn’t pay in a long run. Governments and other agencies have computer programs to audit the taxes collected and remitted to several authorities very fast and very efficient. I can believe the display explanation. The penalties and the bad press in case of fraud will bring down the airlines. If there is any error, it isn’t intentional. brandsteve Some airlines for years have invented huge taxes that they added onto the cost of frequent flyer tickets. While other airlines on the same route only added the stuff that was fixed per flight – like landing/departure fees. This is not a new problem. ACELIMO really ow-some and graceful scene thanks to share with us your story is very nice buddy tax is rule no any reason for excuse it i separated because just mention us about range of tax MarkKelling I don’t understand why the airlines are complaining about including taxes in the displayed fare. EVERY airline that flies between point A and B has to include the taxes, and the taxes between any two specific points is the same (percentage or fixed rate taxes) for every airline. Of course if one airline charges more for the base fare that does mean some of the taxes will be more because they are percentage based, but if they are charging more for the fare anyway they will still lose customers to the one charging less if those customers are searching based on absolute lowest price. As to the complaint by the OP, can the airline tell him what the taxes that are labeled “international” should be for? If they are simply mis-labeled, it should be easy to say what they should be labeled. If they can’t, and from what was presented here they so far have not, then I would agree that he may be getting charged for things he should not. I went on to the website and went through the booking process. Nothing on a DFW-SFO flight showed as “international” taxes there. All taxes are clearly identified and the breakdown seems correct on the web page. I did not actually buy a ticket so I don’t know what the itinerary form shows. Joseph Blasi Maybe the price should be like GAS that is the final price and it is shown in full up front. MarkKelling Posting issue. ignore. MarkKelling What do you mean by “invented huge taxes”? Most airlines charge some type of cash fee for frequent flyer tickets if you book them close to departure and so on, but I don’t understand what you mean by additional taxes. backprop Thanks; I saw your earlier reply below. Virgin says the charge is correct and simply mislabeled. In the situation you presented, I would definitely pose the question. But if I was charged my normal sales tax and it was simply mislabeled “Security Fee” or something, then I wouldn’t care so much. Joel Wechsler Wouldn’t it have saved everyone a lot of time and trouble if Virgin America had simply told Chris and the OP what the mislabeled items actually represented? Cathy_Disqus Showing a government mandated tax or fee incorrectly is a pretty serious problem. In my company (I manage software developers who work on a very large website, with which you are probably familiar), we’d have about 2 business days to get that code fixed, tested and published before I’d have some senior execs sitting in my office wanting to know why it was taking so long. This is the kind of thing that gets the attention of state (or U.S. in this case) Attorneys General focused on your business, so you don’t mess around with it. You do what needs to be done to get it right. There is no way on earth that it should take Virgin America more than a week to get this “labeling issue” fixed. If it does, then their IT processes are broken. TonyA_says Yeah baby, another conspiracy story -:) l2y2 As stated earlier by someone, I also don’t understand why the airlines think the new tax disclosure laws make them less competitive. ALL airlines have to disclose taxes now, thus it’s all relative. If Airline A offers a fare for $130 each way plus $15 in taxes, their new fare is $145. If Airline B offers it for $133 plus $15 in taxes, their new fare is $148. They is still a $3 difference. Where is the consumer seeing a bigger difference that the airlines are complaining about and making them less competitive? Sounds like a smoke screen from the airlines to me. TonyA_says Re: Passengers now pay 20 percent of a typical domestic round-trip ticket price to the government Really ??? Let’s take the OP’s DFW to SFO flight on Virgin America. If he bought the cheapest ticket, it would have cost him $130.80. Here’s the breakdown: TICKET BASE USD TX/FEE USD TKT TTL USD ADT01 111.63 19.17 130.80 *TTL 111.63 19.17 130.80 *AS BOOKED LOWEST FARE ALREADY BOOKED IN THIS COMPARTMENT FBC ADT S10BL ADT DFW VX SFO111.63USD111.63END VX ZPDFW XT2.50AY4.50XF DFW 4.5 TX 8.37US 3.80ZP 2.50AY 4.50XF He would have paid a total of $19.17 for taxes and airport fees. That’s about 14.65% of the total ticket price. Consider further that the OP walked up to the counter and bought the most expensive economy class ticket – the “Y” class fare. He would have paid $484.40. Here’s the breakdown: TICKET BASE USD TX/FEE USD TKT TTL USD ADT01 440.93 43.87 484.80 *TTL 440.93 43.87 484.80 FBC ADT YVX ADT DFW VX SFO440.93USD440.93END VX ZPDFW XT2.50AY4.50XF DFW 4.5 TX 33.07US 3.80ZP 2.50AY 4.50XF Note that the taxes and fees ($43.87) is now only about 9% of the total ticket price. Why is that? A lot of the taxes and fees we pay are FIXED AMOUNTS. Therefore if the fare is low, these fixed amounts look like they are a big percentage of the total fare. For US domestic flights, the US Tax is a 7.5% of the base fare. But the rest of the taxes and fees (e.g. segment tax ZP$3.80, airport passenger facility charges XF $3-4.50, and security fees AY$2.50) are fixed amounts. I really don’t believe we pay 20% of our total fare as taxes. TonyA_says But that would be too easy. The real story was not about Babineaux, it was about questioning what airlines do (or do not do) with the taxes they collect. Consider the changes and cancellations that happen every day. Why do the airlines get to keep those monies (the tax portion of the ticket)? Joe_D_Messina Most confusing article I’ve seen in a very long time. Seems like a simple labeling problem on the website…but it was PAINFUL following the story to reach that conclusion. TonyA_says Emanon256, just like many stories published here, this is much ado about nothing. For one thing, the US Tax on Transportation whether Domestic or International is labelled the same – US. The code “US” can stand for US Domestic Transportation tax, US International Arrival Tax and US International Departure Tax. Its meaning depends on the context of one’s itinerary. In reality a GDS will not label whether the US coded tax is international or domestic. The only important issue is whether the tax is computed correctly. Added: I went to Virgin America’s website and I see they try to account for Domestic and International Taxes separately. Well, that’s the reason for their problem. No need to label them separately. flutiefan THANK YOU. couldn’t have said it better myself. i agree 100% with every point. ExplorationTravMag This might sound naive but I just can’t imagine a major corporation doing something this blatant. The consumer environment now is one of suspicion and oversight. The political environment right now is to respond to this suspicion and oversight in a most decisive manner. The cards seem to be falling in favor of the consumer and the hammer is hitting hard on the corporations. While I agree with the OP, this is suspect, I truly believe it’s a labeling error, plain and simple. However, has it been repaired? Is Virgin gathering their IT minions to slave over this so it is fixed as expeditiously as possible? I believe the answer lies there, in what they’re doing to make sure this doesn’t happen again. If it really is a labeling error… ExplorationTravMag You said that so much better than my attempt that came later… brandsteve Mosey on over to http://flyertalk.com and search on taxes on frequent flyer tickets. You will find cases where the quoted taxes on a so called free ticket are higher than buying a RT ticket from the airline. I’m not making this up. It’s not theory. Do your homework, get a quote from United and Delta to use frequent flyer miles between the exact same cities. I bet they will quote different taxes. This is a buyer beware situation. brandsteve Wrong. See my reply above. TonyA_says Hey Steve, I don’t have to do more homework. I do lots of ticket autopricing everyday and I read the fare construction lines. I know what I am talking about and I don’t need to read flyertalk. Airlines do NOT INVENT taxes. They INVENT fuel and insurance surcharges. Make sure you know the difference. Michael__K Are you aware that airlines have recently been sued in Canada and in Australia for mis-representing taxes and surcharges? (Why would they risk these lawsuits?) http://digitaljournal.com/article/318173 http://my.news.yahoo.com/australian-regulator-files-lawsuit-against-airasia-023722187.html brandsteve If you know as much as you claim you do then you would know that these rules only apply to paid fares. I suspect your knowledge of what really happens in the world of free tickets is quite suspect. I’ve done my homework as have thousands of other frequent travelers who post on flyertalk. It’s amazing what airlines try to get away with. TonyA_says You need to read [closely] what the airline is charging you. They are reporting together taxes and fees. They cannot invent a tax. But they can lump their fuel (and other) surchage to the fees. Next time you buy a ticket, look at the breakdown of the taxes & fees. Anything that says YQ or YR is not something that goes to the gov’t. YQ and YR is a surcharge that goes to the pocket of the airline. IGoEverywhere I feel that they are playing the tax issue faily straight up. There is too high of a fine to be paid for lieing. I am suspicious of the fair displays from airlines like Virgin and Spirit and Southwest that state airfares from $24.00 and $69.00 one way based upon roundtrip travel. It adds confusion to the whole idiot mess. From a travel agent point of view, you pay what it costs to get from here to there and you decide on cheap or convenience; they rairly are the same. You pay what the airlines charge, or don’t fly that airline. TonyA_says Even the poll was very confusing. Airline’s cheating on their taxes? Does this mean their INCOME tax? Or does this mean whether they REMIT to the government the taxes they COLLECT from us when we buy a ticket. The latter would indicate the taxes were ours since we paid them. TonyA_says I understand award tickets, too, as well as industry discounted fares. You need to read up on the rules, not just websites. bodega3 Do you know how to read a linear or what it is? What the codes mean? I would be interested in the linear on the OP’s ticket not what is in print on an itinerary. Please give us proof of what you know that the airlines get away with. I don’t defend the airlines but if you know something, prove it. TonyA_says Since airlines in the USA must now advertise only TOTAL price(s), then how can they misrepresenting anything else that is part of that total amount? Lindabator Most people end up using the tickets with a change fee, and the taxes are submitted to the government when they travel on THAT ticket. Very few people throw away the entire ticket, but if you do, you may request the taxes to be refunded. But no, the airlines doesn’t offer it to you. $16635417 In the past I have posted that bundling of taxes into the quote would be a convenient way to hide new future taxes, similar to the way gas is sold. Well, the President didn’t wait. When the proposed budget came out, there WAS a proposal for ANOTHER tax. http://www.alaskadispatch.com/article/alaska-senators-sound-proposed-100-flight-aviation-user-fee Lindabator Plus the oversight is ridiculous! I know, I worked for United – every fare/ticket is tracked by the government to ensure the taxes are distributed correctly — the original posting Virgin has to list with the FAA may have everything correctly listed, and just can’t get their system to do so as well — as long as what is listed is what is collected, they are not violating any conditions, or “cheating” you in any way. john4868 Actually Michael the Australian case isn’t anywhere close to being on point. That case has everything to do with the airline advertising a fare that doesn’t include taxes. The Canadian case is closer but involves whether a surcharge was misrepresented as a tax. It also hasn’t been tried so all that really has occurred is that a laywer filed a case searching for a big payday. It doesn’t mean that its true. Just that a lawyer decided to attempt to hit the lottery. bodega3 A perfect example of online bookers thinking they know something that they are very ill informed about. All taxes are regulated. Fees on the other hand are not. The two are not the same. CajunJamie There is a component that was not clarified in the article. 1. The original itinerary listed a base fare, an international tax of $33.20, and domestic taxes and fees of $43.20 2. The international tax of $33.20 was then re-labeled “Federal Excise Tax.” 3. Total taxes listed on the original itinerary were $33.20 + $43.20 = $76.40 The question then became, after asking Virgin about this International tax that became an Excise tax, why did it then “disappear” altogether from their website? Today if one books the same route for the same trip in May, it will show the base fare, plus the $43.20 in domestic taxes and fees, but the $33.20 Federal Excise tax is now nowhere to be found. Where did the $33.20 that Virgin was charging as an Excise Tax go? If they say it is rolled into the fare, why would they want their base fare to look higher. If it is indeed a tax, why is it not listed in taxes and fees? It simply disappeared. One day Virgin America is charging this “tax”, the next day they are not. Lindabator They didn’t “invent” them, they just passed them on to the client, while others chose not to. Stephen0118 I feel the same way. I flew Virgin Anerica this past Christmas and I dind’t even pay attention to the taxes. They were the cheapest, so I flew them. Stephen0118 *that should be Virgin America. Lindabator Because “free” tickets are based on a formula, and the taxes are as well. They do not base on least expensive, as they are NOT to the airline/government formula. emanon256 All I can find is a $2.50 per airport domestic security fee. Then each airline seems to have their own rules like $25 for redemption if it’s greater than 21 days, more if it’s less than 21 days. Some international airports seem to have a larger departure tax, like Paris. There are people report that one being a very high departure tax. But that’s the French government charging that, not the airline inventing a fee. It’s just a lot higher than the $2.50 domestic fee. There are other people reporting lots of random taxes at various international airports, or vias fees. But it doesn’t appear that airlines are making up these fees and charging people on award ticket these made up fees. These fees are the taxes that people pay to depart from or transit through the airports and the airline is responsible to collect them. These would be added to a cash ticket, or added to an award ticket. I feel that my homework is complete. Lindabator As a former airline employee, I can succinctly tell you – you don’t know whereof which you speak. You are making grand assumptions, and starting those “conspiracy” rumors. Government oversight on airlines is constant, and NOTHING the airlines passes to you isn’t first approved by the government. So no, they don’t “make up” rates. http://profile.yahoo.com/4DMVW6EDML54CXFQMZHZCZ7WEY EmilyE Please show us an example. You’ll find that those are all mandatory taxes, or extra fees (as written in the terms and conditions) Lindabator But if they DID read off a linear fare to him, it would be Greek anyway. He wouldn’t understand it. But the government would, as each segment of those codes is overseen on each ticket to ensure the proper agency receives its cut. CajunJamie The issue was not about a mis-label,or lying. The question is, on the original itinerary, there was the 1)base fare, 2) domestic taxes and fees of $43.20 and 3) a federal excise tax of $33.20 (originally the International tax). These were broken down separately as they should be. Today, on VA’s website, the same itinerary shows 1) base fare, 2) domestic taxes and fees of $43.20. What is different is the “Excise tax” of $33.20 on the original itinerary does not appear any more. So, why was the fee charged before, but has since disappeared? If there is indeed a $33.20 Federal Excise tax, should it not also be listed in the taxes and fees section? If there was this excise tax, the breakdown should be: Domestic Taxes and Fees: $43.20 Federal Excise Tax: $33.20 ______________________ Total taxes and fees: $76.40 The original itinerary did show this. Today the website only shows $43.20 and no sign of any excise tax. Lindabator But they still have to account for those taxes, as you know when making a change in the GDS. That is how the government gets the CORRECT cut for each segment – Federal, state, local, etc. TonyA_says So in that case there is no cheating or lying, right? They may have taken your tax money (even if you don’t fly) but they give it to Uncle Sam, correct? Lindabator Uncle Sam gets oversight on each ticket – who do you think keeps the money – :) TonyA_says But how about the FOREIGN taxes carriers charge. I had a voluntary reroute on an Air France ticket. The pax changed their mind and no longer made a planned stopover in London. They went home to US directly. But AF got to keep the infamous Airline Passenger Duty Tax of the UK. I wonder where this money went? The new ticket reissued was cheaper so there was no refund. Michael__K You wrote: “Why would an airlines risk a huge lawsuit over taxes they are upset they have to include in the fare?” I interpret that to mean that you wouldn’t expect airlines to disobey the rules and risk lawsuits by failing to include taxes in their advertised rates. You’re not suggesting that you WOULD expect lawsuits like the Australia case, are you? TonyA_says Where are you getting this information and data? Where did you see this breakdown anywhere? I can’t find them in the article or in the VX website. Is there something we are missing here? TonyA_says We were warned! TonyA_says I wish I could like this a hundred times! This guy, Steve, I think, is complaining about how airlines charge the FUEL SURCHARGE on a INTERNATIONAL AWARD ticket. But that is NOT a tax. TonyA_says CajunJamie, I’m really confused now. Were you the OP? So did you see VX charge the taxes and fees as above? Thank you for your clarification. Added: After reading this and your answer to me above, I guess you are the OP. And, Yes, if you saw both of the taxes as you stated, then Virgin America is wrong. Another thing that is wrong is the US International Tax VX quoted. US International Arrival & Departure tax was $32.60 in 2011 and is currently $33.40 in 2012. I have no clue where VX could have picked up the $33.20 amount. BTW how much was the fare before taxes and fees? Michael__K “According to testimony of GAO Director Gerald Dillingham:” “Consumers with unused nonrefundable tickets are entitled to a full refund of the September 11th Security Fee, in accordance with Department of Homeland Security (DHS) Transportation Security Administration (TSA) guidance, but few consumers request a refund because airlines are not required to proactively inform consumers of their right to a fee refund….” http://www.ksdk.com/news/article/298316/28/Airline-add-on-fees-may-be-refundable-if-your-ticket-is-not http://pulse.yahoo.com/_KNWGYGW4LEIVCJOAFKIIHRSZOM nicole j I’m sorry, but I can’t understand this comment. Could you clarify? TonyA_says Michael (almost) the last sentence of the article said … In other words, the government’s own watchdog, the GAO, had trouble interpreting exactly which fees can be reimbursed. If you can figure out how to get these taxes and fees from unused NON-REFUNDABLE tickets systematically from the airline; then you will be a rich man! IGoEverywhere I have an actual Airline Reporting Corperation coupon in my hand. Fare 660.46 the original cost US Tax 49.54 the US taxes Xtra Tax 21.60 security / PFC’s/Rural taxes / 911 fee Total 731.60 and that my freinds is what should show on total If you want to buy this ticket at this time and this airline, then anti up! http://blogs.ocweekly.com/stickaforkinit Dave Lieberman It’s an offshore person paid to leave comments on websites that require registration or CAPTCHA. Ignore. LFH0 An excise tax is simply a type of taxation, but it gives no clue as to what is being taxed. Taxes on domestic and international air travel are both excise taxes. Changing the name from “international tax” to “excise tax” is not a substantive change. Now what would be really interesting is if passengers starting making claims of tax overpayments. That is, the U.S. International Air Travel Facilities tax for a domestic journey is zero, so any amount paid over to the IRS is an overpayment. The liability for this tax is on the passenger, and the carrier is simply the collector for the IRS. In the case of an overpayment, the passenger can either receive a refund from the carrier (which, in turn, submits an overpayment refund claim to the IRS), or the passenger herself can submit an overpayment refund claim to the IRS. To make a refund claim, file Form 8849, including Schedule 6, providing all details (e.g., a copy of the receipt showing international tax paid for a domestic journey). Doing so might very well get the IRS on the carrier’s case for improperly collecting the excise tax. LFH0 While it seems logical that the passenger should at least get a refund of the tax paid on an unused non-refundable air transportation ticket, such is not the case. The reason is that the government has not imposed a tax on air transportation (for if it had, and no air transportation was used, then no tax would be payable). Instead, the government has imposed a tax on the sale of air transportation. Section 4261(a) of the Internal Revenue Code states, “There is hereby imposed on the amount paid for taxable transportation of any person a tax equal to 7.5 percent of the amount so paid.” Moreover, Rev. Rul. 89-109, 1989-2 C.B. 232, holds that “To the extent the airline refunds to the passenger the amount paid for the air transportation, the collected transportation tax attributable to the amount of such refund may be refunded to such passenger. However, to the extent the airline does not refund to the passenger the amount paid for the air transportation, the collected transportation tax attributable to such nonrefunded amount is to be remitted by the airline to the Government.”In effect, the air transportation tax is really a sales tax, and as with any store that has a “no refunds” policy, the sale of an unused good or service remains taxable. TonyA_says While that is true for the excise (sales) tax portion of your ticket, there are a bunch of other fees you also pay for – security, airport facility, US customs and agricultural inspection, and FOREIGN airport taxes. Do airlines have a right to keep these “taxes” and fees which seem to be USE RELATED (aka per enplanement) if you don’t get to use them? Note: The US Domestic 7.5%, Domestic Segment, Int’l Arrival and Departure are ALL EXCISE taxes. CajunJamie Hi, Some things have gotten twisted and confused. So, here are the original documents with notes written in red. Here is the actual case and three images: 1) The original domestic itinerary that had $33.20 as an “Int’l Departure/Arrival Tax”. This raised the question, “why an international tax on a domestic flight?” http://i1252.photobucket.com/albums/hh570/CajunJamie/Virgin1a.jpg 2) Virgin stated that this was mislabeled and was not an international tax, but a Federal Excise Tax. The itinerary was updated: http://i1252.photobucket.com/albums/hh570/CajunJamie/Virgin1a2.jpg 3) I then went to Virgin America’s website and searched for my exact same flight on the same dates. The $33.20 International departure/arrival tax, then changed to Federal Excise Tax, is no where to be seen. I paid $33.20 Federal Excise Tax PLUS $43.20 in domestic taxes and fees for a total of $76.40 in taxes and fees. As you can see, today’s passenger will only pay $43.20 in taxes and fees as can be seen here. http://i1252.photobucket.com/albums/hh570/CajunJamie/virgin1b.jpg What has dragged this out for so long is that Virgin America has not been able to tell me or Chris, why this $33.20 is not showing up on their website under taxes and fees. That is the ENTIRE crux of this matter. “Where on the VA website is the $33.20 Federal Excise Tax?” Tony has been VERY professional and polite working with me. He just has not been able to answer the question. If Virgin is correctly collecting a Federal Excise tax, their website should show in that image: Base Fare: $496 Federal Excise Tax: $33.20 Domestic Taxes and Fees: $43.20 Total: $572.40 There is no Excise Tax even shown. Steve_in_WI One could argue that the issue isn’t about being competitive with other airlines (you’re absolutely right that they’re on a level playing field now), but with other forms of transportation. From a competitive standpoint, I’m sure an airline would prefer to have the first fare the consumer sees be as low as possible, even if the final fare is going to be higher once taxes are included. Maybe I’m trying to decide between driving and flying and seeing $130 is going to make me lean more towards flying than seeing $145. For the record, I’m in favor of showing the full price immediately, but I also think it’s fair to break out what portion goes to the airlines and what portion goes to the government via taxes. Especially since the taxes can be a substantial percentage of the total purchase price. TonyA_says M_K, you might want to read this. http://www.atab.org.uk/our-campaigns/air-passenger-duty/the-law-for-collecting-taxes-fees-and-charges/ Apparently the Brits and Europeans are more organized in trying to get their paid airline taxes back. LFH0 I think the answer is “yes-and-no.” That is, each tax or fee must be looked at individually to see what is the basis of the charge. As to U.S. taxes and fees, some research would probably turn up the answers. I see, e.g., that the other taxes in Section 4261are also based on the sale of air transportation (i.e., subsection b, domestic segment tax; and subsection c, international travel facilities tax). It is interesting to see that even in subsection b, in which the tax is based on the number of domestic segments, the amount of the tax is not changed if the route is changed (and there is either an increase or decrease in the number of segments), the tax is based on sale, and thus the actual use or non-use of the air transportation has no bearing on the tax being payable. I think that as a matter of policy, there should be no tax on air transportation not consumed. But a tax is not a fee, and therefore the tax need not relate to the services provided by the government. Thus, it is lawful for the tax to be collected, even if it might not make good policy sense. Then one needs to look at U.S. fees. Oftentimes, government fees are refundable if no services are provided, as fees are supposed to have some relationship to the services provided by government (e.g., I think the so-called 9/11 security fee is refundable if no transportation is consumed). Foreign taxes and fees open up a whole new can of worms, each having its own rules. What has to be looked is whether the tax or fee is based on the act of air transportation (or some ancillary act) or the sale of air transportation, who is liable for the tax or fee, and whether that foreign government permits a refund for taxes or fees paid in excess of the lawful amount payable. TonyA_says Wow. Thanks for your explanation. I am not a tax accountant or lawyer, but I had to do a lot of (excise) tax work for telecommunications when I worked that field. To simplify this, I look at IRS Pub 720 to see what is an excise tax. If the tax being collected is an excise tax then probably forget about getting a refund. (Except that remember the IRS itself gave a refund for the telecom excise tax.) LFH0 Actually, I think you mean Form 720 and Publication 510. With so many distinct numbers, it is easy to confuse a “publication” with a “form”! But simply because there is an excise tax does not mean that the tax cannot be refunded. Form 8849 is devoted to the refund of excise taxes. Most of the form relates to the tax on motor fuels, but a refund of the tax on the sale of air transportation can be claimed using Schedule 6 of that form. I remember the telecom excise tax refund from several years ago, and in that case there were so many people eligible I recall the IRS simply inserting a line on Form 1040. But at its heart, that tax refund is what is possibly at stake in the main story here. The telecom excise tax was refunded because the telephone service upon which the tax was collected was in fact not taxable; therefore, taxpayers could have the tax refunded. In this story, Virgin may have collected a tax on the sale of air transportation based on the use of international travel facilities. If the sale involved only domestic transportation (taxed at 7.5 percent), then sale was in fact not taxable for the use of international travel facilities, and the tax may be refunded. CajunJamie Please see my complete post with details below. I have the original documents posted. http://inn0vate.blogspot.com/ Peta In my case they were flights purchased for an Asian airline and 2 European airlines. On request all of the taxes were eventually refunded. Changing dates were not an option, but fortunately insurance covered the remainder. l2y2 I agree. I am in favor of the breakdown, so consumers can see what portion of the cost goes to the government. However, everything I have read states that the airlines feel they are less competitive in their own industry, not other forms of transportation. That just doesn’t make sense. JPainis If you did your homework, you would actually read the fare rules and terms and conditions of award tickets. And you would see that all fees are there and disclosed. SoBeSparky I too do not understand this article. Based on a sketchy anecdote, people are asked their opinion if airlines are cheating on taxes. This is far too complex a subject to be introduced with such a cursory summary. There are no-show fees, change fees, credits (vouchers) and a whole host of airline charges in addition to taxes. But most passengers just lump them all together and call them an airfare. Then they want a tax refund? Surely you are kidding! emanon256 The problem is not the tax or fee is wrong, it’s just that the label is wrong. At least that’s my understanding. I too manage developers and work on multiple large scale ERP systems; you probably haven’t used them in my case. One of the issues involving system changes like this is prioritizing fixes, getting sign off from the users, managers, etc. and then scheduling the movement of such a change into production. This also involved bouncing the webservers, etc. depending on how the label in rendered, which often can only happen at a once a week window, again depending on the server, system, volume, etc. In my experience an incorrect label on a page that came as a result of a regulatory change that was functioning correctly, but miss labeled, would be a lower priority change because it is working. We would notify all customer facing individuals about the issue so they can handle calls/e-mails, etc. However this is not something we would immediate push through and risk potential downtime. This type of change could easily take one to two weeks to get pushed into production depending on the variables I described above. AUSSIEtraveller one really easy solution, if you’re a big airlines is to tell the government, airports etc. to collect their own bloody taxes. These so called security taxes are a joke. I wouldn’t pay the useless TSA to tie my shoelaces. In Australia, we have an international departure tax, now given a different name, but a massive AUD$47 (USD$50). Govt used to collect it, but now they want airlines to collect it on their behalf. Hope airlines add a fee for collecting govts taxes. Airports have also got in on the act. Most major Australian airports used to be govt owned. Then they privtised them & now, all have their hand out for user fees. Re cancellation. Airline can not refund taxes by saying that cancelling fees are greater or same as taxes. AUSSIEtraveller Airlines, especially in the USA are in general a loss making concern. Look at AA & all other majors that have been in chapter 11. Be careful, what you wish for. You might end up paying more still. How do you make a small fortune ? Start with a large fortune & start an airline. bodega3 8MAY DEPARTURE DATE—–LAST DAY TO PURCHASE 29MAR/1429 BASE FARE TAXES TOTAL 2- USD223.26 38.34XT USD261.60ADT XT 16.74US 7.60ZP 5.00AY 9.00XF 446.52 76.68 523.20TTL First off, the online websites don’t give you the linear that we see in the GDS or the breakdown in the pricing we store as shown above. The listing that VX gives for international arrival/departure is for the AY tax which is a security tax you are paying. The are lumping it under one heading to cover them for both international and domestic flights regardless of what you are taking. This is your itinerary pricing in my GDS as of just a few minutes ago. You aren’t paying anything more than you should be and what you aren’t seeing is how it is actually broken down for ARC and where it all has to go. Sadly, their wording is confusing you. XT is total taxes on this itinerary per ticket which is 38.34 16.74 is the US tax per ticket 7.60 is the segment tax, ZP, as you are charged per segment 5.00 is the security tax, AY 9.00 if the passenger facility charge, XF The base fare is slightly different today that when you booked, which isn’t uncommon. AUSSIEtraveller airlines can charge a tax collection fee. Can you blame them ? In the USA you seem to have taxes on top of everything & taxes on taxes. At least in Australia, our GST is included in most consumer prices (not in business to business) TonyA_says Hi Jamie, Thanks for posting the pics. They give us a lot of important info. Let me guess what happened to you. I would like to explain to you (and others) that this is purely a mislabeling of Federal Excise Taxes. They incorrectly labeled it as Int’l Departure and Arrival Tax. To the trained eye, that could not be an International Tax since the US Int’l Tax is $16.70 each depature or arrival or $33.40 roundtrip for each passenger. Since there were 2 of you, then the Int’l Tax should be $66.80. But it was only $33.20, too low! Here is what I think the correct breakdown should be for your tickets: Fare 221.40 x 2 = $442.80 7.5% US Tax 16.60 x 2 = $ 33.20 DFW XF 4.50 SFO XF 4.50 DFW AY 2.50 SFO AY 2.50 DFW-SFO ZP 3.80 SFO-DFW ZP 3.80 TOTAL 259.60 x 2 = $519.20 As you can see it is exactly what you paid for. Note: You probably saw the SALE price at $130 per direction since that was the (rounded up) total fare they were required to display. I wish all the people who complain to Chris Elliott is as detailed as you are. It makes research a lot easier. Added: the reason why Virgin America’s webpage is confusing is because it separates out the Federal Excise Tax from the rest of the other taxes and fees. If it simply lumped them all together, then they would not have this labeling problem at all. TonyA_says It probably was displayed as a TOTAL price of $130 per direction (one-way) as required by law. CajunJamie Tony, Thanks for the clarification. Just a few comments I would like to add to wrap things up from my end. 1. In this age of fees on top of fees and airlines squeezing every penny out, the public is not willing to give you the benefit of the doubt. 2. Transparency. All of those figures you broke down from your computer screen, the public never sees. We go by our web-printed itinerary and what we see on the computer screen. Because there is already a section on the web page that has taxes and fees, if the Federal Excise Tax is a tax, as the name states, it needs to also be included right there with the rest of the taxes and fees. To date it still is not. 3. For me, this was never about the money. $33.20 is real money, but the reason I pursued this was because I have never flown Virgin America, I hear wonderful things from others, but I was running into mislabels, contradicting information, reading one thing and seeing the opposite in writing on your itineraries. And, the longer a problem continues, the worse it gets for the customer, even if it is a matter of perception. So, on May 8th when my girlfriend and I show up for our first-ever flight on Virgin America, to celebrate my birthday in California, I guess I will see your service in action. My fingers are crossed. jamie TonyA_says Virgin America definitely mislabeled the Domestic Transpo Tax and it caused you to be concerned. You have a right to be concerned! Unfortunately you never got a complete explanation or a simple one enough to understand. Take care have have a great B-day in the bay area. You have nothing to worry about your ticket. CajunJamie Thank you Tony, for being polite and professional. jamie TonyA_says Great post! We need to remember that Virgin America’s web staff was probably sleepless trying to comply with the TOTAL PRICE requirement, baggage fees, ancillary fee disclosures by the DOT. All those was suppose to be in last 26JAN. I wonder what other fires they were fighting. bodega3 This is one of the problems with online airline ticket purchases. You aren’t seeing all the information that we see as they configure their websites differently than their actual reservation system. Thus you aren’t even seeing live inventory. Enjoy CA and if you need to go wine tasting, go to the real wine country….Sonoma County :-) emanon256 Thanks, people always forget about all of the work required to “put something on the web.” CajunJamie I will be going to Santa Rosa to spend a week. Can’t wait for wine country. My girlfriend says Sonoma is the best. Thanks! TonyA_says you’re right, I forgot it was a form (so it must be I for instructions not pub). I remember reading the IRS field audit guide a long time ago so I could fully grasp the meaning of this US Excise tax. It is a good weekend read for those who have nothing to do. http://www.irs.gov/businesses/small/article/0,,id=186838,00.html#Ch7interairline TonyA_says Oops posting problems. TonyA_says Santa Rosa is gorgeous. If you are into flowers and plants, Luther Burbank’s from there. Enjoy. bodega3 My hometown is Santa Rosa, born and raised. Have a good time! bodega3 So is Snoopy and Charlie Brown!! http://pulse.yahoo.com/_OEPJGQPIEB75YYDE5CJY6R3VFE Carver Clark Farrow II I’m confused about the point of this article. Perhaps one of the travel agents can shed some light. When I purchase an airline ticket, I pay the base fare, taxes, fees, etc. upfront. I would assume that when the airline remits the taxes to Uncle Sam would be unrelated to if and when I actually fly. For example, say on February 1, I purchase a ticket for $200 for December 1. The hypothetical breakdown is $150 base fare, $20 ancillary fees, and $30 Federal taxes. Wouldn’t the airline remit the $30 to the Federal Government whenever it remits taxes, monthly, quarterly, whatever. Therefore it seems the reason the airline doesn’t automatically offer a refund of the taxes is not to keep the taxes, but rather to avoid the accounting costs of applying for a refund from the government. TonyA_says Carver there are 2 issues: One – does the airline charge the CORRECT amount of tax, or do they “invent” taxes and pocket them? Two- what do the airlines do with the tax? Do they remit them or get to pocket them if you cancel your flight on a NON REFUNDABLE ticket. The answer to the first question is that the airlines [generally] collect the CORRECT taxes. In the OP’s case it was a mere labeling error, but the correct taxes were charged. The answer to the second question on how Transportation Excise Tax is collected – the IRS Audit Guide for Airlines explains it quite clearly. http://www.irs.gov/businesses/small/article/0,,id=186838,00.html These taxes are imposed on the amount paid by the passenger. So for as long as you buy a ticket, the airlines must collect them (the excise tax). Hence: The air transportation excise taxes are facilities and services excise taxes. Facilities and services taxes are imposed on the amount paid for the use of a facility or a service provided. These taxes are classified as collected taxes and are reported on Form 720. Collected taxes are paid by the person who receives the service or uses the facility. The term “collected tax” stems from the fact that the person furnishing the service or facility must act as a collecting agent for the tax imposed on the person paying for the service or facility. It is important to remember when dealing with air transportation taxes that the customer is the taxpayer and the air transportation provider is the collecting agent. Also the airline does not keep the collected tax for a long time: Read: Generally, semi-monthly deposits of excise taxes are required. A semimonthly period is the first 15 days of a month (the first semimonthly period) or the 16th through the last day of a month (the second semimonthly period). Here is the rule on REFUNDS: Ticket Refunds Every person who refunds any amount with respect to a ticket or order that was purchased without payment of the air transportation tax must deduct from the amount refundable, to the extent available, any tax due as a result of the use of a portion of the transportation purchased in connection with the ticket or order and must report the amount of any remaining uncollected tax to the IRS. Cite: IRC § 4263(b). If a passenger cancels his ticket, Rev. Rul. 89-109, 1989-2 C.B. 232 holds that to the extent an airline refunded to a passenger the amount paid for air transportation, the collected transportation tax attributable to the amount of the refund should also be refunded to the passenger. However, to the extent that the airline did not refund the amount paid for air transportation to the passenger, the collected transportation tax attributable to the nonrefunded amount should have been remitted by the airline to the IRS. The same result would apply to a situation in which a carrier allowed the passenger a refund by credit rather than by cash, or if an airline offered a discount fare program under which it refunded less than the full purchase price in the event of cancellation of the ticket by the customer. But see United Airlines, Inc. v. U.S., 929 F.Supp. 1122 (N.D.Ill. Jun 27, 1996), aff’d 111 F.3d 551 (7th Cir.1997) (criticizing Rev. Rul. 89-109 and concluding that amounts retained by the airline as penalties or service charges for canceled tickets are amounts paid for taxable transportation). Please note that as far as the IRS is concerned only the Domestic 7.5% Transportation/Percentage Tax, Segment Tax ($3.80) and International Travel Facilities Tax ($16.70 each Departure or Arrival) ARE TAXES. The rest collected by the airlines are FEES (i.e. Security, Customs/Agricultural Inspection, Immigration, Airport Passenger Facility Charges PFCs, etc.). I believe the FAA audits the collection of PFCs. I suppose the rest are audited by the Department of Homeland Security since these fees are collected for their agencies (TSA, Customs, Immigration etc.) http://pulse.yahoo.com/_OEPJGQPIEB75YYDE5CJY6R3VFE Carver Clark Farrow II Tony What you writes makes sense. Where I am confused is why do people believe that when you lose the value a nonrefundable ticket, e.g cancel the ticket, that the airlines keep the taxes. Its almost as if people believe that the airlines remits the taxes only after you fly. TonyA_says Carver, probably because some of the FEES are not [Excise] taxes; so people believe they are to paid only if they actually USE the services or facilities. The other issue is the FOREIGN Airport Taxes and Fees that US Carriers collect here for an international flight. I have no idea what happens to those when one cancels a ticket. http://pulse.yahoo.com/_Z3AVBBJN4I7SVPZIXW2S37LHQA photoohideustopublish What is shocking is that the federal and local govMINTs have not imposed taxes on checked baggage fees. If taxes of over 50% can be levied on a car rental at some airports (notably PHX) for ball parks and convention centers I will never see, govMINTs could easily tax baggage.