Government says airlines “not required” to refund taxes on nonrefundable tickets

Kirk Miller knew his nonrefundable US Airways tickets was lost when he canceled his flight, but like many air travelers, he wondered about the taxes. Could he get those back?

“It is my understanding that although the fare is not refundable, the taxes included in the price of an airline ticket are refundable,” he says. “Airlines act as tax collectors, but they are supposed to hold the taxes in escrow until you actually travel, when they pay the government(s).”

Right?

Not exactly, it turns out. A US Airways representative told him the taxes were also nonrefundable. He sent a brief, polite email to the airline, and was again rebuffed.

I’ve raised this question in the past, too. Some airlines apparently keep the money. Others return it.

I suggested he ask the Transportation Department about the taxes. So he did.

Here’s the eye-opening response:

This is in response to your inquiry about the refundability of taxes on non-refundable airline tickets.

Tickets for domestic air transportation are subject to an air transportation excise tax of 7.5% of the air fare plus $3.70 per flight segment. By law, this tax applies to the sale of air transportation, not to the transportation itself. Airlines remit this tax to the government shortly after the ticket is issued. If the passenger changes his or her schedule and forfeits the air fare on a non-refundable ticket, the airline still owes this tax to the government.

Under the law, if an airline refunds the air fare, it is free to, but not required to, refund the tax. If the airline refunds the air fare but does not refund the tax, the traveler can claim the a refund of the tax from the IRS by filing form 8849 with that agency. If the airline does not refund the fare, then as indicated in the previous paragraph the tax on that fare is payable to the government.

The U.S. Department of Transportation does not regulate any of the various government fees that appear on airline tickets. The U.S. air transportation excise tax on airline tickets is administered by the Internal Revenue Service, Office of the Chief Counsel, Excise Tax Branch (202-622-3130).

Similarly, the other taxes and government fees on airline tickets are each administered by the agency that oversees the fee in question. For example, an “XF” fee is a Passenger Facility Charge of up to $4.50 per participating airport, which is used for airport improvements; this fee is administered by the Federal Aviation Administration.

On international tickets, an “XY” charge is an immigration inspection fee, and a “YC” charge is a customs inspection fee. Both of those fees are administered by the office of Immigration and Customs Enforcement of the Department of Homeland Security. There is also an agricultural inspection fee on tickets for international transportation; this fee is administered by the U.S. Department of Agriculture.

We do not have information on the policies of those agencies concerning the refundability of their fees on non-refundable tickets.

That’s fascinating.

According to the government, taxes are being remitted shortly after the sale and may be refunded if the airline wants to.

I wonder what would happen if a site like Yapta decided to build an automated system that applied for a refund from airlines that had a policy to offer taxes back? How much money could air travelers save — particularly when taxes can sometimes account for nearly half the airfare?

(Photo: indi Ca/Flickr Creative Commons)

  • cjr

    “The U.S. Department of Transportation does not regulate any of the various government fees that appear on airline tickets.”

    Well there’s your problem.

  • Bob Johnson

    So are they also saying that the federal taxes on a refundable ticket are sent to the government shortly after the ticket is booked, and that if the passenger cancels the ticket, the airline has to eat the taxes when they refund the ticket?

  • fideauxdon

    This is, of course, absurd, but it’s indicative of what has been happening to the poor traveler over the last several years. My Wife and I had to cancel a trip a couple of months ago, and we were surprised that we didn’t encounter a problem with the airlines refunding taxes. We were especially pleasantly surprised that LOT Airlines, a Polish company, even refunded what we paid for non-refundable tickets, after we explained the situation, charging only a moderate fee to do this. Chances are, though, this largesse won’t continue. I’m sure that when the airlines who aren’t currently keeping the taxes will hear about the ruling , and after thinking about it for two seconds, will start doing the same thing, just as they did with baggage fees. I predict that before long, airlines will follow the lead of Spitit and start to charge extra for carry-ons, and before long, the suggestion that RyanAir put forth for charging passengers to use the Restroom will be intriguing to them.
    As Gordon Gecko once said: “Greed is Good!”.

  • Dang

    It happens to me several times when I redeposit an Aeroplan award ticket, all the taxes are reimbursed by Aeroplan on the spot. The same logic apply when I change the itinerary of my award tickets, Aeroplan reimbursed the taxes on the old ticket and collect the new applicable taxes on the replacement ticket. And Skyteam do it too. It’s a matter of computer programming. Very smoothly and on the spot and clearly specified on the e-Tickets.

  • Thalassa

    I dunno, but it seems quite obvious to me that only the IRS can refund taxes. They are the ones who collect taxes, so thus only they can refund them.

    And you know our beloved government doesn’t like to refund taxes.

  • Carver

    This seems like much ado about nothing. Has anyone actually had an airline refund a ticket, but NOT the taxes, regardless of whether the ticket was supposed to be refundable or not?

    With regards to any ticket, the taxes appear to be sent off shortly. However, like any merchant, the airline can refund the taxes along with the ticket and then claim a credit against its own tax account.

    The real story here is that airline are actually doing something that is customer friendly.

    @Bob Johnson

    How you came to that conclusion is baffling. Just because taxes are remitted doesn’t mean that they can’t claim a credit for taxes which are later refunded. Think about any other item that you have purchased. If you get a refund, the store doesn’t eat the sales tax. Its get it back from the taxing authority.

  • Arizona Road Warrior

    The real question is the US government is auditing the airlines (as well as state & city governments in the case of hotels in regards to the cancellations of non-refundable non-changeable room reservations or cancellations of room reservations after the deadline) to insure that the airlines are paying the government the taxes.

    In theory, a report is generated at the end of the month or quarter showing ticket sales and the amount due to the government. We don’t know if the airlines are removing the cancellation of non-refundable fares from this report.

    Given that there are $ 250K a year SEC employees watching porn for the whole day on the government dime and DOD employees at the Pentagon buying, selling and watching the kiddie porn on the government dime, I have concerns that the government is prudently watching and auditing the airlines over the collection of these taxes.

    However, since all of the large US-based airlines are publicly traded companies, they fall under SOX ( Sarbanes–Oxley) regulations. I do have more faith that the independent auditors will catch the airlines keeping the collected taxes. I work for a publicly traded company and the indpendent auditors checked every single transaction of our billions of reveunes.

    Personally, I think that taxes should NOT be refunded on a non-refundable ticket since it is non-refundable and the sale is ‘completed’ upon the sale of the ticket. However, the government (local, state and federal) should be auditing airlines and hotels making sure that they are paying the collected taxes.

  • MeanMeosh

    @ Bob Johnson – “So are they also saying that the federal taxes on a refundable ticket are sent to the government shortly after the ticket is booked, and that if the passenger cancels the ticket, the airline has to eat the taxes when they refund the ticket?”

    No, what they’re saying is, the tax is due on the sale of a ticket, and must be remitted immediately. If the ticket is ultimately refunded, the airline can apply for a refund on their next excise tax return. What I don’t know, however, is that if a ticket is canceled, but the fare is nonrefundable, does the airline have the right to a refund of the excise tax since they keep your money? The answer would seem to be “yes”, since when you ultimately apply your voucher to a new flight, they ring you up for the taxes again. But, I don’t know enough about excise tax law to say for sure.

    @Dang – “It happens to me several times when I redeposit an Aeroplan award ticket, all the taxes are reimbursed by Aeroplan on the spot. The same logic apply when I change the itinerary of my award tickets, Aeroplan reimbursed the taxes on the old ticket and collect the new applicable taxes on the replacement ticket.”

    There is a big difference, though – if you’re talking about Aeroplan, I assume you mean Air Canada, and as a foreign airline, they’re subject to Canadian rules on collecting, remitting, and refunding taxes and fees, which may be very different from the DOT’s rules. Some countries have rules that all taxes and fees must be refunded on a nonrefundable ticket.

  • http://www.yapta.com Jeff Pecor

    Now that’s an interesting idea: “…an automated system that applied for a refund from airlines that had a policy to offer taxes back.” This may be something we’ll have to look at more closely.

  • Phil from London

    Here in UK Ryanair (Low Cost) will happily refund all your taxes if you cancel The only issue is that they charge an admnistration fee which is the same / bigger than the tax.

  • Arizona Road Warrior

    @ MeanMeosh – “There is a big difference, though – if you’re talking about Aeroplan, I assume you mean Air Canada, and as a foreign airline, they’re subject to Canadian rules on collecting, remitting, and refunding taxes and fees, which may be very different from the DOT’s rules. Some countries have rules that all taxes and fees must be refunded on a nonrefundable ticket.”
    - – - – - – - -
    I have redeposit reward tickets on Delta and America West\US Airways and I received a full refund of all taxes and fees paid.

    In regards to a non-refundable ticket, I purchased a ticket from US Airways at $ 401.40 ($ 353.48 fare plus taxes of $ 47.92). Something came up and I need to cancel that reservation and make another reservation at $ 620.40 ($ 557.20 fare and taxes of $ 63.20). My credit card will be charged $ 369.00…$ 620.40 – $ 401.40 = $ 219.00 + $ 150.00 (reissue fee or change fee) for the new reservation.

    It is my guess that when I canceled my non-refundable ticket reservation, US Airways removed the $ 47.92 from their Fed tax report or issued a credit memo of $ 47.92 to their Federal Tax account. When the new reservation is purchased, the $ 63.20 is paid to the government or put on the report depending upon when these taxes are paid to the government (daily, weekly, monthly or quarterly).

  • Carver

    Maybe I’m misreading the story, but as I understand it.

    1. Taxes are refunded only if the ticket itself is refunded.
    2. If you forfeit a nonrefundable ticket, you lose the taxes as well
    3. When a airline refunds you a ticket, it MAY, and GENERALLY, refunds the taxes as well, but could elect to force you toget it directly from the government

    Is that a correct understanding. If so, the Yapta thing makes no sense

  • alsion

    Actually, some of the taxes are refundable per the recent GAO guidance. I got some back from Continental last week

  • Joe Farrell

    Taxes are only due and owing once a trip is flown – if the trip is not flown then the taxes are not due and owing. . . . the airline acts as agent – and is probably claiming that they paid the taxes already – I would like them to offer proof that they do so in the particular cases – next – the government becomes a defendant as well for refusing to refund the tax.

    Who has canceled a flight and had an airline refuse the tax refund? I’ll take the class action – I need plaintiffs from every airline . . . .

  • andi330

    This doesn’t actually surprise me. After all, if the airline keeps your money, they would be required to pay tax on that money. The fact that some airlines are kind enough to refund the taxes when they don’t have to makes them stand out from the crowd, and might encourage me to take my very occasional flights to them if they serve my area.

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  • Carver

    @Joe F

    Taxes are only due and owing once a trip is flown – if the trip is not flown then the taxes are not due and owing.
    ———

    That is directly in contradiction to the letter received by the OP. Do you have a source for that ststement?

  • Mike Z

    Sadly, I have to agree with the airlines and government on this one. The ticket was purchased and is non-refundable. It does not matter if you used the ticket or not. This is the same as buying a ticket for a movie, concert, Vegas show, or any other service or entertainment where taxes are collected. You might not even go to the show, but you bought a non-refundable ticket and paid the service fees and taxes on that purchase.

    Perhaps the sting is greater because the taxes on a Vegas ticket might be $10 but the taxes on a flight might be $60. its the same principal though.

    if you have a refundable ticket however, or you got a refund on your non-refundable ticket, minus a $150 fee, then you are entitled to your taxes back because you got a refund on the sale. the $150 fee would not be a ticket purchase, but rather a cancellation fee, which I am sure the airlines would probably not pay taxes on.

  • http://blog.parker.hk Terence Parker

    What the Dept. of Transportation says makes perfect sense – if the tax is based on the sale of the ticket, and the airline keeps your fare, then the government should keep their tax.

    What doesn’t make sense, which the Dept. of Transportation already say they cannot confirm, is if the other respective departments also pocket cash for Passenger Facility Charge or Immigration etc. which ultimately won’t be used. These should also be refunded.

    I don’t know how things work in the US, but I notice nobody here mentions fuel surcharge. Often lumped by agents this part of the globe (Hong Kong / Beijing) as part of the “taxes”, or at least clearly separated from the airfare itself, on principal if I cancel a ticket I should get back my fuel surcharges. If airlines like to screw with our minds through deceptively cheap airtickets which then have huge fuel surcharges (which they pocket) – then on principal if I cancel my ticket, they should refund the “surcharge” for the fuel I didn’t use.

    That said, if they were to stop this ludicrous practice of separating fares and fuel surcharge and just sell their tickets as a single fare – then that’s another kettle of fish, and i’d accept if they swallowed my fare on a non-refundable ticket.

    Airlines can’t keep having things their way when it suits them…!

  • Joe Farrell

    @Carver – its the same as a sales tax – it is due when the purpose of the tax has been completely. A VAT – no due until the purchase. Income tax, not due until the income is earned. This is the same as an FAA bureaucrat three years ago ruling that a definition of ‘known icing’ for pilots was when there was ‘high humidity’ and temps below freezing. When the adults got involved such idiocy was withdrawn. What about the PFC? Used when the passenger uses the facility. just because some bureaucrat says something does not make it so – especially when it contradicts common sense. In order for the OP’s claim to be true, then it means you or I could be assessed the tax at ANY TIME – even if we do not fly. I think a court would iinsist there be a rational basis between the tax and the activity and one would need to have the taxable activity6 actually occur – I can do the legal research but some things just beg common sense – even though most taxation rules may not – there needs to be a nexus between the tax and the activity taxed – you cannot tax what something proposes to do but does not

  • Oliver Campbell

    Tax is due when the purchase is made, not when the service is rendered. This is nothing different than a gift cert.

    Seems like we need a travel site that will have an option to search those with refundable tax. If someone did that then I’m sure business would stream to the airlines that did offer it.

  • Carver

    @Joe

    I’m not convinced. The tax is collected at the time of the sale, not the time of the flight. That seems like a reasonable argument that the tax is on the sale, not the flight.

    AS others have opined, if I buy a movie ticket, the taxes, if any, are due at the time of the sale and my non-use of the ticket has no effect on the taxes.

  • Joe Farrell

    But Carver – the tax is a SEGMENT FEE, an INSPECTION fee and they are fees – not taxes any longer. Read the fine print-

  • Greg

    When ‘taxes’ amount to half of the ticket cost, it’s mainly because of airline’s ridiculously inflated fuel surcharges. Some airlines itemize the added fuel surcharge in the ticket’s fare ladder to calculate the base fare, and some add it in after the base fare with the taxes (to avoid paying commission).
    Either way, because it is labeled a surcharge, and specifically for fuel, fuel not used by a passenger who did not fly, it should be not be part of the non-refundable fare withheld.

  • Pete8
  • 298hdn

    American Airlines is a company treats numerous employees
    just as rotten as it does its customers — deceitful and dishonest! Its a
    company that needs to get rid of its management and treat employees fairly
    instead of deceiving them. They instruct their employees not to offer
    information about baggage fees, etc unless specifically asked that question. Why
    do you think they made so much money in profit? When asked specifically the
    management denies this, but it was recently all over the news how the airlines
    hid fees and made a huge profit. They’re liars! Do you think the employees just
    all gained up and decided not to inform passengers about fees unless asked?
    Their employees are unhappy because many of them are treated like garbage and
    the newer employees are ripped off big time to pay for the older employees
    pensions and high pay and benefits plus the managements huge vacations and pay.
    They’re liars and cheats trying hard to hang onto their big bucks while screwing
    the underlings! Where else can you make $30/hr answering a phone without so much
    as a high school education? That’s why you’re getting screwed! And that’s not
    counting the huge vacations and benefits packages. Plus the executives want
    their big bucks too. The newer employees don’t get all extravagance. They’re
    lied to and screwed over everytime they turned around, just like the customers!
    And the government employees have their airfare paid for with big discounts
    while soldiers pay regular mostly higher fares. That’s American Airlines for
    you! Rotten to the core! Let’s make sure they’re forgiven their fines for
    violations though! It doesn’t surprise me that company would screw over
    customers on the taxes because that’s what they do best: Screw their
    customers! Let these crooks pay for their own security on their planes! Why
    should the taxpayers have to pay for the TSA? These people are scammers!

  • Joanne

    LOL….the ticket is non-refundable but taxes are iilegal charged if not used…you didnt use any services so you dont pay taxes

  • Joanne

    yes…working IN Greece 14 years, all airlines refunded unused taxes…..thats why dont book through the websites…use your friendly travel agent :-)

  • Joanne

    yes…working IN Greece 14 years, all airlines refunded unused taxes…..thats why dont book through the websites…use your friendly travel agent :-)

  • Flyhi152

    So  the  government  get  paid  twice  when  a  passenger  does not  fly  (naturally,  the  seat  won’t  be  vacant  if  someone  cancels,  the  airline  sells  the  seat  twice…)

    Good  business  for the  airline  and  good  business for the government.  Pretty  evident that  they  are  not  interested  in changing  this.  Why  should  they….    its  extra  money.

  • Flyhi152

    So  the  government  get  paid  twice  when  a  passenger  does not  fly  (naturally,  the  seat  won’t  be  vacant  if  someone  cancels,  the  airline  sells  the  seat  twice…)

    Good  business  for the  airline  and  good  business for the government.  Pretty  evident that  they  are  not  interested  in changing  this.  Why  should  they….    its  extra  money.

  • Flyhi152

    So  the  government  get  paid  twice  when  a  passenger  does not  fly  (naturally,  the  seat  won’t  be  vacant  if  someone  cancels,  the  airline  sells  the  seat  twice…)

    Good  business  for the  airline  and  good  business for the government.  Pretty  evident that  they  are  not  interested  in changing  this.  Why  should  they….    its  extra  money.

  • Flyhi152

    So  the  government  get  paid  twice  when  a  passenger  does not  fly  (naturally,  the  seat  won’t  be  vacant  if  someone  cancels,  the  airline  sells  the  seat  twice…)

    Good  business  for the  airline  and  good  business for the government.  Pretty  evident that  they  are  not  interested  in changing  this.  Why  should  they….    its  extra  money.

  • Flyhi152

    So  the  government  get  paid  twice  when  a  passenger  does not  fly  (naturally,  the  seat  won’t  be  vacant  if  someone  cancels,  the  airline  sells  the  seat  twice…)

    Good  business  for the  airline  and  good  business for the government.  Pretty  evident that  they  are  not  interested  in changing  this.  Why  should  they….    its  extra  money.

  • Flyhi152

    So  the  government  get  paid  twice  when  a  passenger  does not  fly  (naturally,  the  seat  won’t  be  vacant  if  someone  cancels,  the  airline  sells  the  seat  twice…)

    Good  business  for the  airline  and  good  business for the government.  Pretty  evident that  they  are  not  interested  in changing  this.  Why  should  they….    its  extra  money.

  • http://profile.yahoo.com/RSS6WDLLGLUMARYGJHS23EZ5AY RobertHM

    Mike,
    With all due respect, the comparison to a “concert /movie ticket does not hold water.  If you don’t go to a concert/movie, you can sell or give away your ticket.  Air tickets are non-tranferable and airlines are also known to over-sell seats.  They hardly incur a loss for a “no-show”

  • http://www.facebook.com/people/Lizi-Jacob/1496897162 Lizi Jacob

    i have a question, can a airline not refund taxes on a ticket that was on hold for 24 hrs. i had cancelled a tkt on spirit airline before my 24 hrs, but i was not refunded the taxes, this does not seem right at all. can some one tell me why.  

  • funkynewname

    Form 8849 is the “Certain Fuel Mixtures and the Alternative Fuel Credit”. I don’t think this is the form you’d use to claim a refund on the taxes from the IRS.

  • funkynewname

    Form 8849 is the “Certain Fuel Mixtures and the Alternative Fuel Credit”. I don’t think this is the form you’d use to claim a refund on the taxes from the IRS.