The Ticket Tax: House Committee Approves Aircraft Management Fee Tax Exemption Bill
On Wednesday, July 13th, the Ways and Means Committee of the U.S. House of Representatives approved by voice vote a bill (H.R.3608) that would exempt most aircraft management fees involving non-commercial flights from the 7.5% federal excise tax, also known as the “ticket tax.” Rep. Pat Tiberi (R – Ohio) sponsored the bill, which aims to clarify ambiguities surrounding the tax treatment of aircraft management fees. Ohio Senators Sherrod Brown (D) and Rob Portman (R) have introduced a companion bill (S.2092) in the Senate.
The House and Senate bills were initiated in response to a March 2012 Advice Memorandum issued by the Chief Counsel of the Internal Revenue Service (“IRS”) to IRS field agents. The Chief Counsel took the position that aircraft management fees and other amounts paid by an aircraft owner to an aircraft management services company are taxable as revenue from the provision of air transportation. Widespread criticism from the business aviation industry followed, including numerous complaints from smaller aircraft management companies that said they would be driven out of business as a result of the Chief Counsel’s interpretation. Consequently, in May 2013, the IRS decided to suspend the assessment of this tax on audits involving aircraft owner flights while it developed more definitive regulations.
H.R. 3608 also follows a 2015 decision issued by a U.S. District Court for the Southern District of Ohio which held that the IRS had wrongfully imposed air transportation excise taxes on four aviation companies in Ohio. The four related companies, NetJets International, Inc., NetJets Large Aircraft, Inc., Executive Jet Management (“EJM”) and NetJets Aviation, Inc., were relieved from paying $9.7 million in ticket taxes under Internal Revenue Code Section 4261. District Court Judge Edmund A. Sargus, Jr. found that “the published guidance from the IRS regarding whole aircraft management services failed, as a matter of law, to provide EJM with precise and not speculative guidance regarding EJM’s obligation to collect the transportation excise tax under § 4261.”
If enacted, H.R. 3608 will provide a welcome relief to all those involved in the management of aircraft and eliminate the uncertainty that has existed for the past several years. H.R. 3608 now moves to the full House for a vote. If and when identical bills are approved by both the House and Senate, the legislation will go to the President for his signature and adoption into law.
For additional information please contact Vicky Boladian at 310-392-5200 or firstname.lastname@example.org.
This article was originally published on July 19, 2016 by Aerlex Tax Services at www.aerlex.com.