Airline ticket tax to expire

Published Dec. 29, 1995|Updated Oct. 5, 2005

Hundreds of thousands of airline passengers might be entitled to 10 percent refunds next week because of the federal budget gridlock.

The 10 percent airline ticket tax and two other aviation taxes are due to expire at midnight Sunday if they are not renewed by Congress.

That could provide a windfall for travelers but create a monumental bookkeeping nightmare for the nation's airlines. It could also place a giant burden on the Internal Revenue Service if millions of passengers begin filing refund forms.

"Talk about the government in disarray _ I can't imagine that we got to this point," said Dave Stamey, a vice president of AVITAS, an airline consulting company. "This is just one more instance of a lack of consideration for people and industries."

The ticket tax raises about $15-million per day for the air-traffic control system and other aviation programs, but officials say there would be no threat to safety if the tax expired. The government can draw money from its aviation trust fund for several months, if necessary.

Congress' lack of action over the ticket tax could even lead to an unusual fare war next week.

Some airlines might continue collecting the tax, while others might use it as an opportunity to cut prices by 10 percent. The ticket tax is usually included in the prices quoted and advertised by the airlines.

The major carriers refused to discuss the issue Thursday, saying antitrust laws prohibit them from revealing their pricing plans.

Congressional aides said Thursday that it's unlikely Congress will act on the tax in time.

Many senators and House members are home for the holidays and won't return until early next week. Unless there is a breakthrough in the budget talks between White House and congressional negotiators, the House of Representatives will not return until Wednesday.

But once Congress returns, an emergency measure could be passed quickly and take effect the instant it was signed by President Clinton.

But that still means the taxwould lapse for at least a few days. Anyone who takes a flight early next week might be entitled to a refund. But it's not clear how _ or if _ passengers would get refunds.

The Air Transport Association, the trade group representing the airlines, said Thursday that it will be up to Congress to decide whether to issue refunds. Assuming that refunds are issued, the ATA wants them to be handled by the Internal Revenue Service.

"The IRS is clearly the only entity required to issue any such refunds, should they be ordered by Congress," said ATA president Carol Hallett.

But the IRS said Thursday that it hasn't decided whether the airlines or the government would take that responsibility. The agency expects to issue guidelines for refunds "in the near future," a spokesman said.

The ticket tax and similar taxes on cargo and international passengers have gotten tangled in a web of politics and profits.

The taxes went before Congress in the fall for a regular "sunset" renewal, a process that allows Congress to make sure taxes are still needed. All three taxes passed as part of the budget bill, but it was vetoed by President Clinton.

To further complicate matters, the taxes have been combined withanother provision that would extend the airlines' exemption from a federal fuel tax. ATA says that exemption is important so the airlines can remain profitable.

But congressional budget rules say that kind of exemption _ which will cost the government millions in lost revenue _ cannot be included in the "continuing resolution" that keeps the government operating.

So it's likely that the ticket tax will have to be separated from the fuel tax before it can be passed.

Michael Boyd, an airline analyst with Aviation Systems Research in Golden, Colo., said he thinks Congress will find a way to renew the tax before Sunday.

"You're talking about politicians," he said. "Politicians will work in a bipartisan way to protect their taxes."

_ Information from the New York Times was used in this report.