Federal Excise Tax on business aviation is a complex and extremely detailed subject. This introduction is intended only to provide a broad and general overview of the key issues and certainly is not intended to provide guidance on any particular set of facts and/or circumstances. Much confusion exist in the business aviation community over the application of the excise tax rules caused by terminology differences between the IRS (the agency that imposes the tax and administers to the rules) on the one hand and the FAA on the other hand. Operators, especially commercial operators, are often times more familiar with the FAA rules and definitions than they are with the IRS rules and definitions which may lead to this confusion. Whether you are strictly a FAR Part 91 operator or a FAR Part 135 certificated operation, the lack of in depth federal excise tax knowledge can be costly. Just because you are strictly a Part 91 operator, do not fall for the mistaken belief that you have no federal excise tax issues. Many flights under Part91 are subject to federal excise tax and has recently become an area emphasis for enforcement by the IRS. Because of our understanding of these complex rules, our firm is ideally situated to assist in some circumstances, but not all. Visitors to our website with questions about this subject area should feel free to call George Rice directly. See Contact Us for our contact information.
The aviation excise tax consists of two related taxes: the transportation tax imposed on commercial aviation operations, and the fuel tax imposed upon the consumption of aviation fuel in non commercial aviation operations. However, these taxes are mutually exclusive in that if the transportation tax applies the fuel tax does not apply. The transportation tax (sometimes called the ‘ticket tax”) has several components and consists of a straight 7.5 percent tax on the costs of the transportation plus a domestic segment fee and possibly an international air travel facility fee, if it applies. The fuel tax applies only to non commercial aviation and is a per gallon tax imposed when the fuel is removed from the terminal (at the pump). This tax is imposed at the rate of $0.194 on AvGas fuel (burned in reciprocating engines) and at the rate of $0.244 on JetA fuel (burned in turbine engines). Oddly enough these taxes when collected are deposited in the Federal Highway Fund and are only transferred to the Airport Fund when certain refund claims are processed by the fuel vendor.
Complexities arise in business aviation when operators conduct both commercial and non commercial operations. For excise tax purposes the distinction between commercial and non-commercial is determined by the IRS, not the FAA. Remember the FAA and the IRS do not speak the same language. The IRS in Revenue Ruling 78-75 makes it perfectly clear that the status of an aircraft operator as a “commercial operator” under FAA regulations is not determinative in applying the aviation fuel and transportation taxes. The IRS defines commercial aviation as “any use of an aircraft in the business of transporting persons or property by air for pay”. This definition is broadly constructed and encompasses many types of activities conducted under FAR Part 91.
Federal Excise Tax