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Which Party Should Collect Federal Excise Taxes?

Recent IRS audits of Part 135 operators highlight the importance of developing and implementing best practices for collecting and remitting federal excise tax (FET) on brokered charter flights.

“The IRS does not provide specific guidance related to which party is responsible for collecting and remitting FET on air transportation when a broker is involved,” said Scott O’Brien, NBAA’s senior director of government affairs. “We often receive questions from the industry about the lines of responsibility for FET when a charter operator is working with a broker, and these questions have become more frequent with the rise of new online booking platforms.”

Mark Dennen, Solairus Aviation CFO, explained how challenging it can be for a Part 135 operator to collect and remit FET, since many brokers want to deal directly with the customer on the final invoice for a flight. While the charter operator quotes the broker a price for the flight, the operator often does not know the final cost to the broker’s customer, which creates the challenge in terms of FET collection and remittance.

While some Part 135 charter operators believe they aren’t involved in brokering, the fact is that any time an aircraft or pilot is unavailable for a planned trip and that operator outsources the trip to another Part 135 operator, the first operator is acting as a broker.

Dennen recommends specifying in any agreement with a broker (or agreement between two charter operators in which one of the operators acts as a broker) which party is responsible for FET collection and remittance. Individual invoices for brokered flights should also indicate which party is responsible for the FET.

“The reality is if the FET was not collected by the broker or carrier/broker on the amounts paid by the passenger for air transportation, then the entity that provided the flight will be held secondarily liable for the FET.”

Nel Stubbs Vice President, Conklin & de Decker

As a best practice, Nel Stubbs, vice president and tax expert at Conklin & de Decker, recommends that the Part 135 air carrier collect FET on air transportation for several reasons, not the least of which is that during audits, the IRS will first look to the operator to determine if FET was properly collected and remitted.

“The reality is if the FET was not collected by the broker or carrier/broker on the amounts paid by the passenger for air transportation, then the entity that provided the flight will be held secondarily liable for the FET,” said Stubbs.

“Part 135 air carriers must conduct due diligence on the brokers with which they do business,” continued Stubbs. “This is especially true if a broker insists on collecting and remitting the FET. A reputable broker should be willing to provide documentation [Form 720] about past tax payments,” said Stubbs.

For the near term, thanks to congressional passage of the Coronavirus Aid, Relief and Economic Security (CARES) Act, the 7.5-percent federal excise tax on amounts paid for commercial air transportation and applicable segment fees are suspended through Jan. 1, 2021.

Review NBAA’s federal excise taxes resource at

For details of the CARES Act, visit

Industry Challenge

Recent audits of Part 135 charter operators indicate that the IRS has increased its focus on proper remittance and submission of federal excise tax (FET) on charter flights.

NBAA Response

NBAA is consulting with industry experts, reviewing applicable regulations and planning to engage with the IRS in developing additional FET guidance and best practices.

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