Washington, DC, Feb. 8, 2017 – The National Business Aviation Association (NBAA) today welcomed the introduction of bipartisan congressional legislation that would put an end to the improper application of commercial airline ticket taxes to aircraft management companies. The legislation makes clear that management services provided to assist a business aircraft owner in the operation of its aircraft are non-commercial aviation in nature and are subject to the aviation fuel tax.
Introduced by Rep. Pat Tiberi (R-12-OH) and Sen. Sherrod Brown (D-OH), H.R. 896 and S. 321 clearly state that amounts paid by the aircraft owner for maintenance and support of their aircraft by a management services company – such as for crew scheduling and dispatch, flight planning services, insurance and aircraft maintenance – are not subject to the ticket tax. The legislation only covers non-commercial flights by the aircraft owner on its aircraft or an aircraft obtained through a qualifying lease.
“NBAA is committed to resolving this challenging tax issue for the nearly 1,000 aircraft management companies, many of which are small to mid-size businesses, and we are grateful to Rep. Tiberi and Sen. Brown for introducing this critical legislation,” said NBAA President and CEO Ed Bolen.
Existing law states that non-commercial flights are generally subject to the 21.9 cents per gallon tax on jet fuel, and not the 7.5 percent commercial ticket tax on amounts paid. However, IRS guidance has sought to impose the commercial ticket tax on flights where an aircraft owner obtained support services from a management company, treating the owners as if they were conducting airline or air charter operations.
This guidance, and resulting IRS audit position, led to significant retroactive tax assessments for management companies that put many at risk of having to close their doors. In addition, the IRS never provided management companies with clear and precise guidance as to how the federal excise tax should be applied, but rather, companies had to sift through conflicting IRS interpretations.
Following a coordinated advocacy effort from industry stakeholders, including NBAA, in 2013 the IRS suspended federal excise tax assessments on audits involving management services companies and aircraft owner flights. However, the underlying policy issues have remained unresolved.
“For more than four years, many management companies have had open IRS audits hanging over their heads because of conflicting IRS guidance. This is unfair, and NBAA will strongly advocate for passage of H.R. 896 and S. 321.” said NBAA Senior Manager of Tax & Finance Policy Scott O’Brien.
View the legislation. (PDF)