This is a list of fees charged by American Airlines for various “services.” It was included in a letter from the IRS clarifying what fees for services would be subject to the 7.5 percent Transportation Excise Tax.
Which fees are subject to the transportation tax? Which are not?
The sometimes surprising answers are noted after the list.
The Services Taxpayer provides are described as follows:
Service A provides customers with assistance in making travel plans, purchasing tickets, and requesting seat assignments, either in person or on the telephone (as opposed to on Taxpayer’s website).
Service B allows customers to apply the fare paid for an unused non-refundable ticket (on which § 4261 tax was paid) to a new ticket.
Service C provides customers who are standing by for an alternate flight on the same day of their ticketed travel with a confirmed seat ahead of routine stand-by customers.
Service D allows customers to be placed on the stand-by list for an alternate flight.
Service E provides customers the option of purchasing food and alcoholic beverages while in-flight.
Service F provides customers the option of purchasing headsets to be used for in-flight entertainment.
Service G provides customers with baggage handling for checked luggage, including overweight and oversized baggage.
Service H provides customers with confirmed upgrades, paid for at the time of check-in at the automated kiosks, on certain flights.
Service I provides customers with access to its premium airport lounges on an annual basis.
Service J provides customers with access to its premium airport lounges on a daily basis.
Service K allows customers to purchase non-refundable gift cards that can only be applied to the purchase of future air transportation. The gift cards are not issued in the exact amount of the fare, do not state an itinerary, and do not themselves entitle the bearer to air transportation.
Service L is a fuel surcharge added at the time a customer purchases tickets for transportation by air.
Service M provides custodial service to children traveling without an adult, including transfer of custody from an adult (such as a parent) to a gate agent, a personalized safety briefing onboard the aircraft and further in-flight attention as necessary, arranging for airport transportation to a connecting flight, help picking up the child’s baggage, and ensuring the child’s safety from the moment of check-in until a responsible adult picks up the child at his ultimate destination. Service M is mandatory for unaccompanied minors under Age # and optional for unaccompanied minors Age # and older.
Service N allows customers who are members of Taxpayer’s frequent flyer program (“Members”) to purchase frequent flyer miles (“Miles”) to be credited to their frequent flyer account (“Account”).
Service O allows Members to purchase Miles to be credited to another Member’s Account.
Service P allows Members to purchase “bonus” Miles (i.e., double or triple miles) on certain flights to be credited to the Member’s Account. Currently, this service is occasionally offered to members free of charge on a limited-time basis. However, Taxpayer is preparing to offer Service P for a fee.
Service Q allows Members to transfer Miles in their Account to the Account of another Member.
Service R allows Members to restore expired Miles to their Account.
Service S allows Members, through a third party, to convert the value of their Miles into the currency of a loyalty program unaffiliated with Taxpayer.
Service T imposes a fee for certain activities related to a Member’s Account and is described by Taxpayer as solely related to the maintenance of the Member’s Account. The fee for Service T applies to Services N, O, P, Q, R and S, and is the same amount regardless of the tax treatment of such services.
Service U allows the Miles of a deceased Member to be transferred to the Account(s) of one or more Members.
Service V allows divorced Members to transfer Miles to the Account(s) of one or more Members.
Service W allows Members to proactively extend the expiration date of fewer than X Miles in the Member’s Account.
Service X allows Members to proactively extend the expiration date of X Miles or more in the Member’s Account.
Service Y provides Members with a retroactive extension of the Miles in the Member’s Account in certain circumstances.
Service Z provides Members with expedited processing of Mile redemptions for the purchase of air transportation. The fee is charged at the time of ticketing.
Service AA allows Members who have already redeemed Miles for free air transportation to change their ticket. Taxpayer provides Members with the option of applying the Miles from the unused, issued ticket to a new ticket.
Service BB allows Members who have already redeemed Miles for free air transportation to cancel their ticket and reinstate the Miles from the unused, issued ticket to the Member’s Account.
Service CC allows Members to redeem Miles for the purchase of air transportation on Taxpayer’s website. At the time this letter ruling request was issued, Taxpayer was not charging a fee for Service CC. Taxpayer is, however, contemplating implementation of a fee for this service. The fee would be charged at the time of ticketing.
Service DD allows Members to purchase, at check-in or in advance, the ability to upgrade to a higher class of service by making a monetary payment.
Service EE allows Members to purchase, at check-in or in advance, the ability to upgrade to a higher class of service by both redeeming Miles and making a monetary payment.
Service FF provides Members with elite status (“Elite Members”) the ability to upgrade, free of charge, to a higher class of service. Service FF is available to Elite Members on an annual basis.
Service GG allows Elite Members to maintain their status for the following year if the Elite Member otherwise fails to fully qualify for such status.
Service HH allows Members to obtain elite status in an expedited period of time by meeting certain requirements.
Service II provides Members with a printout of their Account details.
Service JJ provides details and records of a Member’s Account to an outside third party.
Service KK provides Members with password protection for Account inquiries made by telephone.
Service LL provides Members with personalized luggage tags.
Service MM is a fuel surcharge added at the time a customer acquires tickets by redeeming Miles for transportation by air.
Here are the consolidated IRS conclusions:
Amounts paid for Services A, B, C, D, E, F, G, M (for minors Age # and over), I, J, K, Q, R, S, T, U, V, W, X, Y, Z, AA, BB, GG, HH, II, JJ, KK, and LL are not taxable
Amounts paid for Services H, L, M (for minors under Age #), N, O, and P, CC, DD, EE (to the extent paid in cash and not in Miles) and MM are taxable under most conditions if fees are charged.
Because there is no amount paid for Service FF, no tax applies.
Here is the IRS take on what is subject to their Transportation Excise Tax. If you absolutely must pay the fee before you are allowed to fly, then the fee is taxable. If the fee is for a service that is optional or that does not have to do with actual transportation, the fee is non-taxable in terms of the 7.5 percent tax.
Charlie Leocha is the President of Travelers United. He has been working in Washington, DC, for the past 14 years with Congress, the Department of Transportation, and industry stakeholders on travel issues. He was the first consumer representative to the Advisory Committee for Aviation Consumer Protections appointed by the Secretary of Transportation from 2012 through 2018.
