Federal Excise Tax Suspended

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) has been approved by congress, providing more than $2 trillion of economic relief during the COVID-19 pandemic.

As part of the negotiations, the trade association Airlines for America requested $29 billion in direct assistance for airlines – nearly 6 times the amount provided following after the 9/11 attacks. The group also requested an additional $25 billion in loans, rebates on federal excise taxes collected since the beginning of 2020, and a request to suspend those taxes throughout the remainder of the year.

From there, the National Business Aviation Association (NBAA) worked with congressional leadership and individual U.S. House and Senate offices to include the business aviation community in these FET provisions.

• Federal Excise Taxes that apply to Part 135 flights are suspended effective March 27th, 2020 and will remain suspended until January 1st, 2021.
• Suspended taxes include the 7.5% tax on amounts paid for private passenger flights; applicable domestic & international segment fees; and the $0.043 per gallon portion of the fuel tax (the 0.1 cents per gallon tax to fund the leaking underground storage tank fund is not included in the suspension).
• All business that collect or remit these taxes are covered by the suspension, including air charter brokers.
• In addition to Part 135 operations, the suspension also applies to Part 91 flights the IRS deems as “commercial”.

Visit the IRS website for a comprehensive look at all Federal Excise Taxes.

How will this effect Federal Excise Taxes in Business Aviation?

Federal Excise Tax is applicable for nearly every private flight, for both passenger and cargo flights. within the USA, or that arrive/depart from within 225 miles from the border of the USA. The only type of charter flight that Federal Excise Tax is NOT applicable would be an non-emergency air ambulance, so there is essentially no change for these flights. For FAR Part 135 Passenger & Cargo Charter Flights the fees discussed are shown below:

Passenger Charter Flights

• Federal Excise Tax: rate of 7.5% (based on the flight fee, added to the total)
• Domestic Segment Fees: For each flight segment that is domestic, each passenger is also charged $4.30
• International Segment Fees: For each flight segment entering, or leaving the USA on an international trip, each passenger is also charged $18.90

Cargo Charter Flights

• Federal Excise Tax: rate of 6.25%.

Impact on Cost of Private Jet Charter Flights

Here’s an example of a one-way flight for 6 passengers departing from (KTEB) Teterboro, NJ and flying to (KVNY) Van Nuys, CA, with all applicable taxes/fees included (billed prior to March 27th, 2020):

• Flight Fees: $32,000 USD
• Federal Excise Tax: $2,400 USD ($32,000 x 7.5%)
• Domestic Segment Fee: $25.80 (6 Passengers x $4.30)
• Total Cost: $34,425.80

Under the new stimulus package, the Federal Excise Tax and Domestic Segment Fees are both suspended to help alleviate costs of private air travel for flights booked between March 27th, 2020 – January 1st, 2021. This provides a savings of 7.5% on trips within the USA and trips originating or arriving from locations with 225 miles of the border in Canada and Mexico.

Using the same example, the one-way private flight for 6 passengers departing from (KTEB) Teterboro, NJ and flying to (KVNY) Van Nuys, CA, without these taxes/fees offers a massive reduction in cost:

• Flight Fees: $32,000 USD
• Federal Excise Tax: N/A under newly passed rules
• Domestic Segment Fee: N/A under newly passed rules
• Total Cost: $32,000 USD – saving a total of $2,425.80!

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