Federal Excise Tax

NBAA has numerous resources available to keep members up to date on issues surrounding the IRS chief counsel advice (CCA) memorandum regarding the taxability of aircraft management fees. Learn More.

Both private and commercial business aircraft operators pay Federal excise taxes (FET) either on fuel or on the transportation of persons or property. In most cases, private operators (Part 91) are subject to the fuel tax on non-commercial aviation. Commercial operators (Part 135) are subject to the tax on transportation of persons or property.

For commercial transportation, FET takes the form of a percentage tax or a head tax, or both. The traditional FET is a percentage tax on the amount paid for commercial transportation. There is also a segment fee due on each domestic segment. Finally, a head tax also applies to international transportation of persons.

For non-commercial transportation, the fuel tax is a cents-per-gallon tax. There are different rates for both aviation gasoline and jet fuel. In most cases, this tax only applies to non-commercial transportation. When tax-paid fuel is used in commercial transportation, the ultimate purchaser can generally claim a refund less a small portion of the tax while it still applies.

It is important to note that the Internal Revenue Service (IRS) and Federal Aviation Administration (FAA) have different views on what constitutes commercial and non-commercial operations. In certain cases, an operation that is viewed as non-commercial by the FAA may actually be viewed as commercial by the IRS for FET purposes.

Effective January 1, 2013, the excise taxes due on commercial air transportation are:

Percentage Tax	7.5%
Domestic Segment Fee	$3.90
International Arrival/Departure Head Tax	$17.20
Hawaii/Alaska Flight Tax	$8.60

For 2012, the excise taxes due on commercial air transportation were:

Percentage Tax	7.5%
Domestic Segment Fee	$3.80
International Arrival/Departure Head Tax	$16.70
Hawaii/Alaska Flight Tax	$8.40

FET News

NBAA, NATA Meet With IRS on FET and Management Companies: June 25, 2012
Last week, members of the NBAA/NATA Federal Excise Tax (FET) Working Group met with officials from the Internal Revenue Service (IRS) in Washington, DC. As previously reported, the IRS issued a chief counsel advice (CCA) memorandum this year regarding the taxability of aircraft management fees that has caused significant concern throughout the business aviation community. In last week's meeting, working group representatives presented the associations' significant objections to the conclusions drawn by the IRS in the CCA, and provided a detailed analysis supporting the industry's position that payments for aircraft management services should not, in general, be subject to FET on commercial air transportation. . Review the latest news on this issue.
Bolen Meets With IRS Chief Counsel on Excise Tax Opinion: April 23, 2012
Last week, NBAA President and CEO Ed Bolen and members of NBAA’s Tax Committee met with Internal Revenue Service (IRS) Chief Counsel William J. Wilkins to express the industry’s significant concerns with the recent IRS chief counsel advice (CCA) on the taxability of aircraft management fees. Bolen conveyed that this CCA has caused significant consternation throughout the business aviation community, and the industry is eager to convene constructive policy meetings with IRS staff to quickly work towards the fair and equitable treatment of excise tax liability for business aircraft ownership and operations. While opposing this change in policy, NBAA urged that, at a minimum, the IRS apply the policy on a prospective basis so as to avoid all the problems associated with a retroactive change in the law. Learn More.
IRS Final Regulations Clarify FET for SMLLCs: November 21, 2011
Final Treasury Regulations issued October 26 clarify that single member limited liability companies (SMLLCs) are treated as separate corporations for FET purposes. NBAA had argued, in comments submitted to the IRS, that imposing FET on payments to an SMLLC by its owner for transportation service would unintentionally create a tax liability where one did not exist previously. However, the preamble to the October 26 regulations explains that “amounts paid after December 31, 2007, to an SMLLC by its owner for air transportation are subject to the tax imposed by section 4261.” Learn More