Federal Excise Tax

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, 2012, the excise taxes due on commercial air transportation are:

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

For 2011, the excise taxes due on commercial air transportation were:

Percentage Tax	7.5%
Domestic Segment Fee	$3.70
International Arrival/Departure Head Tax	$16.30
Hawaii/Alaska Flight Tax	$8.20

FET News

New Excise Taxes Being Levied by IRS on Business Aircraft Operations: January 13, 2012
In recent years, Internal Revenue Service (IRS) auditors have become more aggressive in their audits of aircraft management companies and charter operators. The auditors have begun assessing federal excise tax (FET) on a wide variety of non-commercial flight operations, including flights conducted by aircraft owners under FAR Part 91 when the aircraft is managed by an outside management company. In a new article, NBAA Tax Committee members Keith Swirsky and Christopher Younger of GKG Law, P.C. analyze whether FET applies to these operations, and if in certain  situations IRS auditors may be incorrectly asserting the FET is due. Review the article (26 KB, PDF).
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
FAA Extension Passes: IRS Provides Some Guidance: August 8, 2011
On August 5, the Senate approved and President Obama signed a bill extending authorization for federal aviation programs and ending the partial shutdown of the Federal Aviation Administration (FAA). HR 2553 extends through September 16, 2011, aviation programs that expired on July 22. Beginning today, air transportation excise taxes must be collected and remitted to the Internal Revenue Service (IRS). Learn more.