Position Statement of. National Air Transportation Association King Street Alexandria, Virginia (703)

Transcription

1 Position Statement of National Air Transportation Association 4226 King Street Alexandria, Virginia (703) Position on the Internal Revenue Service s Proposed Technical Advice Memorandum Affecting the Collection of the Domestic Flight Segment Fee by Part 135 On-Demand Air Charter Operators September 18, 2000

2 The National Air Transportation Association (NATA) represents nearly 2,000 companies nationwide that offer a variety of services to the aviation industry. The majority of our membership includes operators that provide on-demand commercial air transportation services regulated under 14 CFR Part 135. On-demand charter operators provide vital passenger and cargo air transportation services to the general public in smaller aircraft. Under the Part 135 charter agreement, customers determine the time of departure, destination of the aircraft and the number of passengers onboard, within certain stringent Federal Aviation Administration and Department of Transportation regulatory criteria followed by the operator. Approximately 3,000 on-demand Part 135 air charter operators nationwide are affected by the application of domestic segment fees per Internal Revenue Code 4261(b) as part of air transportation taxation. Any action taken by the IRS on this issue has nationwide implications. Therefore, NATA offers the following comments on the proposed Technical Advice Memorandum (TAM) being developed by the IRS: Legislative Language Review The Taxpayer Relief Act of 1997 provides the Congressional language establishing the current federal excise tax system, including application of the segment fee in question. It is important to note that Congress used very specific language when describing the per head application of the International Facilities Fee and used differing language when describing application of the segment fee. In the case of segment fees, the Act states that a fee is to be charged on the amount paid for each domestic segment of taxable transportation by air. In establishing the International Facilities Fee, Congress chose to specify that the fee applies for any transportation of any person by air, clearly showing that this fee is to be charged on a per person basis regardless of how payment is received. Language published in the Congressional Record dated July 30, 1997, also provides insight to the Congressional intent of the legislation by stating the following about the domestic transportation of persons tax application: October 1, 1997 September 30, 1998 October 1, 1998 September 30, 1999 September 30, 1999 December 31, percent of the fare, plus $1 per domestic flight segment* 8 percent of the fare, plus $2 per domestic flight segment* 7.5 percent of the fare, plus $2.25 per domestic flight segment* 2

3 The language describing the application of the International Facilities Fee is stated as the following from the same document: The conference agreement follows the House bill and the Senate amendment provisions extending the tax on international departures and expanding that tax to include international arrivals, with a modification setting the tax rate on both international departures and arrivals at $12 per passenger* (indexed to the CPI beginning on January 1, 1999, as under the House bill). *emphasis added NATA s Guidance to Industry Since the Taxpayer Relief Act of 1997 was signed into law, the appropriate application of the segment fee, as part of the transportation of persons tax applied to commercial air transportation provided by Part 135 on-demand air charter operators, has not been interpreted by the IRS, leaving the on-demand air charter industry without direction on the application of the tax. Because of this uncertainty and absent clarification from the IRS, NATA has consistently held the following position, as stated in its guidance manual The Aviation Industry Guide to the Taxpayer Relief Act of 1997: CAUTION: The IRS Chief Counsel office has not ruled on how the domestic segment fee will apply. However, the bill language states that this tax is imposed on amounts paid for each segment of domestic transportation rather than on transportation of persons by air (a head tax) as seen with the international facilities tax. Air carriers should determine how to address the collection of domestic segment fees until the IRS releases further guidance. NATA has raised this issue on several occasions to the IRS, including a letter dated February 14, 2000, in response to the IRS s solicitation for items to be placed on its Guidance Priority List for NATA was encouraged to see the placement of this issue on that list released March 21, 2000, but has seen no action thus far. It is the hope of this organization that this convoluted issue see resolution in a fair and timely manner. NATA requests that our position stated in the Association s guidance manual be accurately reflected in the Taxpayer s Position text of the TAM proposal indicating the longstanding need for clarification for the on-demand air charter industry. NATA s Recommendation for Segment Fee Application NATA strongly urges the IRS to include the Congressional language in the TAM proposal and adhere to its specific language denoting an application of the segment fee on a flight segment basis rather than per passenger or seat. 3

4 As discussed above, the application of the segment fee is stated to be on amounts paid per segment, as opposed to the language describing the application of the international facilities fee that is clearly stated to be per person in the legislative language and Internal Revenue Code. While this may not be an important distinction for airlines, it is an important and necessary distinction for on-demand air charter operators. Airlines collect fares for individuals traveling on their scheduled flights. Therefore, each amount paid or ticket purchased has the taxes applied with respect to each person. The charter contract under Part 135 differs in that it allows the purchaser to determine the number of passengers carried; therefore, the fee for the charter is determined without consideration for the number of passengers that may be transported. Absent IRS guidance, segment fees generally have been applied to the amount paid per flight segment for the commercial transportation flown by Part 135 on-demand air charter operators. This is also the manner in which computer software/accounting systems have been designed. In addition, this common application of the federal excise taxes results in the imposition of the domestic federal excise taxes on repositioning flights. These dead-legs often occur where a chartered aircraft picks up or drops off passengers at locations other than the aircraft s home airport. Although repositioning flights are taxable transportation by definition, if imposed on a per passenger basis, the segment fee would not apply to these commercial flights. Under no circumstances should the application of segment fees be applied to a per seat basis, as referenced in the Conclusion segment of the proposal. IRS Code 4261(b) has been taken completely out of context if pursuant of a per seat application. Congress never made any reference by language or otherwise to have the application made in this manner. Therefore, NATA urges that the reference be stricken from the TAM proposal. Any Changes to Segment Fee Application Should Not Be Retroactive NATA further asserts that, should the IRS rule that the application of the segment fee is applied per passenger, that decision should not apply retroactively. There has been an ongoing lack of guidance by the IRS, including representatives from the IRS communicating that there is no position statement available to explain the application despite requests for clarification by NATA. In addition, the inclusion of this issue in the IRS s Guidance Priority List for 2000 and the correspondence between NATA member Regent Aviation and its Revenue Agent, Anna Johnson, illustrate the need for clarification and underscore the lack of direction to the industry. It is also important for the IRS to recognize that any attempt to apply the segment fee on a per passenger basis in a retroactive manner would place a significant burden and economic hardship on the Part 135 on-demand air charter industry. The majority of these companies are small entities under the Small Business Administration criteria. It would be extremely difficult and excessively burdensome to require a retroactive collection of these taxes. 4

5 Therefore, because of this longstanding uncertainty in both the industry and within the IRS, the lack of clarification, and the burden to collect, NATA respectfully requests that, should the IRS rule to impose the segment fee on a per passenger basis, the rule must include non-retroactivity under the provisions of Internal Revenue Code 7805(b)(8). The small entities engaged in Part 135 on-demand air charter should not be penalized for the IRS s lack of clarification since imposition of the current tax system in NATA appreciates the IRS s action to clarify this issue that has perplexed the industry for many years. If we can provide further information to you on this or any other federal excise tax issue affecting on-demand air charter operations certificated under 14 CFR 135, please do not hesitate to let us know. Sincerely, Andrew V. Cebula Vice President 5