House Committee Approves Exemption of Federal Tax on General Aviation Flights

On July 13, the Ways and Means Committee of the House of Representatives approved a bill (HR 3608) that exempts aircraft management services from the 7.5% federal excise taxes that are imposed on air transportation. The bill states that ticket taxes imposed on commercial flying will not apply to general aviation flights since they do not sell tickets that can be taxed. General Aviation flights are basically all civilian flights, except commercial passenger airlines where people have to buy tickets to fly.

The bill comes after widespread complaints from the business aviation industry in response to a Memorandum issued by the IRS Chief Counsel in 2012. The Memorandum, addressed to IRS field agents said aircraft management fees and other amounts paid by the aircraft owners to an aircraft management service are taxable as revenue. The negative reaction by the aviation industry resulted in the IRS suspending the assessment of the tax in May 2013 while it developed more definite regulations. One issue that arose in 2013 was the lack of clear guidance and the improper application of the ticket tax which is a significant challenge for the industry. The new bill aims to clear any misunderstandings and ease the financial burdens that may come with unfair taxes to the aviation industry.

The current law states that general aviation flights are subject to 21 cents per gallon on jet fuel.

The new bill, HR 3608 states the following:

No tax shall be imposed on any amounts paid by an aircraft owner for aircraft management services related to:

  • maintenance and support of aircraft; or
  • flights on the aircraft owner’s aircraft

This is a big relief and great news to the small businesses in the aviation industry as many couldn’t afford to stay afloat if the taxes were continued to be imposed.

More information will be available in the near future as the bill now heads to the House floor where it will be voted on. Please feel free to take a look at the bill, HR 3608 to understand more about the policy changes.

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