NBAA Welcomes Legislation Resolving Federal Excise Tax Issues for Management Companies

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NBAA Welcomes Legislation Resolving Federal Excise Tax Issues for Management Companies

Washington, DC, Sept. 25, 2015 ­– The National Business Aviation Association (NBAA) today welcomed the introduction of congressional legislation that makes clear management services provided to assist an aircraft owner in the operation of its aircraft are not subject to the ticket tax imposed on commercial air transportation.

Introduced by Rep. Pat Tiberi (R-12-OH) on Sept. 24, House Bill 3608 would exempt from the ticket tax component of federal excise tax, any amounts paid by the aircraft owner for maintenance and support of their aircraft by a management services company, such as for crew scheduling and dispatch, flight planning services, insurance, and aircraft maintenance. The exemption is limited to non-commercial flights by the aircraft owner on its aircraft or an aircraft obtained through a qualifying lease.

“NBAA has worked steadfastly to gain clarity on this matter, and we are grateful to Rep. Tiberi for introducing this critical legislation to relieve aircraft management services companies from the threat of significant retroactive tax assessments that could cripple their businesses,” said NBAA President and CEO Ed Bolen.

Existing tax law states that non-commercial flights are generally subject to the 21.9 cents per gallon tax on jet fuel, and not the 7.5 percent commercial ticket tax. However, guidance issued to IRS auditors in 2008 sought to impose the commercial ticket tax on flights where an aircraft owner obtained support services from a management company, treating them as if they were conducting airline or air charter operations.

A March 2012 Chief Counsel Advice memo to IRS field agents also took the position that the commercial ticket tax applies to management fees and other amounts paid by an aircraft owner to an aircraft management services company.

This policy, and resulting IRS audit position, led to significant retroactive tax assessments for management companies that put many at risk of having to close their doors. In addition, the IRS never provided management companies with clear and precise guidance as to how the federal excise tax should be applied, but rather, companies had to sift through often conflicting IRS legal interpretations.

“Many management companies are small- to medium-sized businesses and unable to bear the significant financial burden after being found liable for past taxes they may no longer even be able to collect from clients, in addition to the costs of appealing an IRS audit.” said NBAA Senior Manager of Tax & Finance Policy Scott O’Brien.

Following a coordinated advocacy effort from industry stakeholders, including work by the NBAA Tax Committee and Member Companies, in May 2013 the IRS suspended federal excise tax (FET) assessments on audits involving management services companies and aircraft owner flights, however the underlying policy issues have remained unresolved.

 

Contact: Dan Hubbard, (202) 783-9360, dhubbard@nbaa.org

2017-06-13T02:14:52-06:00 September 28th, 2015|Aircraft Tax, Aviation News, Business Aircraft Industry News, Government Regulation|