- Days left

Are the airlines' extra fees cheating the U.S. out of tax dollars?


The airlines might have found a tax loophole, and you're it. The travel consultancy firm T2 recently published a worrisome blog post that is gaining traction. The airlines' extra fees, it says, aren't just costing consumers more. They're also enabling the airlines to dodge tax to our government.

Until a few months ago, checking a bag was considered a service that came with the base fare that you paid when you bought your plane ticket. That was taxed at a rate of 7.5%. But now many airlines are charging up to $50 for each bag each way, and because it's not part of the base fare, that fee isn't subject to tax. T2 says that cash belongs to the airlines, free and clear.

So a carrier like United, T2 writer Timothy O'Neil-Dunne calculates, would be cheating Uncle Sam out of tax income of $7.5 million for each $100 million it makes on extra fees. Given that United recently surmised that it stood to make $700 million on its extra fees, that's a lot of cash that won't be going to our schools, our roads, our veterans programs, and our elaborate Wall Street bailouts. Not only do consumers get screwed by these extra fees, they get screwed out of the greater good of tax revenue.


It has now been estimated that United, by itself, has created a revenue shortfall for Americans that amounts to more than $20 million. Add to that the shortfall created by all the other airlines, and we're talking some serious tax money that these carriers could be avoiding because, as O'Neil-Dunne points out, if "the charge is directly related to the ticket then it is not taxable." That might make it fully legal, although as we all know, just because it's legal doesn't make it right.

Count this as just one more way that companies have managed to shift the burden of daily expenses squarely onto the shoulders of the common consumer. First, the extra fees started coming out of business travelers' personal funds, and now it turns out the airlines might be getting away with 100% of the fees' proceeds, untaxed. Could it be true?

By the way, the airlines aren't the only travel companies being dodgy about dodging taxes. Atlanta recently joined the list of American cities that are suing 17 Web hotel bookers such as Orbitz, Travelocity, Expedia, Priceline, and Hotels.com. Here, the issue seems a little murkier: The websites pay tax on the rate charged to them by the hotels, but not on the higher price the customer ends up paying. The cities want tax based on the whole price paid by the guest, not by the price paid by these online middle-men.

The websites don't want to do that, partly because it will mean they will have to reveal the trade secrets of just how little they pay for those rooms and how much they jack up the rates we see. (Yeah, I'd be worried about looking like a rip-off, too. Hotels.com, I'm looking at you.) Los Angeles, Philadelphia, Miami, San Antonio, and Chicago also want a piece of the tax action, and cases are wending their way through the courts there, too.

So far, though, no one has challenged the airlines on this one. Perhaps that moment will be arriving soon. Unlike many of their scheduled flights.


Increase your money and finance knowledge from home

Managing your Portfolio

Keeping your portfolio and financial life fit!

View Course »

How much house can I afford

Home buying 101, evaluating one of your most important financial decisions.

View Course »

TurboTax Articles

5 Tax Tips for Single Moms

If you're a single mom filing your taxes, make use of tax credits and deductions that can help reduce your taxable income and reduce the amount of tax you pay. A number of strategies, credits and deductions can be used to reduce taxable income, and in some cases, allow tax refunds even if you didn't pay in any taxes. When you use TurboTax, we'll ask simple questions and handle these calculations for you.

Essential Tax Forms for the Affordable Care Act

The Affordable Care Act (ACA), also referred to as Obamacare, affects how millions of Americans will prepare their taxes in the new year. The law now includes penalties for all who haven?t obtained health insurance -- and those penalties are expected to be paid at tax time. The ACA also provides tax credits to help people pay for insurance, and you can claim those credits when you file your taxes. The Internal Revenue Service (IRS) has introduced a number of tax forms to accommodate the ACA.

What is Form 1095-A: Health Insurance Marketplace Statement

If you bought health insurance through one of the Health Care Exchanges, also known as Marketplaces, you will receive a Form 1095-A which provides information about your insurance policy, your premiums (the cost you pay for insurance) and the people in your household covered by the policy.

Keeping Yourself Safe From Tax Scams Today

During tax time, there are numerous types of tax scams. These illegal schemes can result in the taxpayer being responsible for extra interest, penalties and possible criminal prosecution. Tax schemes and scams attempt to gain access to your financial information by email, telephone, fax or mail. They also may attempt to falsely collect tax you owe to the Internal Revenue Service. Using TurboTax ensures your financial information remains safe.

Health Care and Your Taxes: What's the Connection?

Your cost for Marketplace health insurance is based on the income you file on your tax return. Your reported income also determines your eligibility for the tax credits and penalties associated with Marketplace health coverage. Everyone has to have health insurance and by filing your taxes, you let the government know if you carry health insurance. The tax system acts as a way for the government to levy a penalty on those who don?t have it and to provide assistance, by means of a tax credit, to those who do.

Add a Comment

*0 / 3000 Character Maximum