In brief
This month’s issue of the Aircraft Club Tax Insight discusses the new federal excise tax rates for the taxable air transportation of persons.
In detail
Cruising Altitude
Effective January 1, 2024, the federal excise tax rates will increase for taxable air transportation of persons (caution: see note below regarding the scheduled expiration of certain Internal Revenue Code provisions absent Congressional action).
Stuck on the runway
Air transportation excise taxes
Generally, noncommercial aviation is subject to a federal fuel excise tax under Section 4081. Commercial aviation is subject to federal excise taxes on the transportation of persons (Section 4261) or property (Section 4271) as well as to the federal fuel excise tax (Section 4081) at a reduced fuel rate.
A number of federal air transportation excise taxes apply to the taxable transportation of persons under Section 4261, some of which are adjusted for inflation annually. The 2024 inflation-adjusted rates are as follows.
- Percentage tax: A 7.5% tax applies to amounts paid for the taxable transportation of persons that begins and ends in the United States or in the 225-mile zone (i.e., portions of Canada and Mexico within 225 miles of the continental United States).
- Domestic segment tax: A $5.00 per passenger per segment (one take-off and one landing) tax applies to taxable domestic flights (including within the 225-mile zone).
- International facilities tax: A $22.20 per passenger tax for the use of international travel facilities applies to international flights that begin or end in the United States.
- Hawaii/Alaska flight tax: A reduced tax rate of $11.10 per passenger applies to departures from Hawaii or Alaska to which the international facilities tax normally would apply.
Note: Other special rules apply to flights to and from Alaska and Hawaii.
Note: Sections 4261 and 4271 taxes are scheduled to expire on December 31, 2023. In past years, Congress has extended these taxes. It currently is expected that extensions of these taxes would be included in future appropriations or separate legislation. If Congress does not so act by December 31, the taxes could be retroactively reinstated by 2024 legislation.
Aviation fuel excise taxes
The federal fuel excise tax rates on aviation fuel are not adjusted for inflation and remain unchanged. Aviation gasoline generally is taxed at 19.4 cents per gallon, which includes the leaking underground storage fund tax (LUST). Kerosene generally is taxed at 24.4 cents per gallon; however, kerosene jet fuel is taxed at 21.9 cents per gallon for noncommercial aviation and 4.4 cents per gallon for commercial aviation (all rates including LUST).
Certain flights are not subject to federal fuel excise taxes, and other flights are subject only to the LUST at 0.1 cents per gallon. Fuel used in qualifying fractional aircraft ownership programs is subject to a fuel surtax of 14.1 cents per gallon; however, when this surtax applies, the 7.5% tax and other Section 4261 taxes do not apply.
Note: The aviation fuel excise taxes on aviation gasoline of 19.4 cents per gallon and on noncommercial aviation kerosene of 21.9 cents per gallon (including LUST) are scheduled to be reduced to 4.4 cents per gallon (including LUST) after December 31, 2023, unless Congress extends the current rates. Similarly, the surtax on fuel used in qualifying fractional aircraft ownership program aircraft likewise will expire after December 31, 2023, absent Congressional extension. Finally, the exclusion from Sections 4261 and 4271 taxes for flights subject to the Section 4043 fuel surtax also will expire after December 31, 2023, without Congressional action.
Observation: The IRS and Federal Aviation Administration (FAA) define commercial versus noncommercial transportation differently. The FAA may treat an aviation operation as commercial that the IRS treats as noncommercial.
The takeaway
Enacted September 30, 2023, the Continuing Appropriations Act, 2024, and Other Extensions Act (P.L. 118-15) extended various provisions, including certain FAA programs and activities, from September 30, 2023, to December 31, 2023. Additional Congressional action will be required in order to enact additional FAA reauthorization for 2024. Assuming Congress enacts the tax extensions discussed above, the rates identified above will apply.
