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Pepperdine University School of Law

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Friday, January 29, 2010

Bags Fly (Tax) Free

Bags The IRS has ruled that the airlines are not subject to excise tax on the $1.76 billion to be received this year in baggage fees:

http://taxprof.typepad.com/taxprof_blog/2010/01/bags-fly.html

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Comments

Your summary makes it sound as if those billions are going completely untaxed, but the ruling and section 4261 concern only the 7.5 percent air transportation tax.

Posted by: S | Jan 29, 2010 6:47:13 AM

Fees for bags are not taxable for excise tax purposes. All the stories fail to make this clear and imply that the fees are not taxable income at all.

Posted by: Mark Siegal | Jan 29, 2010 7:33:50 AM

This decision creates an incentive to convert (excise) taxable ticket revenue into revenue not subject to the excise tax. I imagine that we'll see further "unbundling" of services related to air travel. Unfortunately, this puts pressure on Southwest Airlines (and any others that don't charge for bags) to join the ranks of airlines charging such fees. It also will likely increase the cost of flying for consumers as unbundling allows incremental increases in a greater number of charges.

Posted by: CMB | Jan 29, 2010 10:53:17 AM