Joint Committee Report JCS-23-97: General Explanation of Tax Legislation Enacted in 1997

Excise taxes are imposed on commercial air passenger and freight transportation and on fuels used in general aviation (i.e., transportation on noncommercial aircraft which is not for hire) to fund the Airport and Airway Trust Fund ("Airport Trust Fund"). These taxes generally had expired after December 31, 1996.

The Airport Trust Fund excise taxes which had expired included three taxes on commercial air transportation:

Collection and deposit of tax

The air passenger ticket and freight excise taxes are collected from passengers and freight shippers by the commercial air carriers. The air carriers then remit the funds to the Treasury Department; however, the air carriers are not required to remit monies immediately. Excise tax returns are filed quarterly (similar to annual income tax returns) with taxes being deposited on a semi-monthly basis (similar to estimated income taxes). For air transportation sold during a semi-monthly period, air carriers may elect to treat the taxes as collected on the last day of the first week of the second following semi-monthly period.⁴ Under these "deemed collected" rules, for example, the taxes on air transportation sold between October 1 and October 15, are treated as collected by the air carriers on or before November 7. These amounts generally must be deposited with the Treasury by November 10. Thus, on average, revenues from commercial air passenger transportation generally are not received by the Federal Government until approximately one month after the air carrier actually sells the transportation.

Like income tax withholding and estimated tax payments, the excise taxes contain payment safe harbors for avoiding underpayment penalties. In general, Treasury Department regulations provide that commercial air carriers are not subject to underpayment penalties if their semi-monthly deposits of passenger ticket and freight waybill taxes for a quarter equal to least the amount of taxes they were required to remit during the second preceding calendar quarter (the "look back" rules). For example, air carriers generally would not be subject to underpayment penalties if their semi-monthly deposits for the fourth quarter (October 1 through December 31) equaled at least the amount they were required to remit during the second quarter (April 1 through June 30) of the same year.

In a general information letter to the Air Transport Association of America, dated August 30, 1996, the Internal Revenue Service advised the air carriers that, notwithstanding that no excise taxes were required to be remitted during a look-back quarter, applicable Treasury Department regulations in 1997 permitted the air carriers to continue to avail themselves of the safe harbor and avoid remitting taxes collected from consumers during September, October, and November of 1996 until the air carriers filed their quarterly excise tax returns for that period on February 28, 1997. (Similarly, the air carriers were expected to retain most taxes collected from consumers during December 1996 until their excise tax returns for the first quarter of 1997 were due on May 31, 1997.)

Trust fund deposits

The Airport Trust Fund received gross receipts attributable to the excise taxes described above. The Code provided that taxes received by the Treasury Department through the end of the period when the taxes were last imposed (i.e., through December 31, 1996 at the time of the legislation) were deposited in the Airport Trust Fund. Thus, under prior law, taxes received after December 31, 1996, were not transferred to the Airport Trust Fund.

The Congress determined that a short-term extension of the Airport Trust Fund excise taxes was needed in order to fund the FAA budget commitments through the fiscal year ending September 30, 1997, and to give Congress time for review of proposals related to a longer-term extension of the aviation taxes.

The Act reinstated the air transportation excise taxes that expired after December 31, 1996, during the period beginning seven days after the date of enactment and ending after September 30, 1997.

Transfer revenues to the Airport Trust Fund

The Act authorized the Treasury Department to transfer to the Airport Trust Fund receipts attributable to excise taxes described above that were imposed on commercial and general aviation. This permitted transfer of receipts attributable to taxes imposed both during the period August 27, 1996, through December 31, 1996, and during the period beginning seven days after the date of enactment.

Modify Treasury Department excise tax deposit regulations

To prevent a delay in depositing tax similar to that which occurred with respect to the fourth quarter of 1996, the provisions of Treasury Department regulations providing an exception to penalties for underpayment of estimated excise taxes based on a look-back period were made inapplicable when tax was not imposed throughout the look-back period. In such a case, taxpayers could continue to use an alternative safe harbor that provides that no underpayment penalty is imposed as long as the taxpayer has paid at least 95 percent of the current quarter's liability.

The provisions reinstating the general aviation gasoline excise tax were effective for gasoline removed during the period beginning seven days after the date of enactment (March 7, 1997) and ending after September 30, 1997. The provision reinstating the general aviation jet fuel excise tax was effective for fuels sold by producers during the same period. Floor stocks taxes were imposed on these fuels held beyond the removal or producer level on the date which is seven days after the date of enactment (March 7, 1997).

The provisions relating to transfer of receipts to the Airport Trust Fund and the modification of the Treasury Department's excise tax deposit regulations were effective on the date of enactment (February 28, 1997).