AIR TRANSPORT TAX DOES NOT APPLY TO PASSENGER FACILITY CHARGES, IRS RULES.

Rev. Rul. 91-61

ISSUE

Does the tax imposed by section 4261 of the Internal Revenue Code on amounts paid for the taxable transportation of persons by air apply to "passenger facility charges" imposed under the Federal Aviation Act of 1958?

FACTS

Section 9110 of the Omnibus Budget Reconciliation Act of 1990, P.L. 101-508 (the Act), added section 1113(e) to the Federal Aviation Act of 1958 (49 U.S.C. App. 1513(e)). Under section 1113(e) of the Federal Aviation Act, the Secretary of Transportation may grant a public agency that controls a commercial service airport the authority to charge a fee of $1.00, $2.00, or $3.00 for each paying passenger of an air carrier enplaned at that airport. These "passenger facility charges" (PFCs) are imposed on the passenger and must be used by the public agency to finance: (1) airport development, planning, or terminal development; (2) noise capability planning; and (3) construction of gates and related areas at which passengers are enplaned or deplaned. Under section 1113(e)(10) of the Federal Aviation Act of 1958 (49 U.S.C. App. 1513(e)(10)), the air carrier must collect the PFCs, insure that the PFCs are promptly paid to the public agency for which they were collected, and separately state the amount of the PFCs on the ticket for air transportation.

LAW AND ANALYSIS

Section 4261(a) of the Code imposes a 10 percent tax on the total amount paid for the taxable transportation by air of any person. Section 4261(d) provides that the tax is paid by the person making the payment subject to the tax. Section 4291 provides that every person receiving any payment subject to tax under section 4261 shall collect the tax from the person making the payment. Under section 9502, the revenues collected from the tax are deposited into the Federal Airport and Airway Trust Fund.

In order to facilitate, at the local level, the ability of airport authorities to raise the necessary capital to finance airport-related projects, the Act authorizes PFCs as a new local source of funding. The purpose of the Act, as reflected by its legislative history, indicates that Congress did not intend PFCs to be subject to the tax imposed by section 4261 of the Code. See H.R. Conf. Rep. No. 964, 101st Cong., 2d Sess. 1,004-1,009 (1990). Accordingly, based on their unique nature and purpose, as well as the fact that they are expressly authorized under Federal law, PFCs are not treated as amounts paid for taxable transportation within the meaning of section 4261 of the Code.

HOLDING

The tax imposed by section 4261 of the Code on amounts paid for the taxable transportation of persons by air does not apply to PFCs imposed under section 1113(e) of the Federal Aviation Act of 1958.

DRAFTING INFORMATION

The principal author of this revenue ruling is Tyrone J. Montague of the Office of Assistant Chief Counsel (Passthroughs and Special Industries). For further information regarding this revenue ruling contact Tyrone J. Montague at (202) 343-8556 (not a toll-free call).