On May 12, 2020, the IRS issued 17 Frequently Asked Questions (FAQ) related to the aviation excise tax holiday enacted as part of the CARES Act. These FAQs are the only guidance the IRS has issued to date on the holiday.
Background and FAQs
The CARES act suspends certain aviation industry excise taxes from March 28, 2020 through Dec. 31, 2020. The aviation excise taxes suspended during the excise tax holiday are:
- Air transportation excise tax on transportation of persons and property,
- Fuel excise tax on jet fuel used in commercial aviation
The FAQs address a number of issues related to the fuel and air transportation tax.
Regarding jet fuel tax, the FAQs explain certain basic concepts of the tax rules. If the fuel is delivered directly from a terminal into the fuel tank of an aircraft for use in commercial aviation and certain conditions are met, the only tax applicable will be the Leaking Underground Storage Tank Trust Fund tax at a rate of $0.001 per gallon. If tax is imposed at a higher rate because it is not delivered directly into the wing, a claim for refund may be made by the ultimate purchaser of the fuel; in certain circumstances the ultimate vendor may make the refund claim on behalf of its customer. The FAQs provide information on how these claims may be made and indicate that the forms will be updated in accordance with the FAQs.
Regarding air transportation excise taxes, the FAQs reiterate the period for which the holiday applies. It is important to note that the holiday applies only to amounts paid (such as tickets purchased) between March 28, 2020 and Dec. 31, 2020. If, for example, a ticket was purchased before March 28 for travel during the excise tax holiday period, tax applies. However, if a ticket is purchased during the excise tax holiday period for travel in 2021, no tax applies.
Washington National Tax observations
The FAQs provide clarification on a number of issues related to the aviation excise tax holiday. These clarifications include how to file jet fuel claims and details on the effective date of the provisions.
Affected companies include commercial airlines, charterers, aircraft management companies, companies transporting packages by air, aviation fuel vendors and businesses with private aircraft that engage in transportation of others for payment/hire. Affected companies should review procedures regarding collection and remittance of the air transportation taxes during the holiday period.
Further, fuel sellers and end-user purchasers of jet fuel should evaluate whether there is an opportunity for refund of jet fuel taxes. These claims could be up to $0.243 per gallon of fuel. The rules regarding jet fuel taxation and refunds are complex. Appropriate documentation is necessary to support any refund claims.
Contact your tax advisor for further information.
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