27/1/2010 – IRS States That Excess Baggage Fees Are Not Taxable
I know, when most people think of the U.S. Internal Revenue Service (IRS) and big corporate airlines arguing over a 7.5% excise tax the first thought that comes to mind is “who cares?”…but to airlines, the 7.5% is a considerable amount of money.
Recently the IRS has revealed that there is a specific tax code that states “charges for transportation of baggage is non-taxable.”
What does this IRS ruling mean for airlines as they continue to unbundle their airfares, which includes charging for checked baggage, to increase their revenue potential?. Presently the five major “legacy carriers” in the United States stand to earn US$1,760,000,000 in checked baggage fees in the coming year, roughly US$117,000,000 more than they earned last year from checked baggage fees.
The 7.5% excise tax airlines are not required to pay the IRS equals an additional revenue of US$132,000,000 the airlines can keep for themselves…or US$26,400,000 in additional revenue per airline.
Does this mean you’ll get to pay 7.5% less for your checked baggage? Unfortunately not…but it does help in stabilizing a highly unstable industry.