Is There a Once-in-a-Lifetime Opportunity to Buy Airline Tickets Tax Free?

The U.S. House adjourned for the day without a temporary extension or re-authorization for the FAA.

The last full re-authorization was four years ago, and 20 short-term extensions have been passed since then. The latest one runs out at midnight tonight.

This is expected to mean the furlough of 4000 employees, but does not affect air traffic control. Which of course leads me to wonder about the usefulness of those 4000 employees anyway.

Republicans in the House, led by Transportation Committee Chairman John Mica, are at odds with Senate Democrats — primarly over the Essential Air Service program.

I’ve explained in the past just how wasteful this this program is, and that it really can’t be made more effective.

Mica doesn’t propose to gut much from the program, just to end subsidies that amount to more than $1000 per ticket. Which doesn’t amount to much, certainly not real reform. But it just so happens to affect only 3 small airports which are represented by three powerful Democrats. (Wouldn’t want to cut subsidies for Republicans, after all!)

Unsurprisingly all Senate Majority Leader Harry Reid (D-NV), Senator Max Baucus (D-MT), and Sen. Jay Rockefeller (D-WV) are unenthused.

They won’t go along with the House on re-authorization without protecting their subsidies, and the House has been unwilling to authorize without killing those subsidies.

As I say, it’s a bit of a canard since the House really isn’t even reforming the “Essential” Air Service program. They’re just paring back the subsidies from three political enemies. (First rule: always remember that all politics is fake.)

Republicans also want to overturn a National Mediation Board decision which lowers the bar for unionizing airlines. Previously, a union had to obtain a majority of employees to unionize, the recent changes is that they only have to get a majority of those employees actually casting a ballot to vote in favor of a union. Republicans would like to reverse that change, and President Obama has threated a veto over it.

Meanwhile, several Senators was additional slots beyond the currently 1250 mile perimeter at Washington National airport. The current law is antiquated, originally intended to support long-haul traffic at Dulles it had the opposite effect, delaying the development of Dulles as a hub for a decade. (With more short-haul traffic shifted to National airport, there wasn’t nearly as much feeder traffic for Dulles’ longer flights, which meant that the airport could support only those flights necessary to carry DC-origination/destination traffic.)

Of course, the perimeter was cleverly set at 1,250 miles, which allowed flights to Dallas (anyone remember House Speaker Jim Wright?) but disallowed flights to, say, Denver.

Subsequently a series of exceptions have been made. John McCain, who represented the home state of then-America West airlines, was the chief proponent of flights beyond the perimeter (and in particular, those flights being awarded to America West).

No one proposes to eliminate the perimeter, incumbent carriers with exempted slots find those valuable and benefit from the legal monopoly they receive, competitors are not permitted to enter the market. And politicians benefit from handing out exemptions to constituents and contributors. So it isn’t just a matter of how many more slots are permitted to fly beyond 1,250 miles — it’s a fight over which Senators gets to hand them out to their favored airlines. The Senators hold the legislation hostage, demanding to be bought off.

Rick Seaney echoes the Secretary of Transportation in saying that failing to re-authorize the FAA means they aren’t permitted to collect taxes on airline tickets. He says that passengers could begin saving 15% or more on their tickets beginning early in the morning on Saturday, and that passengers with existing tickets traveling before the FAA can again collect these taxes should be entitled to a refund.

I’m not so sure.

Seaney acknowledges that under similar circumstances in the past, Courts have ruled that airlines didn’t have to return the overpaid taxes. And who is going to go through the hassle of trying to get the money back from the government? (Not to mention, my own feeling is it’s always a good idea to attract as little government attention as possible when it comes to taxes!)

My own guess is that no one will stop collecting ticket taxes at midnight. I’ve reached out to press people at Expedia, Orbitz, Travelocity, and United Airlines but it’s Friday afternoon in summer — not surprised I haven’t heard back. Still, this would take programming changes to implement and I doubt anyone has been proactively working to removetaxes from airfares, especially since no one expects such a thing to be long-lasting. Besides, assuming that the airlines don’t stop collecting taxes, it’ll be relatively simple for a legislative fix to simply retroactively authorize the taxes. And the authorization issue would seem to apply to when travel is consumed, rather than purchased, so how will United or Expedia know which tickets to collect the taxes on and which not to? If they stopped collecting taxes, they might be facing either (1) eating the cost of the taxes themselves or (2) passing on an add-collect to the passenger.

Either Congress will mandate that they remit the taxes paid during the period where FAA was without re-authorization or extension, or the agencies or travel providers will get to keep the taxes. Either way, they’re likely to want to continue collecting the taxes. And doing so should be cost free, at least to the extent that Seaney’s understanding of how courts have treated this issue in the past is correct.

So my bet is no reduction in airline ticket cost at midnight.

Besides, an elementary understanding of tax incidence theory suggests that people are paying roughly what they’re willing to pay in airfare now. One would expect prices to rise much of the way to compensate for removal of taxes. Contra Rick Seaney, I would expect any savings – were taxes to go uncollected — to quickly fall, prices rise, and the difference in price would be far less than his projected 13%.

In other words, nothing to see here, move along. We’ll know whether I’m right or Rick is right in about 8 hours!

Update: Looks like at least some systems are being prepared not to charge taxes. And of course new fares aren’t filed in real-time, so even if airfares do adjust that will happen over the coming airfare feeds, so no doubt there will be an opportunity to book tickets with those systems and carriers not charging tax and at prevailing airfares (ie without a corresponding airfare increase). Developing..

Update 2: Travelocity responds. According to Joel Frey, Travelocity spokesperson, “No, we will not display or include the government fees and taxes in the price of airfares if the bill expires at 12:01.” Sweeeeet!

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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  1. This deal ended long ago for us, when Bank of America stole $xxx.75 out of a $x,000 deposit of $1 coins. After two years, they finally settled our court case for the stolen amount plus out of pocket costs.

    There are not enough words to describe how much I despise Bank of America. Please churn their credit cards. Hard.

  2. “Of course, the perimeter was cleverly set at 1,250 miles, which allowed flights to Dallas (anyone remember House Speaker Jim Wright?)”

    Nitpicking, but since we’re talking about Jim Wright and perimeter rules, I’ll point out that the 1,250 allowed flights to Ft Worth (DFW). Dallas (DAL) had its own Wright-imposed limits that prohibited service from WAS.

  3. @Swag, it’s not nitpicking, the only thing the two rules have in common is that they both protect American Airlines and Wright represented the Fort Worth area. He limited Southwest’s competition to American at Love Field, and ensured American could fly to their Dallas Forth Worth hub from Natioanl Airport. Entirely consistent.

  4. Gary, what systems(booking portals) are being adjusted to NOT collect the government taxes?

  5. I am not sure that a “retroactive” tax would pass muster with the supreme court. Recall all those millionaires who died last year after the estate tax expired.

    Of course, as you point out, demanding a refund from the airlines or government is another matter, and may take more time than it’s worth. But if you buy expensive tickets…

  6. “This is expected to mean the furlough of 4000 employees, but does not affect air traffic control. Which of course leads me to wonder about the usefulness of those 4000 employees anyway.”
    Hm…surely you can’t be serious? 🙂

    The FAA does a lot more than ATC. They maintain (some) runways, ATC facilities, tons of navigation equipment (VORs mostly these days), they design and monify IFR procedures, they write vitally important procedures, the flight test IFR routes, … do I need to go on?

    Just as “towers” aren’t the most important buildings in ATC (as most people believe), ATC is not the most important thing the FAA provides. You can do without ATC (and hundreds of flights every day do), but you cannot do without runways or navigation aids.

  7. Just tweeted @Delta to see what they are saying at got this response:
    Delta will not collect the relevant taxes during the shutdown period. ^WG

  8. Also, was this meant to be 12:01 Eastern time? Because I’m still seeing some taxes and fees on Travelocity. ($10 for a oneway ORD-BOS)

    Am I missing something? Did they use to collect more than $10 before? Expedia seems to be saying taxes for the same flight are $2.05, so it seems like at least they have stopped collecting them.

  9. OK, it looks to me like DL.com is still collecting the tax, but UAL.bomb is not. My research involved matching ITA results to DL and UA’s websites. (ITA is not showing the tax.)

  10. Also, the passenger facility fees and 9/11 tax are still in, apparently. Airtran is showing 0 for excise taxes. Virgin tweeted they’ll start not collecting at midnight pacific (not sure how they get to decide this).

  11. Just received an email from Virgin America also touting the reduced federal taxes on fares. Many itineraries I’ve been keeping track of have lowered prices as well.

    The IRS will need to clarify the tax situation soon, because we may all be paying these federal taxes sometime down the road. Wait and see I suppose.

  12. At midnight Pacific Time and Southwest Airlines stopped collecting the tax and simultaneously (as nearly as I can tell) raised fares in amounts exactly equal to the tax.

    Score one for Gary. 🙁

  13. The airlines who have seen a golden opportunity for great free advertising by the mass media at low cost appear to be: Alaska, Delta, United, JetBlue, Frontier, and Virgin America.

    Congratulations to all of them for not raising prices to cover the lapsed tax. Their competitors are too clever by half. I knew JetBlue would get this right: their marketing people are the very best.

  14. United also reduced fares. I was following certain city pairs, and prices went down after midnight, but were higher before. They did have some offbeat numbers!!

  15. @nsx Alaska really didn’t have any choice, since they have a fare guarantee program in place. If they had raised fares temporarily (ala WN), they’d have to lower them again when the taxes get reauthorized. That would create an opportunity for credits to be issued to their “MyWallet” program for the lowered base fares. Net net net, they’d probably be better off following WN’s model, since not all pax would claim them.

  16. I just found a fare BUF/ORD RT on United that priced @ 207. I called to book it (using some vouchers)and the fare suddenly was $217. I double checked on united.com and sure enough the fare was up $10 to $217. Looks like United either raised their fare or is charging the tax again…..

  17. Unless you caught the actual fare construction from both quotes and compared it’s really hard to form any conclusion from a change like this. Fares and fare availability are updated continuously throughout the day.

  18. Thanks for pointing out that all politics is farce, and it usually doesn’t matter who is in power!

    Your prediction on tax incidence turned out correct, because Southwest and American raised prices to cover the reduction in taxes.

  19. American Airlines is a company treats numerous employees just as rotten as it does its customers — deceitful and dishonest! Its a company that needs to get rid of its management and treat employees fairly instead of deceiving them. They instruct their employees not to offer information about baggage fees, etc unless specifically asked that question. Why do you think they made so much money in profit? When asked specifically the management denies this, but it was recently all over the news how the airlines hid fees and made a huge profit. They’re liars! Do you think the employees just all gained up and decided not to inform passengers about fees unless asked? Their employees are unhappy because many of them are treated like garbage and the newer employees are ripped off big time to pay for the older employees pensions and high pay and benefits plus the managements huge vacations and pay. They’re liars and cheats trying hard to hang onto their big bucks while screwing the underlings! Where else can you make $30/hr answering a phone without so much as a high school education? That’s why you’re getting screwed! And that’s not counting the huge vacations and benefits packages. Plus the executives want their big bucks too. The newer employees don’t get all extravagance. They’re lied to and screwed over everytime they turned around, just like the customers! And the government employees have their airfare paid for with big discounts while soldiers pay regular mostly higher fares. That’s American Airlines for you! Rotten to the core! Let’s make sure they’re forgiven their fines for violations though! It doesn’t surprise me that company would screw over customers on the taxes because that’s what they do best: Screw their customers! Let these crooks pay for their own security on their planes! Why should the taxpayers have to pay for the TSA? These people are scammers!

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