Should airlines be taxed on all those fees they charge passengers? Airlines made at least $3 billion in service fees last year for things like checking bags and in-flight meals.
But much of that money wasn't taxable because the IRS considers those services separate from "transportation of a person," according to a report this month by the Government Accountability Office. Airlines pay an excise tax on all transportation-related revenue into the Airport and Airway Trust Fund, which goes toward capital costs and helps fund the FAA.
Service fees make up an ever-increasing share of airline revenues, growing from less than 1 percent in 2007 to more than 4 percent in 2009, the GAO report found. Lawmakers, who already want airlines to be more transparent about what they're charging, say applying the excise tax to all these fees could be an option. Airlines argue that taxing more services would hurt the customer and that "a la carte" pricing offers consumers more choice.
Should these fees be taxed? Does the current IRS rule make sense? Which would be greater, the benefit to passengers and the trust fund or the harm to the airlines? Is there another option that helps everyone?