On March 27, 2020, President Trump signed the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) into law to combat the nationwide financial impact associated with the unprecedented COVID-19 hospitalization crisis. The CARES Act contains provisions to support the aviation sector, including provisions that suspend certain taxes that ordinarily apply to commercial air transportation.
For domestic flights inside the United States, the IRS ordinarily imposes federal excise taxes (“FET”) of 7.5% on the amounts paid for commercial air transportation federal excise taxes (“FET”) and a $4.30 per passenger segment fee. For international flights beginning or ending in the United States, the IRS ordinarily imposes a segment fee of $18.90 per passenger. In addition, jet fuel (which also used in turboprop aircraft) used for commercial air transportation is ordinarily subject to a tax of 4.3 cents per gallon.
The CARES Act has suspended the imposition of FET and segment fees on any amounts paid for transportation by air during the period beginning on March 28, 2020 and ending on December 31, 2020 (the “Excise Tax Holiday Period”). Additionally, the CARES Act suspends the tax on jet fuel for all jet fuel used in commercial aviation during the Excise Tax Holiday Period. This results in the following benefits to our clients and colleagues who use private aviation for amounts paid during this period:
- Passengers on Part 135 on-demand charter flights (as well as scheduled Part 380 charter flights) are no longer subject to FET or segment fees on charter flight invoices paid during the Excise Tax Holiday Period.
- Operators of turbojet or turboprop aircraft used for commercial purposes are not subject to the 4.3 cents per gallon fuel tax.
- Purchasers of “jet cards” or other bulk-charter arrangements are not subject to FET or segment fees as long as payments for such flights take place during the Excise Tax Holiday Period.
- Users of aircraft under Part 91 time sharing agreements, demonstration flight agreements, interchange agreements, and “key employee” reimbursement programs (all under Section 91.501 of FAA regulations) are no longer subject to FET or segment fees for amounts paid during the Excise Tax Holiday Period.
However, there are other taxes which are not affected by the CARES Act and remain in effect:
- Aircraft operated for owners and multi-year lessees in a fractional ownership program remain subject to the 21.9 cents per gallon jet-fuel tax and 14.1 cents per gallon surcharge
- Aviation gasoline (used for piston-engine-powered aircraft), whether or not used for commercial transportation, remains subject to all federal excise taxes
This information is an introduction to tax provisions in the CARES Act and is therefore general in nature, please contact one of our experienced aviation attorneys directly to discuss your specific business/personal tax obligations.