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AK Air taxis seek uniformity on excise taxes

IRS tax interpretation could cost air taxis more than $1M in fines

Posted: July 2, 2012 - 10:55pm

Alaska air taxi operators are concerned about tax collection practices used by the Internal Revenue Service and the Federal Aviation Administration that may result in an attempt to collect $1.8 million from some small carriers.

Those federal agencies, the carriers say, are inconsistent in the interpretation of excise taxes and exemptions specific to air taxis.

Air taxi operators have enlisted the help of U.S. Sen. Mark Begich, who has asked the U.S. Treasury Secretary Timothy Geithner for a meeting on the subject.

Typically, private operators fall under Part 91 of IRS Publication 510 and are subject to the fuel tax on non-commercial aviation. Commercial operators, Part 135, are taxed on passengers and transported property. More than 85 percent of aircraft in Alaska qualify for a small aircraft exemption on excise taxes.

This difference in terminology and interpretation creates confusion among air taxi operators who may be more familiar with working with the FAA, according to a release by the Alaska Air Carriers Association (AACA). Rules regarding the federal excise tax on fuel, goods and passengers are ambiguous and stymie taxis’ ability to comply, according to the AACA.

“It’s ambiguous, it has a lot of grey areas,” said Mike Stedman, AACA president and the owner of Alaska Seaplanes.

Stedman said he deals with the ambiguity by doing what he believes is the right interpretation of the tax law, collecting taxes “as you feel you should,” Stedman said.

“You think you have a good line on it and you hear about other carriers, the IRS is saying you are not doing it right,” Stedman said. “It is very confusing.”

Stedman gave an example of ambiguity in interpretation when an air taxi trip lands on a gravel bar or lake. These landing sites do not receive FAA funding, as opposed to an airport, and should be exempt of the usual tax, he said.

“Alaska, we are different,” Stedman said. “We don’t have many roads.” But the IRS and FAA are “tired of hearing that. Things are different here and they just don’t see it that way.”

Sen. Mark Begich said the agencies have tried to collect taxes retroactively and used intimidation to maintain the status quo.

IRS audits of several Alaska air taxis could result in $1.8 million in fines even though the carriers “conscientiously collect” federal excise tax from passengers, according to Alaska Air Carriers’ release.

Much of the uncertainty comes from the classification of what constitutes a route serviced with regularity.

Some misinterpretations come from the unique nature of Alaska air service.

Much air taxi service is seasonal (regular in the summer, but not in winter) and terrain limits the route selection, making some taxi routes more regular, according to the Alaska Air Carriers Association release. The association said destination tours, such as landing on a glacier, are also misinterpreted.

“These flights with brief touchdowns are misinterpreted by some IRS agents as being subject to the excise tax,” according to the association’s release.

Several air taxi owners approached the office of Senator Mark Begich for help.

Begich recently sent a letter to Treasury Secretary Geithner with a request for a meeting.

“These small businesses are not tax evaders. They are hard-working men and women attempting in good faith to comply with the unclear framework and erratic interpretation of the Internal Revenue Service code and regulations by IRS auditors,” Begich wrote.

Begich’s office said the senator has not heard back from Secretary Geithner or the IRS.

• Contact reporter Russell Stigall at 523-2276 or at russell.stigall@juneauempire.com.

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