As Alaska Dispatch first reported back in July, some air taxi services in the Last Frontier have been having difficulty with a confusing IRS rule that was occasionally turning up hundreds of thousands of dollars owed in back taxes when the companies were audited. Now, the Wall Street Journal reports that at least one Alaska charter plane company has filed for bankruptcy protection due at least in part to those back taxes.
The root of the problem lies in per-passenger excise taxes, charged every time an air taxi service flies a passenger to their destination. It's a pass-through tax; the customer pays the fee and the company makes no money on it, instead delivering it to the government come tax time. The taxes are charged on most flights, excepts some sightseeing flights, seaplane excursions, and the problematic one, flights on what the IRS calls "non-established lines."
But some Alaskan air taxi services, which often fly routes off the beaten path or to locations they've never even traveled before, haven't been collecting those fees because they don't consider those flights to be along established lines.
So, come tax time, some air taxi services have reported owing unexpected taxes to the tune of hundreds of thousands, or even more than a million dollars.
Alaska's lawmakers in Washington have already stepped in with proposed legislation in the hopes of clarifying the vague language in the IRS tax code that determines which passengers should be taxed. That legislation would ease the rules on which flights need to collect the per-passenger fees.
That legislation is currently pending in Congress.
Unfortunately, for at least one Alaska company, the change hasn't come soon enough. According to the Wall Street Journal, Alaska Air Taxi, which boasts a fleet of seven planes, has filed for Chapter 11 bankruptcy protection as it fights the IRS over a reported $1 million in back taxes. Alaska Air Taxi owner and pilot Jack Barber said that the taxes could be damaging to Alaska's important aviation industry.
Barber’s 15-person company flies passengers and cargo for big oil and mining companies. He recently flew supplies to the under-construction Fire Island wind turbine outside Anchorage.
Barber’s fight with tax auditors began about six years ago when they determined that he should have paid $240,000 in segment taxes over the years. His tab has grown to about $1 million because of interest and penalties, he said.
The IRS has been collecting these back taxes for decades, according to several air taxi operators who have fallen victim to them at various times. The IRS has repeatedly denied comment on the issue, saying it doesn't discuss individual tax disputes.
Contact Ben Anderson at ben(at)alaskadispatch.com