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Federal lawmakers wade into tax code dispute between Alaska air taxi operators, IRS

Ben Anderson

A vague piece of language in federal tax code that has affected Alaska air taxis to the tune of hundreds of thousands of dollars owed in back taxes may get a legislative fix, according to a Friday announcement from Alaska’s congressional delegation.

For years, some Alaska air-taxi operators have flown on the assumption they were exempt from certain excise taxes that would have charged passengers a bit more per flight. The air-taxi operators don’t benefit from not charging these taxes -- excise taxes are a direct pass-through tax from customers, meaning the operators gain no extra money for charging the fees.

The air taxi operators have cited exemptions from the taxes for flightseeing operations and seaplanes -- and for flights operating on what are called “nonestablished lines” in the tax code.

The problem is, the Internal Revenue Service and air taxi operators have had wide disagreement on what constitutes a nonestablished line. That especially applies in Alaska, where on-demand flights often take carriers to remote villages or off-airport locales on erratic schedules and infrequent occasions. Some operators who have failed to collect excise taxes on such flights have faced tens or hundreds of thousands of dollars in fines when they were audited by the IRS.

U.S. Sen. Mark Begich sent a letter to Treasury Secretary Timothy Geithner in June, asking for a meeting to clarify the issue. In July, staff from all three of Alaska’s congressional delegation met with IRS representatives to address the problem.

According to Julie Hasquet, spokeswoman for Begich, the meeting went well. Because there was already a bill in the works to clarify the tax-code language, that bill was filed on Thursday.

“Essentially, we got a commitment from the IRS to work with the air-taxi operators,” Hasquet said. “But we said we have a legislative fix, and we’re going to go ahead with this.”

That way, the problem should be helped either way, she said. If the operators and IRS can’t come to an agreement, the legislation will provide the security for operators worried about large back-tax bills being levied.

Luke Miller, spokesman for Rep. Don Young, said that similar legislation is being drawn up for introduction in the House.

If passed, the bill would add “…on demand flight(s) to or from an area not connected by paved roads to any airport” to the flights exempt from the per-passenger excise taxes. On-demand flights are any flights in which customers determine the pick-up and drop-off locations and times, according to the bill.

That covers many flights where planes are chartered to one of Alaska's rural villages served by on-demand air-taxi services.

The bill, if or when it is enacted, would forgive any pending back taxes owed to the IRS by operators, who would be exempt under the new language. Those who have already had to pay back taxes would not be affected.

In statements, all three Alaska lawmakers drilled down on bringing clarity to unclear tax code language.

“Our air carriers deserve tax clarity and reasonable accommodation for the uniqueness of their charter and air-taxi businesses,” Sen. Lisa Murkowski said. “Increasing taxes – or applying new ones – isn’t going to help these small businesses grow. We want to make sure Alaska’s skies are open for business.”

A timeline for passage on the bill isn't yet clear.

Contact Ben Anderson at ben(at)alaskadispatch.com