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IRS regulations prevent sleeping pods at Anchorage airport

  • Author: Sean Doogan
  • Updated: September 28, 2016
  • Published September 14, 2014

Plans to install sleeping pods at Ted Stevens Anchorage International Airport have been grounded by, of all things, Internal Revenue Service codes.

The pods, which were planned for the airport's C concourse, would have contained two to three bunks each for weary and laid-over travelers to get some cheap rest before boarding their next flight. Their installation would have made Anchorage's airport one of the first in the nation to utilize the so-called "micro hotels" and would have increased the airport's already growing nonflight revenue.

But after going through an IRS audit a few months ago, airport bond managers noticed a prohibition in the tax code covering allowable uses for tax-free bonds against building lodging facilities.

And there's the catch. The main terminal and C Concourse have been renovated (beginning in 1999) with a combination of AMT tax-free bonds and private equity bonds. With more than $500 million still outstanding on the tax-free AMT bonds, the airport is bound by IRS codes that are meant to prohibit public bonds from being used to compete with private businesses.

The restaurants, shops and even a beauty salon that already exist don't violate IRS code because they are for the sole use of airport travelers and employees. It seems obvious that sleeping pods would also be used only by the traveling public, since they would be on the other side of the TSA security screening area. However, IRS code section 142.C.2.a specifically forbids "any lodging facility" from being built when tax-free bonds are still outstanding. There may be a workaround to the problem, but airport officers didn't want to take any chances with the tax man.

"It's complex," said Keith Day, the financial controller for the Alaska International Airport System, which includes the Anchorage and Fairbanks airports. "We made the determination that the most conservative approach was to not take any risk with it."

Sleeping pods are already in place at Atlanta and Philadelphia airports, but those facilities aren't necessarily operating under the same restrictions.

"Each airport is unique as to how they may have financed that area where the facility is located," Day said.

A possible solution to the sleeping pod problem could be in the so-called "bad use" or "dirty use" provision, which allows facilities built with tax-free bonds to dedicate up to 3 percent of their area to uses that would otherwise violate the IRS code. But airport financial managers didn't want to take the risk that the tax agency could disagree.

"Even the possible penalties are so complex it just taints the debt," Day said.

Pods were being considered in Anchorage because many travelers in Alaska utilize late-night flights to get to and from the Lower 48 and have no other options inside the airport during the "zombie hours" when most shops and restaurants are closed. The pods would have been equipped with electronics charging stations, alarm clocks, high-speed Internet, even 24-hour food delivery.

Day said that the situation could change -- that IRS code could be reworked, debt paid off, or an exemption made for the pods in the future. But for now, laid-over late-night travelers at Ted Stevens Anchorage International Airport will have to keep using the facility's chairs, floors and hallways to get some sleep.

"The vendor is not happy," Day said. "We felt bad that the discussions (about sleeping pods) got as far down the road as they did."

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