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Airlines have been using baggage fees to boost revenue as travel has slumped. (Justin Sullivan/Getty Images) |
WASHINGTON - US airline baggage fees are not taxable, the Internal Revenue Service said, a victory for carriers trying to protect a revenue stream that could grow to $1.76 billion this year.
The IRS, in a letter to an airline released by the agency this month, pointed to the tax code specifying that “charges for transportation of baggage’’ aren’t taxable. The letter was posted on the IRS website.
Carriers have been turning to sources other than tickets for revenue. Government figures show fares stagnated at 1998 levels last year amid slumping demand in the recession. Jay Sorensen, president of IdeaWorks, an airline consulting firm in Wisconsin, estimated that the five largest airlines will collect $1.76 billion to check first and second bags, a $117 million increase over last year.
United Airlines, the third-largest carrier, boosted the charge for the first piece of checked luggage 53 percent to $23 this month to match rivals Delta Air Lines Inc. and Continental Airlines Inc. Most US airlines had charged at least $15 for online check-in of a bag and $25 for a second.
American Airlines followed United, completing increases among the biggest US full-fare carriers. Southwest Airlines does not charge for the first two bags.
US representatives James Oberstar, Democrat of Minnesota, and Jerry Costello, Democrat of Illinois, said in August that they were concerned the baggage and other fees “are resulting in revenue being diverted’’ from a federal tax fund for air-traffic control and other government aviation costs.
The IRS letter said food, alcohol, and headsets purchased in flight are not taxable, either.
Customer upgrades during check-ins at automated kiosks, purchases of frequent-flier miles or bonus miles, and fuel surcharges on airline tickets are all taxable.
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