Tuesday, 27 July 2010

Are air travel taxes refundable even if the airfare isn't?

I’ve gotten several questions from readers recently (one from a traveller and another from a travel agent) about this section of my FAQ About Changes to Flights and Tickets:

If you don’t actually fly, regardless of the reason and regardless of whether the fare is refundable, you are always entitled to a full refund of all the taxes included in the price of your airline ticket. Taxes are due and payable only if you actually fly. Airlines act as tax collectors, but they are supposed to hold the taxes in escrow until you actually travel, when the pay the government(s). In practice, unless you demand a refund of the taxes, most airlines routinely steal the taxes they have collected on unused tickets at nonrefundable fares. And more and more airlines fail to provide a breakdown of the taxes and surcharges included in ticket prices, so it can be hard to tell how much of what you have paid is tax (payable to one or another government only if and when you travel) and how much is “fuel” or other “surcharges” that actually are part of the fare, and are always kept by the airline. The only way to find out, and to keep the airlines from stealing your rightful tax refund, is to submit your tickets for a refund of the taxes whenever you aren’t able to use them — even if the fare is nonrefundable. If the airline won’t accept your refund claim, report them to the relevant government agencies as tax cheats and thieves.

Who are “the relevant government agencies”, readers ask, and how can they make a complaint if an airline refuses to refund the taxes that they collected with the sale of a nonrefundable but unused ticket?

It varies depending on where you bought the tickets and/or what country’s laws apply to the sale, but in the USA the primary agency with jurisdiction over the sale of airline tickets is the U.S. Department of Transportation.

As I discuss in the “Practical Nomad” books, the Department of Transportation has two levels of complaint:

The DOT tends to steer complaints into the “informal” channel, since that makes them easier to ignore. In either case, but particularly if you want your complaint to be acted on, you may want to state specifically that “This is a formal complaint and formal request for regulatory enforcement action by the Department of Transportation against [airline] for the following unfair and deceptive practices, in violation of 49 U.S.C. 41712:…”

If you want to up the pressure on DOT to act, you could add something like, “I request that this complaint be entered as a formal complaint in the DOT rulemaking and regulatory docket, and that, in addition to enforcement action and sanctions for this specific incident, the DOT issue regulatory guidance clarifying that failure to refund transportation taxes, when the transportation for which they would have applied is not used, constitutes an unfair and deceptive practice.”

If you want models, here’s a sample of a formal complaint to the DOT against an airline and links to follow-ups by the airline, the DOT, and the complainant.

Before you make a formal complaint to the DOT, I would recommend that you try to get the airline to put its refusal to refund the taxes in writing. Write to the airline formally advising them that you have not used and will not use the ticket(s) in question, and demanding a refund of the taxes.

If pressed, airlines might try to argue that the taxes are on the “sale” of transportation, rather than its “use”. But that’s bogus: The sale of an unused ticket isn’t a sale of “transportation”. Whatever “services” an airline may have sold you in the form of an unused nonrefundable ticket, they didn’t include “transportation” if you never got on a plane.

[Update: See the comments below for a letter one of my readers received from the DOT adopting this position, at least for some of the taxes on tickets for domestic air travel within the USA. I have updated my FAQ’s accordingly.]

In theory, you could also make a “whistleblower” complaint to the IRS of tax fraud by the airline, which I suspect would be unlikely to succeed but which could, at least in theory, lead to your being awarded any unpaid tax collected as a result of your tip.

Whatever you do, let me know in the comments or by e-mail how it goes.

I’m less familiar with the laws in other jurisdictions, but at least in Canada the law and the way to get it enforced are clear. In 2004, the Canadian Transport Agency upheld a complaint (see under “Reimbursement for Taxes and Surcharges”) against the airline “Jetsgo” for refusing to refund taxes and fees on an unused ticket: “While the traveller acknowledged that the amount he paid for the base fare was non-refundable, he submitted that Jetsgo had wrongfully withheld numerous taxes, fees and security charges that should not have been applied since he had not travelled…. The Agency concluded that, by refusing to refund the non-fare portion of the ticket, Jetsgo had not applied the terms or conditions of carriage in its domestic tariff, which was contrary to the Air Transportation Regulations, and directed Jetsgo to reimburse the traveller.”

Link | Posted by Edward on Tuesday, 27 July 2010, 12:47 (12:47 PM)

This bureaucracy will kill us. With all of these computerized means why not ease the process and allow airlines to return the tax? Why burden us citizens?

Posted by: Sam, 27 July 2010, 23:10 (11:10 PM)

A reader forwarded the following message dated July 29, 2010 which they received from the U.S. Department of Transportation. As they said, "I didn't like the Department of Transportation's reply, but that is reality". Note that this message leaves open the possibility even for customers in the USA to obtain refunds of some of the taxes and fess, particularly on tickets for international travel, but leaves it up to the consumer to figure out what portions of their ticket price have been forwarded to which agencies of which governments -- something airlines rarely if ever disclose (although you could ask them for such a breakdown).

I have updated my FAQ's to reflect this information:


This is in response to your inquiry about the refundability of taxes on non-refundable airline tickets.

Tickets for domestic air transportation are subject to an air transportation excise tax of 7.5% of the air fare plus $3.70 per flight segment. By law, this tax applies to the sale of air transportation, not to the transportation itself. Airlines remit this tax to the government shortly after the ticket is issued. If the passenger changes his or her schedule and forfeits the air fare on a non-refundable ticket, the airline still owes this tax to the government.

Under the law, if an airline refunds the air fare, it is free to, but not required to, refund the tax. If the airline refunds the air fare but does not refund the tax, the traveler can claim the a refund of the tax from the IRS by filing form 8849 with that agency. If the airline does not refund the fare, then as indicated in the previous paragraph the tax on that fare is payable to the government.

The U.S. Department of Transportation does not regulate any of the various government fees that appear on airline tickets. The U.S. air transportation excise tax on airline tickets is administered by the Internal Revenue Service, Office of the Chief Counsel, Excise Tax Branch (202-622-3130). Similarly, the other taxes and government fees on airline tickets are each administered by the agency that oversees the fee in question. For example, an XF fee is a Passenger Facility Charge of up to $4.50 per participating airport, which is used for airport improvements; this fee is administered by the Federal Aviation Administration. On international tickets, an XY charge is an immigration inspection fee, and a YC charge is a customs inspection fee. Both of those fees are administered by the office of Immigration and Customs Enforcement of the Department of Homeland Security. There is also an agricultural inspection fee on tickets for international transportation; this fee is administered by the U.S. Department of Agriculture. We do not have information on the policies of those agencies concerning the refundability of their fees on non-refundable tickets.

Tim Kelly
Aviation Consumer Protection Division
U.S. Department of Transportation

Posted by: Edward Hasbrouck, 7 August 2010, 08:16 ( 8:16 AM)
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