[House Report 114-793]
[From the U.S. Government Publishing Office]
114th Congress } { Report
HOUSE OF REPRESENTATIVES
2d Session } { 114-793
======================================================================
AMENDING THE INTERNAL REVENUE CODE OF 1986 TO EXEMPT AMOUNTS PAID FOR
AIRCRAFT MANAGEMENT SERVICES FROM THE EXCISE TAXES IMPOSED ON
TRANSPORTATION BY AIR
_______
September 27, 2016.--Committed to the Committee of the Whole House on
the State of the Union and ordered to be printed
_______
Mr. Brady of Texas, from the Committee on Ways and Means, submitted the
following
R E P O R T
together with
ADDITIONAL VIEWS
[To accompany H.R. 3608]
[Including cost estimate of the Congressional Budget Office]
The Committee on Ways and Means, to whom was referred the
bill (H.R. 3608) to amend the Internal Revenue Code of 1986 to
exempt amounts paid for aircraft management services from the
excise taxes imposed on transportation by air, having
considered the same, report favorably thereon with an amendment
and recommend that the bill as amended do pass.
CONTENTS
Page
I. SUMMARY AND BACKGROUND...........................................2
A. Purpose and Summary................................. 2
B. Background and Need for Legislation................. 2
C. Legislative History................................. 3
II. Explanation of the bill..........................................3
A. Exemption From Excise Tax of Certain Amounts Paid
for Aircraft Management Services (sec. 1 of the
bill and secs. 4261 and 4271 of the Code).......... 3
III. VOTES OF THE COMMITTEE...........................................7
IV. BUDGET EFFECTS OF THE BILL.......................................7
A. Committee Estimate of Budgetary Effects............. 7
B. Statement Regarding New Budget Authority and Tax
Expenditures Budget Authority...................... 7
C. Cost Estimate Prepared by the Congressional Budget
Office............................................. 7
V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE.......8
A. Committee Oversight Findings and Recommendations.... 8
B. Statement of General Performance Goals and
Objectives......................................... 8
C. Information Relating to Unfunded Mandates........... 9
D. Applicability of House Rule XXI 5(b)................ 9
E. Tax Complexity Analysis............................. 9
F. Congressional Earmarks, Limited Tax Benefits, and
Limited Tariff Benefits............................ 9
G. Duplication of Federal Programs..................... 9
H. Disclosure of Directed Rule Makings................. 10
VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED...........10
VII. ADDITIONAL VIEWS................................................19
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. AMOUNTS PAID FOR AIRCRAFT MANAGEMENT SERVICES.
(a) In General.--Section 4261(e) of the Internal Revenue Code of 1986
is amended by adding at the end the following new paragraph:
``(5) Amounts paid for aircraft management services.--
``(A) In general.--No tax shall be imposed by this
section or section 4271 on any amounts paid by an
aircraft owner for aircraft management services related
to--
``(i) maintenance and support of the aircraft
owner's aircraft; or
``(ii) flights on the aircraft owner's
aircraft.
``(B) Aircraft management services.--For purposes of
subparagraph (A), the term `aircraft management
services' includes assisting an aircraft owner with
administrative and support services, such as
scheduling, flight planning, and weather forecasting;
obtaining insurance; maintenance, storage and fueling
of aircraft; hiring, training, and provision of pilots
and crew; establishing and complying with safety
standards; or such other services necessary to support
flights operated by an aircraft owner.
``(C) Lessee treated as aircraft owner.--
``(i) In general.--For purposes of this
paragraph, the term `aircraft owner' includes a
person who leases the aircraft other than under
a disqualified lease.
``(ii) Disqualified lease.--For purposes of
clause (i), the term `disqualified lease' means
a lease from a person providing aircraft
management services with respect to such
aircraft (or a related person (within the
meaning of section 465(b)(3)(C)) to the person
providing such services), if such lease is for
a term of 31 days or less.
``(D) Pro rata allocation.--If any amount paid to a
person represents in part an amount paid for services
not described in subparagraph (A), the tax imposed by
subsection (a), if applicable to such amount, shall be
applied to such payment on a pro rata basis.
``(E) Certain payments treated as made by aircraft
owner.--In the case of an aircraft owner which is
wholly-owned by another person, amounts paid by such
other person on behalf of such aircraft owner shall be
treated for purposes of this paragraph as having been
paid directly by such aircraft owner.''.
(b) Effective Date.--The amendment made by this section shall apply
to amounts paid after the date of the enactment of this Act.
I. SUMMARY AND BACKGROUND
A. Purpose and Summary
The bill, H.R. 3608, as reported by the Committee on Ways
and Means, exempts payments by an aircraft owner for aircraft
management services associated with the owner's aircraft from
commercial aviation excise taxes, effectively codifying current
IRS practices.
B. Background and Need for Legislation
While the Committee continues to work on comprehensive tax
reform as a critical means of promoting economic growth and job
creation, the Committee believes it is important to provide
immediate clarity and certainty on tax issues affecting small
businesses. The Committee believes that a statutory rule
specifying the treatment of aircraft management services
payments under aviation excise taxes will provide such clarity
and certainty.
C. Legislative History
Background
H.R. 3608 was introduced on September 24, 2015, and was
referred to the Committee on Ways and Means.
Committee action
The Committee on Ways and Means marked up H.R. 3608 on July
13, 2016, and ordered the bill, as amended, favorably reported
(with a quorum being present).
Committee hearings
The treatment of aircraft management services for aviation
excise tax purposes was discussed at a Subcommittee on Tax
Policy Member Day Hearing on Tax Legislation on May 12, 2016.
II. EXPLANATION OF THE BILL
A. Exemption From Excise Tax of Certain Amounts Paid for Aircraft
Management Services (sec. 1 of the bill and secs. 4261 and 4271 of the
Code)
PRESENT LAW
Taxes dedicated to the Airport and Airway Trust Fund
Excise taxes are imposed on amounts paid for commercial air
passenger and freight transportation and on fuels used in
commercial and noncommercial (i.e., transportation that is not
``for hire'') aviation to fund the Airport and Airway Trust
Fund.\1\
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\1\Sec. 9502 and 49 U.S.C. 48101 et. seq.
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For domestic commercial passenger aviation, the excise
taxes consist of a 7.5 percent ad valorem tax on the amount
paid for transportation (sometimes referred to as the ``ticket
tax''), a $4 per-segment fee,\2\ and a 4.3 cents per gallon
fuel tax.\3\ For commercial freight aviation, the excise taxes
are an ad valorem tax of 6.25 percent of the amount paid for
transportation,\4\ as well as the 4.3 cents per gallon fuel tax
(there is no segment fee).
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\2\Sec. 4261; Rev. Proc. 2015-53, 2015-44 I.R.B. 615.
\3\Sec. 4081.
\4\Sec. 4271.
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For noncommercial aviation, the tax is imposed only on
fuel, at a rate of 19.3 cents per gallon for gasoline and 21.8
cents per gallon for jet fuel.\5\
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\5\Sec. 4081.
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In the case of a fractional ownership aircraft program,
flights under such program are exempted from the taxes levied
on commercial passenger aviation,\6\ and instead such flights
are subject both to the fuel taxes for noncommercial aviation
and a surtax of 14.1 cents per gallon.\7\
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\6\Sec. 4261(j).
\7\Sec. 4043.
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Tax on domestic air transportation
In determining whether a flight constitutes taxable
transportation and whether the amounts paid for such
transportation are subject to tax, the Internal Revenue Service
(``IRS'') has generally looked at the nature of the payments
being made and who has ``possession, command, and control'' of
the aircraft based on the relevant facts and circumstances.\8\
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\8\8 See, e.g., Rev. Rul. 60-311, 1960-2 C.B. 341, which held that,
because the company in question retains the elements of possession,
command, and control of the aircraft and performs all services in
connection with the operation of the aircraft, the company is, in fact,
furnishing taxable transportation to the lessee and the tax on the
transportation of persons applies to the portion of the total payment
that is allocable to the transportation of persons, provided such
allocation is made on a fair and reasonable basis. If no allocation is
made, the tax applies to the total payment for the lease of the
aircraft.
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Applicability of Federal excise tax to aircraft management services
Generally, an aircraft management services company
(``management company'') has as its business purpose the
management of aircraft owned by other persons (``aircraft
owners''). In this function, management companies provide
aircraft owners with administrative and support services (such
as scheduling, flight planning, and weather forecasting),
aircraft maintenance services, the provision of pilots and
crew, and compliance with regulatory standards. Although the
particular arrangements between management companies and
aircraft owners may vary, aircraft owners generally pay
management companies a monthly fee to cover the fixed expenses
of maintaining the aircraft (such as insurance, maintenance,
and recordkeeping) and a variable fee to cover the cost of
using the aircraft (such as the provision of pilots, crew, and
fuel).
In addition to general management, aircraft owners
frequently contract with management companies to place the
owner's aircraft into a fleet of aircraft to be leased to third
parties when not being used by the owner.
The applicability of Federal excise tax to amounts paid for
aircraft management services has been the subject of litigation
and has also been addressed in an IRS Chief Counsel Advice
memorandum.\9\ In the Chief Counsel Advice, the IRS concluded
under certain factual scenarios that aircraft management fees
are generally considered amounts paid for taxable
transportation of a person because possession, command, and
control of the aircraft have been ceded by the aircraft owner
to the management company under the terms of a management
agreement. The IRS stated that control of the pilots is a
factor in determining who has possession, command and control
of the aircraft. In the scenarios described in the Chief
Counsel Advice, while the aircraft is titled in the name of the
owner, the pilots and crew are management company employees and
receive their pay, benefits, and income tax reporting documents
from the management company. In addition to selecting and
training the pilots and crew, the management company performs
all of the maintenance on the aircraft and is responsible for
ensuring that all Federal Aviation Administration maintenance
and related recordkeeping requirements are satisfied. Due to
these factors, the IRS concluded that the management company
had possession, command and control of the aircraft and, as a
result, was furnishing taxable transportation to the owner.
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\9\CCA 2012-10026 (March, 2012).
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Because the IRS concluded that the management company
provided all of the essential elements necessary for providing
transportation by air and the owner relinquished possession,
command, and control to the management company, the management
company was determined to be providing taxable transportation
to the owner and was therefore required to collect the
appropriate Federal excise tax from the aircraft owner and
remit it to the IRS.
In a 2015 opinion,\10\ an Ohio district court held that the
existing revenue rulings (in effect for the tax period April 1,
2005, through June 30, 2009, the period that was the subject of
the litigation) regarding the possession, command and control
test failed to provide precise and not speculative notice of a
collection obligation as it related to whole-aircraft
management contracts.\11\ As a result, the court ruled as a
matter of law that because precise and not speculative notice
was not received, the aircraft management company plaintiff did
not have a collection obligation with respect to the Federal
excise tax on payments received for whole-aircraft management
services.
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\10\Netjets Large Aircraft Inc. v. United States, 116 A.F.T.R. 2d.
2015-6776 (S.D. Ohio, 2015).
\11\The district court held that such notice is required to persons
having a deputy tax collection obligation under the rationale of the
Supreme Court's holding in Central Illinois Public Service Company v.
United States, 435 U.S. 21 (1978).
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REASONS FOR CHANGE
The Committee believes that the ticket tax should not be
levied on amounts paid for aircraft management services when
the management company is providing such services with respect
to an aircraft owner's own aircraft. The Committee believes
that establishing a bright-line ownership test will provide the
necessary clarity to taxpayers and the IRS as to whether any
such payments fall within the scope of amounts paid for taxable
transportation.
EXPLANATION OF PROVISION
The provision exempts certain payments related to the
management and maintenance of aircraft from the Federal excise
taxes imposed on transportation of persons and property.
Exempt payments are those amounts paid by an aircraft owner
for management services related to maintenance and support of
the aircraft or flights on the owner's aircraft. Applicable
services include support activities related to the aircraft
itself, such as its storage, maintenance, and refueling, and
those related to its operation, such as the hiring and training
of pilots and crew, as well as administrative services such as
scheduling, flight planning, weather forecasting, and
establishing and complying with safety standards.
Payments for flight services are exempt only to the extent
that they are attributable to flights on an aircraft owner's
own aircraft.\12\ Thus, if an aircraft owner makes a payment to
a management company for the provision of a pilot and the pilot
provides his services on the aircraft owner's aircraft, such
payment is not subject to Federal excise tax. However, if the
pilot provides his services to the aircraft owner on an
aircraft other than the aircraft owner's (for instance, on an
aircraft that is part of a fleet of aircraft available for
third-party charter services), then such payment is subject to
Federal excise tax.
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\12\The provision does not define ``aircraft owner,'' but the
intent of the provision is to incorporate common law definitions of tax
ownership into such a determination. Thus, under the provision, in
order to be considered an ``aircraft owner'' with respect to an
individual aircraft, an owner must generally, as an individual owner or
together with co-owners, possess the meaningful benefits and burdens of
ownership see, e.g., Frank Lyon Co. v. U.S., 435 U.S. 561, 572-73
(1978); Altria Group, Inc. v. U.S., 658 F.3d 276, 285 (2d Cir. 2011);
Wells Fargo & Co. v. U.S., 641 F.3d 1319, 1325 (Fed. Cir. 2011); Torres
v. Commissioner, 88 T.C. 702, 720 (1987); see also Conference Report to
accompany H.R. 4170, Deficit Reduction Act of 1984, H.R. Rep. No. 98-
432 pt. 2, March 5, 1984, pp. 789, 806 (``In general, for Federal
income tax purposes, the owner of property must possess meaningful
burdens and benefits of ownership.''). In applying the meaningful
benefits and burdens standard, aircraft ownership should be determined
by reference to whether the incidents of ownership are present, which
include: (1) legal or beneficial title to the aircraft, Grodt & McKay
Realty, Inc. v. Commissioner, 77 T.C. 1221, 1236-37 (1981); Salty Brine
I, Ltd. v. U.S., 761 F.3d 484, 492 (5th Cir. 2014); (2) the right of
possession of the aircraft, Keith v. Commissioner, 115 T.C. 605, 611
(2000); (3) an intent to acquire equity in the aircraft, Coleman v.
Commissioner, 16 F.3d 821, 828 (7th Cir. 1994); (4) the risk of loss or
damage to the aircraft, Upham v. Commissioner, 923 F.2d 1328, 1334 (8th
Cir. 1991); (5) the responsibility to pay for the aircraft's
maintenance and operating costs, Rev. Rul. 79-264, 1979-2 C.B. 92,
1979; (6) a duty to pay taxes levied on the aircraft, Ibid.; (7) the
risk of destruction or loss of the aircraft, Ibid.; and (8) the risk of
diminution in value of the aircraft from depreciation. Ibid.
Under this standard, which H.R. 3608 does not modify, ownership of
stock in a commercial airline does not qualify an individual as an
``aircraft owner'' of a commercial airline's aircraft, and amounts paid
for transportation on such flights remain subject to the tax imposed by
section 4261. Similarly, participation in a fractional ownership
program does not constitute ``aircraft ownership'' for under this
standard. Amounts paid to a fractional ownership aircraft program for
transportation are exempt from the ticket tax imposed under section
4261(j) if the aircraft is operating under subpart K of part 91 of
title 14 of the Code of Federal Regulations (``subpart K''), and
flights under such a program are subject to both the fuel tax levied on
non-commercial aviation and an additional fuel surtax under section
4043. A property arrangement that seeks to circumvent the surtax by
operating outside of subpart K, such as by allowing an individual the
right to use any airplane in a fleet of aircraft through an aircraft
interchange agreement or through the holding of nominal shares of a
fleet of aircraft, does not reflect tax ownership of the aircraft flown
upon, and consequently does not constitute ownership for the purposes
of the provision.
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The provision provides a pro rata allocation rule in the
event that a monthly payment made to a management company is
allocated in part to exempt services and flights on the
aircraft owner's aircraft and in part to flights on aircraft
other than the aircraft owner's. In such a circumstance,
Federal excise tax must be collected on that portion of the
payment attributable to flights on aircraft not owned by the
aircraft owner.
Under the provision, a lessee of an aircraft is considered
an aircraft owner provided that the lease is not a
``disqualified lease.'' A disqualified lease is any lease of an
aircraft from a management company (or a related party) for a
term of 31 days or less.
In the case of an aircraft owner that is an entity wholly-
owned by a person (such as in the case of a limited liability
company wholly-owned by an individual), an amount paid by the
owner of the entity to an aircraft management company shall be
considered as paid directly by the aircraft owner for purposes
of determining the exemption from Federal excise tax imposed on
amounts paid for transportation by air. This is meant to
accommodate individuals who, for insurance or other business
reasons, own aircraft through a wholly-owned business entity.
EFFECTIVE DATE
The provision is effective for amounts paid after the date
of enactment.
III. VOTES OF THE COMMITTEE
In compliance with clause 3(b) of rule XIII of the Rules of
the House of Representatives, the following statement is made
concerning the vote of the Committee on Ways and Means in its
consideration of H.R. 3608, a bill to amend the Internal
Revenue Code of 1986 to exempt amounts paid for aircraft
management services from the excise taxes imposed on
transportation by air, on July 13, 2016.
The bill, H.R. 3608, as amended, was ordered favorably
reported to the House of Representatives by a voice vote (with
a quorum being present).
IV. BUDGET EFFECTS OF THE BILL
A. Committee Estimate of Budgetary Effects
In compliance with clause 3(d) of rule XIII of the Rules of
the House of Representatives, the following statement is made
concerning the effects on the budget of the bill, H.R. 3608, as
reported.
The provision is estimated to reduce Federal fiscal year
budget receipts by less than $500,000 for the period 2017-2026.
Pursuant to clause 8 of rule XIII of the Rules of the House
of Representatives, the following statement is made by the
Joint Committee on Taxation with respect to the provisions of
the bill amending the Internal Revenue Code of 1986: The gross
budgetary effect (before incorporating macroeconomic effects)
in any fiscal year is less than 0.25 percent of the current
projected gross domestic product of the United States for that
fiscal year; therefore, the bill is not ``major legislation''
for purposes of requiring that the estimate include the
budgetary effects of changes in economic output, employment,
capital stock and other macroeconomic variables.
B. Statement Regarding New Budget Authority and Tax Expenditures Budget
Authority
In compliance with clause 3(c)(2) of rule XIII of the Rules
of the House of Representatives, the Committee states that the
bill involves no new or increased budget authority. The
Committee further states that there are no new or increased tax
expenditures.
C. Cost Estimate Prepared by the Congressional Budget Office
In compliance with clause 3(c)(3) of rule XIII of the Rules
of the House of Representatives, requiring a cost estimate
prepared by the CBO, the following statement by CBO is
provided.
U.S. Congress,
Congressional Budget Office,
Washington, DC, July 19, 2016.
Hon. Kevin Brady,
Chairman Committee on Ways and Means,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for HR. 3608, a bill to
amend the Internal Revenue Code of 1986 to exempt amounts paid
for aircraft management services from the excise taxes imposed
on transportation by air.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Peter
Huether.
Sincerely,
Keith Hall.
Enclosure.
H.R. 3608--A bill to amend the Internal Revenue Code of 1986 to exempt
amounts paid for aircraft management services from the excise
taxes imposed on transportation by air
H.R. 3608 would amend the Internal Revenue Code to exempt
certain aircraft management fees from the excise taxes imposed
on transportation of persons and property by air. The exemption
would apply to certain fees charged for maintenance and support
by a firm that manages a client's personal aircraft. The fees
that would be excluded from taxation include those for storage
and maintenance of the aircraft, for hiring and training of
pilots, and for flight planning and other administrative
services.
Enacting H.R. 3608 would reduce revenues; therefore, pay-
as-you-go procedures apply. However, the staff of the Joint
Committee on Taxation (JCT) estimates that enacting the bill
would reduce revenues by an insignificant amount, less than
$500,000, over the 2016-2026 period.
CBO and JCT estimate that enacting the bill would not
increase net direct spending in any of the four 10-year periods
beginning in 2027, and would increase on-budget deficits over
those periods by very small amounts.
JCT has determined that the bill contains no
intergovernmental or private-sector mandates as defined in the
Unfunded Mandates Reform Act.
The CBO staff contact for this estimate is Peter Huether.
The estimate was approved by Mark Booth, Unit Chief, Revenue
Estimating.
V. OTHER MATTERS TO BE DISCUSSED UNDER THE RULES OF THE HOUSE
A. Committee Oversight Findings and Recommendations
With respect to clause 3(c)(1) of rule XIII of the Rules of
the House of Representatives (relating to oversight findings),
the Committee advises that it was as a result of the
Committee's review of the provisions of H.R. 3608 that the
Committee concluded that it is appropriate to report the bill,
as amended, favorably to the House of Representatives with the
recommendation that the bill do pass.
B. Statement of General Performance Goals and Objectives
With respect to clause 3(c)(4) of rule XIII of the Rules of
the House of Representatives, the Committee advises that the
bill contains no measure that authorizes funding, so no
statement of general performance goals and objectives for which
any measure authorizes funding is required.
C. Information Relating to Unfunded Mandates
This information is provided in accordance with section 423
of the Unfunded Mandates Reform Act of 1995 (Pub. L. No. 104-
4).
The Committee has determined that the bill does not contain
Federal mandates on the private sector. The Committee has
determined that the bill does not impose a Federal
intergovernmental mandate on State, local, or tribal
governments.
D. Applicability of House Rule XXI 5(b)
Rule XXI 5(b) of the Rules of the House of Representatives
provides, in part, that ``A bill or joint resolution,
amendment, or conference report carrying a Federal income tax
rate increase may not be considered as passed or agreed to
unless so determined by a vote of not less than three-fifths of
the Members voting, a quorum being present.'' The Committee has
carefully reviewed the bill, and states that the bill does not
involve any Federal income tax rate increases within the
meaning of the rule.
E. Tax Complexity Analysis
The following statement is made pursuant to clause 3(h)(1)
of rule XIII of the Rules of the House of Representatives.
Section 4022(b) of the Internal Revenue Service Restructuring
and Reform Act of 1998 (``IRS Reform Act'') requires the staff
of the Joint Committee on Taxation (in consultation with the
Internal Revenue Service and the Treasury Department) to
provide a tax complexity analysis. The complexity analysis is
required for all legislation reported by the Senate Committee
on Finance, the House Committee on Ways and Means, or any
committee of conference if the legislation includes a provision
that directly or indirectly amends the Internal Revenue Code of
1986 and has widespread applicability to individuals or small
businesses.
Pursuant to clause 3(h)(1) of rule XIII of the Rules of the
House of Representatives, the staff of the Joint Committee on
Taxation has determined that a complexity analysis is not
required under section 4022(b) of the IRS Reform Act because
the bill contains no provisions that amend the Internal Revenue
Code of 1986 and that have ``widespread applicability'' to
individuals or small businesses, within the meaning of the
rule.
F. Congressional Earmarks, Limited Tax Benefits, and Limited Tariff
Benefits
With respect to clause 9 of rule XXI of the Rules of the
House of Representatives, the Committee has carefully reviewed
the provisions of the bill and states that the provisions of
the bill do not contain any congressional earmarks, limited tax
benefits, or limited tariff benefits within the meaning of the
rule.
G. Duplication of Federal Programs
In compliance with Sec. 3(g)(2) of H. Res. 5 (114th
Congress), the Committee states that no provision of the bill
establishes or reauthorizes: (1) a program of the Federal
Government known to be duplicative of another Federal program,
(2) a program included in any report from the Government
Accountability Office to Congress pursuant to section 21 of
Public Law 111-139, or (3) a program related to a program
identified in the most recent Catalog of Federal Domestic
Assistance, published pursuant to the Federal Program
Information Act (Public Law 95-220, as amended by Public Law
98-169).
H. Disclosure of Directed Rule Makings
In compliance with Sec. 3(i) of H. Res. 5 (114th Congress),
the following statement is made concerning directed rule
makings: The Committee estimates that the bill requires no
directed rule makings within the meaning of such section.
VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED
A. Text of Existing Law Amended or Repealed by the Bill, as Reported
In compliance with clause 3(e)(1)(A) of rule XIII of the
Rules of the House of Representatives, the text of each section
proposed to be amended or repealed by the bill, as reported, is
shown below:
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e)(1)(A) of rule XIII of the
Rules of the House of Representatives, the text of each section
proposed to be amended or repealed by the bill, as reported, is
shown below:
INTERNAL REVENUE CODE OF 1986
* * * * * * *
Subtitle D--Miscellaneous Excise Taxes
* * * * * * *
CHAPTER 33--FACILITIES AND SERVICES
* * * * * * *
Subchapter C--Transportation by Air
* * * * * * *
PART I--PERSONS
* * * * * * *
SEC. 4261. IMPOSITION OF TAX.
(a) In General.--There is hereby imposed on the amount paid
for taxable transportation of any person a tax equal to 7.5
percent of the amount so paid.
(b) Domestic Segments of Taxable Transportation.--
(1) In general.--There is hereby imposed on the
amount paid for each domestic segment of taxable
transportation by air a tax in the amount determined in
accordance with the following table for the period in
which the segment begins:
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In the case of segments beginning: The tax is:
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After September 30, 1997, and before $1.00
October 1, 1998
After September 30, 1998, and before $2.00
October 1, 1999
After September 30, 1999, and before $2.25
January 1, 2000
During 2000 $2.50
During 2001 $2.75
During 2002 or thereafter $3.00.
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(2) Domestic segment.--For purposes of this section,
the term ``domestic segment'' means any segment
consisting of 1 takeoff and 1 landing and which is
taxable transportation described in section 4262(a)(1).
(3) Changes in segments by reason of rerouting.--If--
(A) transportation is purchased between 2
locations on specified flights, and
(B) there is a change in the route taken
between such 2 locations which changes the
number of domestic segments, but there is no
change in the amount charged for such
transportation,
the tax imposed by paragraph (1) shall be determined
without regard to such change in route.
(c) Use of International Travel Facilities.--
(1) In general.--There is hereby imposed a tax of
$12.00 on any amount paid (whether within or without
the United States) for any transportation of any person
by air, if such transportation begins or ends in the
United States.
(2) Exception for transportation entirely taxable
under subsection (a).--This subsection shall not apply
to any transportation all of which is taxable under
subsection (a) (determined without regard to sections
4281 and 4282).
(3) Special rule for Alaska and Hawaii.--In any case
in which the tax imposed by paragraph (1) applies to a
domestic segment beginning or ending in Alaska or
Hawaii, such tax shall apply only to departures and
shall be at the rate of $6.
(d) By Whom Paid.--Except as provided in section 4263(a), the
taxes imposed by this section shall be paid by the person
making the payment subject to the tax.
(e) Special Rules.--
(1) Segments to and from rural airports.--
(A) Exception from segment tax.--The tax
imposed by subsection (b)(1) shall not apply to
any domestic segment beginning or ending at an
airport which is a rural airport for the
calendar year in which such segment begins or
ends (as the case may be).
(B) Rural airport.--For purposes of this
paragraph, the term ``rural airport'' means,
with respect to any calendar year, any airport
if--
(i) there were fewer than 100,000
commercial passengers departing by air
(in the case of any airport described
in clause (ii)(III), on flight segments
of at least 100 miles) during the
second preceding calendar year from
such airport, and
(ii) such airport--
(I) is not located within 75
miles of another airport which
is not described in clause (i),
(II) is receiving essential
air service subsidies as of the
date of the enactment of this
paragraph, or
(III) is not connected by
paved roads to another airport.
(2) Amounts paid outside the United States.--In the
case of amounts paid outside the United States for
taxable transportation, the taxes imposed by
subsections (a) and (b) shall apply only if such
transportation begins and ends in the United States.
(3) Amounts paid for right to award free or reduced
rate air transportation.--
(A) In general.--Any amount paid (and the
value of any other benefit provided) to an air
carrier (or any related person) for the right
to provide mileage awards for (or other
reductions in the cost of) any transportation
of persons by air shall be treated for purposes
of subsection (a) as an amount paid for taxable
transportation, and such amount shall be
taxable under subsection (a) without regard to
any other provision of this subchapter.
(B) Controlled group.--For purposes of
subparagraph (A), a corporation and all wholly
owned subsidiaries of such corporation shall be
treated as 1 corporation.
(C) Regulations.--The Secretary shall
prescribe rules which reallocate items of
income, deduction, credit, exclusion, or other
allowance to the extent necessary to prevent
the avoidance of tax imposed by reason of this
paragraph. The Secretary may prescribe rules
which exclude from the tax imposed by
subsection (a) amounts attributable to mileage
awards which are used other than for
transportation of persons by air.
(4) Inflation adjustment of dollar rates of tax.--
(A) In general.--In the case of taxable
events in a calendar year after the last
nonindexed year, the $3.00 amount contained in
subsection (b) and each dollar amount contained
in subsection (c) shall be increased by an
amount equal to--
(i) such dollar amount, multiplied by
(ii) the cost-of-living adjustment
determined under section 1(f)(3) for
such calendar year by substituting the
year before the last nonindexed year
for ``calendar year 1992'' in
subparagraph (B) thereof.
If any increase determined under the preceding
sentence is not a multiple of 10 cents, such
increase shall be rounded to the nearest
multiple of 10 cents.
(B) Last nonindexed year.--For purposes of
subparagraph (A), the last nonindexed year is--
(i) 2002 in the case of the $3.00
amount contained in subsection (b), and
(ii) 1998 in the case of the dollar
amounts contained in subsection (c).
(C) Taxable event.--For purposes of
subparagraph (A), in the case of the tax
imposed by subsection (b), the beginning of the
domestic segment shall be treated as the
taxable event.
(D) Special rule for amounts paid for
domestic segments beginning after 2002.--If an
amount is paid during a calendar year for a
domestic segment beginning in a later calendar
year, then the rate of tax under subsection (b)
on such amount shall be the rate in effect for
the calendar year in which such amount is paid.
(f) Exemption for Certain Uses.--No tax shall be imposed
under subsection (a) or (b) on air transportation--
(1) by helicopter for the purpose of transporting
individuals, equipment, or supplies in the exploration
for, or the development or removal of, hard minerals,
oil, or gas, or
(2) by helicopter or by fixed-wing aircraft for the
purpose of the planting, cultivation, cutting, or
transportation of, or caring for, trees (including
logging operations),
but only if the helicopter or fixed-wing aircraft does not take
off from, or land at, a facility eligible for assistance under
the Airport and Airway Development Act of 1970, or otherwise
use services provided pursuant to section 44509 or 44913(b) or
subchapter I of chapter 471 of title 49, United States Code,
during such use. In the case of helicopter transportation
described in paragraph (1), this subsection shall be applied by
treating each flight segment as a distinct flight.
(g) Exemption for Air Ambulances Providing Certain Emergency
Medical Transportation.--No tax shall be imposed under this
section or section 4271 on any air transportation for the
purpose of providing emergency medical services--
(1) by helicopter, or
(2) by a fixed-wing aircraft equipped for and
exclusively dedicated on that flight to acute care
emergency medical services.
(h) Exemption for Skydiving Uses.--No tax shall be imposed by
this section or section 4271 on any air transportation
exclusively for the purpose of skydiving.
(i) Exemption for Seaplanes.--No tax shall be imposed by this
section or section 4271 on any air transportation by a seaplane
with respect to any segment consisting of a takeoff from, and a
landing on, water, but only if the places at which such takeoff
and landing occur have not received and are not receiving
financial assistance from the Airport and Airways Trust Fund.
(j) Exemption for Aircraft in Fractional Ownership Aircraft
Programs.--No tax shall be imposed by this section or section
4271 on any air transportation if tax is imposed under section
4043 with respect to the fuel used in such transportation. This
subsection shall not apply after July 15, 2016.
(k) Application of Taxes.--
(1) In general.--The taxes imposed by this section
shall apply to--
(A) transportation beginning during the
period--
(i) beginning on the 7th day after
the date of the enactment of the
Airport and Airway Trust Fund Tax
Reinstatement Act of 1997, and
(ii) ending on July 15, 2016, and (B)
amounts paid during such period for
transportation beginning after such
period.
(2) Refunds.--If, as of the date any transportation
begins, the taxes imposed by this section would not
have applied to such transportation if paid for on such
date, any tax paid under paragraph (1)(B) with respect
to such transportation shall be treated as an
overpayment.
* * * * * * *
B. Changes in Existing Law Proposed by the Bill, as Reported
In compliance with clause 3(e)(1)(B) of rule XIII of the
Rules of the House of Representatives, changes in existing law
proposed by the bill, as reported, are shown as follows
(existing law proposed to be omitted is enclosed in black
brackets, new matter is printed in italics, existing law in
which no change is proposed is shown in roman):
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e)(1)(B) of rule XIII of the
Rules of the House of Representatives, changes in existing law
made by the bill, as reported, are shown as follows (new matter
is printed in italics and existing law in which no change is
proposed is shown in roman):
INTERNAL REVENUE CODE OF 1986
* * * * * * *
Subtitle D--Miscellaneous Excise Taxes
* * * * * * *
CHAPTER 33--FACILITIES AND SERVICES
* * * * * * *
Subchapter C--Transportation by Air
* * * * * * *
PART I--PERSONS
* * * * * * *
SEC. 4261. IMPOSITION OF TAX.
(a) In General.--There is hereby imposed on the amount paid
for taxable transportation of any person a tax equal to 7.5
percent of the amount so paid.
(b) Domestic Segments of Taxable Transportation.--
(1) In general.--There is hereby imposed on the
amount paid for each domestic segment of taxable
transportation by air a tax in the amount determined in
accordance with the following table for the period in
which the segment begins:
------------------------------------------------------------------------
In the case of segments beginning: The tax is:
------------------------------------------------------------------------
After September 30, 1997, and before $1.00
October 1, 1998
After September 30, 1998, and before $2.00
October 1, 1999
After September 30, 1999, and before $2.25
January 1, 2000
During 2000 $2.50
During 2001 $2.75
During 2002 or thereafter $3.00.
------------------------------------------------------------------------
(2) Domestic segment.--For purposes of this section,
the term ``domestic segment'' means any segment
consisting of 1 takeoff and 1 landing and which is
taxable transportation described in section 4262(a)(1).
(3) Changes in segments by reason of rerouting.--If--
(A) transportation is purchased between 2
locations on specified flights, and
(B) there is a change in the route taken
between such 2 locations which changes the
number of domestic segments, but there is no
change in the amount charged for such
transportation,
the tax imposed by paragraph (1) shall be determined
without regard to such change in route.
(c) Use of International Travel Facilities.--
(1) In general.--There is hereby imposed a tax of
$12.00 on any amount paid (whether within or without
the United States) for any transportation of any person
by air, if such transportation begins or ends in the
United States.
(2) Exception for transportation entirely taxable
under subsection (a).--This subsection shall not apply
to any transportation all of which is taxable under
subsection (a) (determined without regard to sections
4281 and 4282).
(3) Special rule for Alaska and Hawaii.--In any case
in which the tax imposed by paragraph (1) applies to a
domestic segment beginning or ending in Alaska or
Hawaii, such tax shall apply only to departures and
shall be at the rate of $6.
(d) By Whom Paid.--Except as provided in section 4263(a), the
taxes imposed by this section shall be paid by the person
making the payment subject to the tax.
(e) Special Rules.--
(1) Segments to and from rural airports.--
(A) Exception from segment tax.--The tax
imposed by subsection (b)(1) shall not apply to
any domestic segment beginning or ending at an
airport which is a rural airport for the
calendar year in which such segment begins or
ends (as the case may be).
(B) Rural airport.--For purposes of this
paragraph, the term ``rural airport'' means,
with respect to any calendar year, any airport
if--
(i) there were fewer than 100,000
commercial passengers departing by air
(in the case of any airport described
in clause (ii)(III), on flight segments
of at least 100 miles) during the
second preceding calendar year from
such airport, and
(ii) such airport--
(I) is not located within 75
miles of another airport which
is not described in clause (i),
(II) is receiving essential
air service subsidies as of the
date of the enactment of this
paragraph, or
(III) is not connected by
paved roads to another airport.
(2) Amounts paid outside the United States.--In the
case of amounts paid outside the United States for
taxable transportation, the taxes imposed by
subsections (a) and (b) shall apply only if such
transportation begins and ends in the United States.
(3) Amounts paid for right to award free or reduced
rate air transportation.--
(A) In general.--Any amount paid (and the
value of any other benefit provided) to an air
carrier (or any related person) for the right
to provide mileage awards for (or other
reductions in the cost of) any transportation
of persons by air shall be treated for purposes
of subsection (a) as an amount paid for taxable
transportation, and such amount shall be
taxable under subsection (a) without regard to
any other provision of this subchapter.
(B) Controlled group.--For purposes of
subparagraph (A), a corporation and all wholly
owned subsidiaries of such corporation shall be
treated as 1 corporation.
(C) Regulations.--The Secretary shall
prescribe rules which reallocate items of
income, deduction, credit, exclusion, or other
allowance to the extent necessary to prevent
the avoidance of tax imposed by reason of this
paragraph. The Secretary may prescribe rules
which exclude from the tax imposed by
subsection (a) amounts attributable to mileage
awards which are used other than for
transportation of persons by air.
(4) Inflation adjustment of dollar rates of tax.--
(A) In general.--In the case of taxable
events in a calendar year after the last
nonindexed year, the $3.00 amount contained in
subsection (b) and each dollar amount contained
in subsection (c) shall be increased by an
amount equal to--
(i) such dollar amount, multiplied by
(ii) the cost-of-living adjustment
determined under section 1(f)(3) for
such calendar year by substituting the
year before the last nonindexed year
for ``calendar year 1992'' in
subparagraph (B) thereof.
If any increase determined under the preceding
sentence is not a multiple of 10 cents, such
increase shall be rounded to the nearest
multiple of 10 cents.
(B) Last nonindexed year.--For purposes of
subparagraph (A), the last nonindexed year is--
(i) 2002 in the case of the $3.00
amount contained in subsection (b), and
(ii) 1998 in the case of the dollar
amounts contained in subsection (c).
(C) Taxable event.--For purposes of
subparagraph (A), in the case of the tax
imposed by subsection (b), the beginning of the
domestic segment shall be treated as the
taxable event.
(D) Special rule for amounts paid for
domestic segments beginning after 2002.--If an
amount is paid during a calendar year for a
domestic segment beginning in a later calendar
year, then the rate of tax under subsection (b)
on such amount shall be the rate in effect for
the calendar year in which such amount is paid.
(5) Amounts paid for aircraft management services.--
(A) In general.--No tax shall be imposed by
this section or section 4271 on any amounts
paid by an aircraft owner for aircraft
management services related to--
(i) maintenance and support of the
aircraft owner's aircraft; or
(ii) flights on the aircraft owner's
aircraft.
(B) Aircraft management services.--For
purposes of subparagraph (A), the term
``aircraft management services'' includes
assisting an aircraft owner with administrative
and support services, such as scheduling,
flight planning, and weather forecasting;
obtaining insurance; maintenance, storage and
fueling of aircraft; hiring, training, and
provision of pilots and crew; establishing and
complying with safety standards; or such other
services necessary to support flights operated
by an aircraft owner.
(C) Lessee treated as aircraft owner.--
(i) In general.--For purposes of this
paragraph, the term ``aircraft owner''
includes a person who leases the
aircraft other than under a
disqualified lease.
(ii) Disqualified lease.--For
purposes of clause (i), the term
``disqualified lease'' means a lease
from a person providing aircraft
management services with respect to
such aircraft (or a related person
(within the meaning of section
465(b)(3)(C)) to the person providing
such services), if such lease is for a
term of 31 days or less.
(D) Pro rata allocation.--If any amount paid
to a person represents in part an amount paid
for services not described in subparagraph (A),
the tax imposed by subsection (a), if
applicable to such amount, shall be applied to
such payment on a pro rata basis.
(E) Certain payments treated as made by
aircraft owner.--In the case of an aircraft
owner which is wholly-owned by another person,
amounts paid by such other person on behalf of
such aircraft owner shall be treated for
purposes of this paragraph as having been paid
directly by such aircraft owner.
(f) Exemption for Certain Uses.--No tax shall be imposed
under subsection (a) or (b) on air transportation--
(1) by helicopter for the purpose of transporting
individuals, equipment, or supplies in the exploration
for, or the development or removal of, hard minerals,
oil, or gas, or
(2) by helicopter or by fixed-wing aircraft for the
purpose of the planting, cultivation, cutting, or
transportation of, or caring for, trees (including
logging operations),
but only if the helicopter or fixed-wing aircraft does not take
off from, or land at, a facility eligible for assistance under
the Airport and Airway Development Act of 1970, or otherwise
use services provided pursuant to section 44509 or 44913(b) or
subchapter I of chapter 471 of title 49, United States Code,
during such use. In the case of helicopter transportation
described in paragraph (1), this subsection shall be applied by
treating each flight segment as a distinct flight.
(g) Exemption for Air Ambulances Providing Certain Emergency
Medical Transportation.--No tax shall be imposed under this
section or section 4271 on any air transportation for the
purpose of providing emergency medical services--
(1) by helicopter, or
(2) by a fixed-wing aircraft equipped for and
exclusively dedicated on that flight to acute care
emergency medical services.
(h) Exemption for Skydiving Uses.--No tax shall be imposed by
this section or section 4271 on any air transportation
exclusively for the purpose of skydiving.
(i) Exemption for Seaplanes.--No tax shall be imposed by this
section or section 4271 on any air transportation by a seaplane
with respect to any segment consisting of a takeoff from, and a
landing on, water, but only if the places at which such takeoff
and landing occur have not received and are not receiving
financial assistance from the Airport and Airways Trust Fund.
(j) Exemption for Aircraft in Fractional Ownership Aircraft
Programs.--No tax shall be imposed by this section or section
4271 on any air transportation if tax is imposed under section
4043 with respect to the fuel used in such transportation. This
subsection shall not apply after July 15, 2016.
(k) Application of Taxes.--
(1) In general.--The taxes imposed by this section
shall apply to--
(A) transportation beginning during the
period--
(i) beginning on the 7th day after
the date of the enactment of the
Airport and Airway Trust Fund Tax
Reinstatement Act of 1997, and
(ii) ending on July 15, 2016, and (B)
amounts paid during such period for
transportation beginning after such
period.
(2) Refunds.--If, as of the date any transportation
begins, the taxes imposed by this section would not
have applied to such transportation if paid for on such
date, any tax paid under paragraph (1)(B) with respect
to such transportation shall be treated as an
overpayment.
* * * * * * *
VII. ADDITIONAL VIEWS
There are a great number of important tax priorities that
the Committee should consider--like legislation to stem the
tide of inversions, and legislation to fix errors made when the
Congress considered expiring tax legislation at the end of last
year--but the July 13th markup did not consider any of those
important priorities. Indeed, not even a month ago, Republicans
released a very broad brush ``Blueprint'' outlining their tax
priorities, but even that isn't being considered. In fact, this
provision is nowhere to be found in the Republicans' tax reform
Blueprint, which calls into question the seriousness of the
Committee's efforts with respect to consideration of this bill.
In the few days before the Congress leaves for the August
District work period, the Republicans have chosen to ignore
these important items, and instead decided to use the
Committee's precious time to move forward a very narrowly
targeted bill. The Committee has not heard testimony from
experts at IRS, Treasury, the Federal Aviation Administration,
or any stakeholders to discuss the merits of this bill, whether
our current aviation tax system, a patchwork of excise taxes on
tickets, varying fuel taxes, and certain per-journey fees, is
functioning as it should. It is correct that this bill was
mentioned at a Subcommittee Member Day hearing in May by its
sponsor, but a deeper examination of H.R. 3608 and how the
provisions in the bill fit into our larger aviation tax system
has been rejected by the Majority.
It is disappointing that the Chairman did not select for
consideration legislation that has enjoys broad bipartisan
support in both the House and the Senate tax-writing
Committees. The Consolidated Appropriations Act mistakenly
omitted for long-term extension certain renewable energy
technologies; this would be the perfect opportunity to correct
that mistake. Yet instead the Committee considered one narrow
bill that is targeted to a small subset of taxpayers that
engage in the business of providing aircraft owners with
management services. There are many taxpayers--hardworking
Americans--that are affected by provisions that the Committee
should focus its time and its work on, and instead we focus on
taxpayers that own private planes.
For these reasons, Democrats have many reservations about
this legislation.
Sander M. Levin
Ranking Member.
[all]