Baggage fees get a boost from the IRS

A few months ago I wrote about some inquiries that Congressfolks were making over the unbundling of airfare components.  Basically the airlines have been shifting more and more of the travel costs out of the base ticket price but the feds are only able to tax that base ticket price.  The end result is that all the unbundled services are about 7.5% better for the airlines than simply raising fares by a comparable amount across the board.

It seems that the folks on the ill can take a break from that saber-rattling or at least find a way to refocus their efforts.  The IRS released a ruling in response to a request from American Airlines, clarifying about 40 different scenarios and the taxability of each under the IRS code.  The document is, as one might expect, a rather boring read.  But it does provide some insight into just what the carriers can charge for without having to pay any taxes.  In addition to any baggage handling the ruling addresses the taxability of buying miles (taxable), lounge memberships (not taxable) and fuel surcharges (taxable).

Probably not a huge surprise but it does confirm that the airlines’ decision to unbundle services and charge fees is more profitable for them than simply raising fares, to the tune of about 7.5%.  In an industry that has been bleeding cash every little bit helps.

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Seth Miller

I'm Seth, also known as the Wandering Aramean. I was bit by the travel bug 30 years ago and there's no sign of a cure. I fly ~200,000 miles annually; these are my stories. You can connect with me on Twitter, Facebook, and LinkedIn.