Decisions — Flying free

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Image source: Viswa Teja (Own work) [CC BY-SA 4.0 (http://creativecommons.org/licenses/by-sa/4.0)], via Wikimedia Commons

Image source: Viswa Teja (Own work) [CC BY-SA 4.0 (http://creativecommons.org/licenses/by-sa/4.0)], via Wikimedia Commons

Today’s question: Can organ transplant teams fly free of federal excise tax?

The US congress passed the FAA Extension, Safety, and Security Act of 2016 in July, before flying out the door for summer vacation, and the bill became law on July 15, 2016. The Act included an extension of two federal excise taxes: the passenger ticket tax and the cargo waybill tax.

The ticket tax (section 4261 of the internal revenue code) is a 7.5% tax on the base price of an airline ticket for the transportation of any person. The cargo tax (section 4271 of the internal revenue code) is a 6.25% tax on the transportation of property by air. Both of these taxes go into the Airport and Airway Trust Fund, which finances the Federal Aviation Administration and capital improvements to the US airways system. On a per-ticket basis, the taxes appear insignificant. Even so, according to the Tax Policy Center, federal excise taxes totaled $93.4 billion in fiscal year 2014, or 3.1% of federal tax receipts. Airport and Airway Trust Fund taxes accounted for 14% of all the federal excise tax receipts.

The taxpayer in a recent IRS written determination (2016-38002) wanted to know if those two taxes would be imposed on charter flight segments related to organ transplants. Specifically, the taxpayer asked if the charter flights qualified for the exception to the excise tax for air ambulances providing certain emergency medical transportation.

The taxpayer is a federally designated organ procurement organization as well as a charitable organization that coordinates organ transplants between donors and recipients. The charter flights in question take transplant teams to pick up available organs, transport the organ and the transplant team to the organ recipient, return the team back to the point of origin, and return the aircraft to its home base.

Here are the relevant code sections.

From Internal Revenue Code Section 4261: Imposes a 7.5% tax on amounts paid for taxable transportation of any person. Taxable transportation is defined to include transportation by air that begins and ends in the continental United States.

From Internal Revenue Code Section 4261(g): Provides that no tax shall be imposed under sections 4261 or 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.

From Internal Revenue Code Section 4271: Imposes a 6.25% tax on amounts paid for the taxable transportation of property. Such tax is imposed only on amounts paid to a person engaged in the business of transporting property by air for hire. Taxable transportation is defined as transportation by air which begins and ends in the United States.

 

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Right answer!

Based on the facts submitted and representations made, we conclude that the charter flight segments that transport the transplant team to organ recovery sites, transport the recovered organ(s) and the team to a transplant center, return the team and any unused supplies back to their point of origin, and return the aircraft to its home base to reposition it for the next emergency are equipped for and exclusively dedicated to acute care emergency medical services within the meaning of section 4261(g).

Accordingly, no tax will be imposed under sections 4261 or 4271 on amounts paid for such charter flight segments.

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