Pub. 510, Excise Taxes for 2006 |
2006 Tax Year |
4.
Communications and Air Transportation Taxes
This is archived information that pertains only to the 2006 Tax Year. If you are looking for information for the current tax year, go to the Tax Prep Help Area.
Excise taxes are imposed on amounts paid for certain facilities and services. If you receive any payment on which tax is imposed,
you are required
to collect the tax, file returns, and pay the tax over to the government.
If you fail to collect and pay over the taxes, you may be liable for the trust fund recovery penalty. See Penalties and Interest, in
chapter 12.
Collectors of the communications tax are not required to report any refusal to pay the tax on nontaxable service that is billed
after May 25, 2006.
See Nontaxable service, later.
A separate report is required to be filed by collecting agents of communications services and air transportation taxes if
the person from whom the
facilities or services tax (the tax) is required to be collected (the taxpayer) refuses to pay the tax, or it is impossible
for the collecting agent
to collect the tax. The report must contain the following information: the name and address of the taxpayer, the type of facility
provided or service
rendered, the amount paid for the facility or service (the amount on which the tax is based), and the date paid.
Regular method taxpayers.
For regular method taxpayers, the report must be filed by the due date of the Form 720 on which the tax would have
been reported.
Alternative method taxpayers.
For alternative method taxpayers, the report must be filed by the due date of the Form 720 that includes an adjustment
to the separate account for
the uncollected tax. See Alternative method in
chapter 11.
Where to file.
Do not file the uncollected tax report with Form 720. Instead, mail the report to:
Internal Revenue Service
Collected Excise Tax Coordinator
S:C:CP:RC:EX
1111 Constitution Avenue NW, IR-2016
Washington, DC 20224
Collectors must stop collecting and paying over the tax on nontaxable service that is billed after July 31, 2006. Nontaxable
service is bundled
service and long distance service. These terms are defined below. Taxpayers may claim a credit or refund only on their 2006 federal income
tax return for nontaxable service that was billed after February 28, 2003, and before August 1, 2006. Instructions will be
provided on the applicable
income tax returns. Claims for nontaxable service can no longer be filed on Form 8849, Form 720, or Form 843; the IRS will
not process these claims.
Information on the credit and refund procedures for collectors is described under Credits and Refunds, later. For more information,
see the
Instructions for Form 720 (Rev. July 2006) and Notice 2006-50.
A 3% tax is imposed on amounts paid for local telephone service and teletypewriter exchange service.
Local telephone service.
This includes access to a local telephone system and the privilege of telephonic quality communication with most people
who are part of the system.
Local telephone service also includes any facility or services provided in connection with this service. The tax applies to
lease payments for certain
customer premises equipment (CPE) even though the lessor does not also provide access to a local telecommunications system.
Local-only service.
Local-only service is local telephone service as described above, provided under a plan that does not include long
distance telephone service or
that separately states the charge for local service on the bill to customers. Local-only service also includes any facility
or services provided in
connection with this service, even though these services and facilities may also be used with long-distance service.
Private communication service.
Private communication service is not local telephone service. Private communication service includes accessory-type
services provided in connection
with a Centrex, PBX, or other similar system for dual use accessory equipment. However, the charge for the service must be
stated separately from the
charge for the basic system, and the accessory must function, in whole or in part, in connection with intercommunication among
the subscriber's
stations.
Teletypewriter exchange service.
This includes access from a teletypewriter or other data station to a teletypewriter exchange system and the privilege
of intercommunication by
that station with most persons having teletypewriter or other data stations in the same exchange system.
Figuring the tax.
The tax is based on the sum of all charges for local telephone service included in the bill. However, if the bill
groups individual items for
billing and tax purposes, the tax is based on the sum of the individual items within that group. The tax on the remaining
items not included in any
group is based on the charge for each item separately. Do not include in the tax base state or local sales or use taxes that
are separately stated on
the taxpayer's bill.
Payments for certain services or payments from certain users are exempt from the communications tax.
Nontaxable service.
Nontaxable service means bundled service and long distance service.
Bundled service.
Bundled service is local and long distance service provided under a plan that does not separately state the charge
for the local telephone service.
Bundled service includes voice over internet protocol service, prepaid telephone cards, and plans that provide both local
and long distance service
for either a flat monthly fee or a charge that varies with the elapsed time for which the service is used. Bundled service
is provided for both
landlines and wireless (cellular) service.
Long distance service.
Long distance service is telephonic quality communication with persons whose telephones are outside the local telephone
system of the caller.
Installation charges.
The tax does not apply to payments received for the installation of any instrument, wire, pole, switchboard, apparatus,
or equipment. However, the
tax does apply to payments for the repair or replacement of those items incidental to ordinary maintenance.
Answering services.
The tax does not apply to amounts paid for a private line, an answering service, and a one-way paging or message service
if they do not provide
access to a local telephone system and the privilege of telephonic communication as part of the local telephone system.
Mobile radio telephone service.
The tax does not apply to payments for a two-way radio service that does not provide access to a local telephone system.
Coin-operated telephones.
The tax for local telephone service does not apply to payments made for services by inserting coins in public coin-operated
telephones. But the tax
applies if the coin-operated telephone service is furnished for a guaranteed amount. Figure the tax on the amount paid under
the guarantee plus any
fixed monthly or other periodic charge.
Telephone-operated security systems.
The tax does not apply to amounts paid for telephones used only to originate calls to a limited number of telephone
stations for security entry
into a building. In addition, the tax does not apply to any amounts paid for rented communication equipment used in the security
system.
News services.
The tax on teletypewriter exchange service does not apply to charges for the following news services.
-
Services dealing exclusively with the collection or dissemination of news for or through the public press or radio or television
broadcasting.
-
Services used exclusively in the collection or dissemination of news by a news ticker service furnishing a general news service
similar to
that of the public press.
This exemption applies to payments received for messages from one member of the news media to another member (or to or from
their bona fide
correspondents). For the exemption to apply, the charge for these services must be billed in writing to the person paying
for the service and that
person must certify in writing that the services are used for an exempt purpose.
Services not exempted.
The tax applies to amounts paid by members of the news media for local telephone service.
International organizations and the American Red Cross.
The tax does not apply to communication services furnished to an international organization or to the American National
Red Cross.
Nonprofit hospitals.
The tax does not apply to telephone services furnished to income tax-exempt nonprofit hospitals for their use. Also,
the tax does not apply to
amounts paid by these hospitals to provide local telephone service in the homes of their personnel who must be reached during
their off-duty hours.
Nonprofit educational organizations.
The tax does not apply to payments received for services and facilities furnished to a nonprofit educational organization
for its use. A nonprofit
educational organization is one that satisfies all the following requirements.
-
It normally maintains a regular faculty and curriculum.
-
It normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities
are regularly
carried on.
-
It is exempt from income tax under Internal Revenue Code section 501(a).
This includes a school operated by an organization exempt under Internal Revenue Code section 501(c)(3) if the school meets
the above
qualifications.
Federal, state, and local government.
The tax does not apply to communication services provided to the government of the United States, the government of
any state or its political
subdivisions, the District of Columbia, or the United Nations. Treat an Indian tribal government as a state for the exemption
from the communications
tax only if the services involve the exercise of an essential tribal government function.
Exemption certificate.
Any form of exemption certificate will be acceptable if it includes all the information required by the Internal Revenue
Code and Regulations. See
Regulations section 49.4253-11. File the certificate with the provider of the communication services. An exemption certificate
is not required for
nontaxable services.
The following users that are exempt from the communications tax do not have to file an annual exemption certificate
after they have filed the
initial certificate to claim an exemption from the communications tax.
-
The American National Red Cross and other international organizations.
-
Nonprofit hospitals.
-
Nonprofit educational organizations.
-
State and local governments.
The federal government does not have to file any exemption certificate.
All other organizations must furnish exemption certificates when required.
If tax is collected and paid over for nontaxable services, or for certain services or users exempt from the communications
tax, the collector or
taxpayer may claim a credit or refund as described below and in Notice 2005-60.
Collectors.
The collector may claim a credit or refund if it has repaid the tax to the person from whom the tax was collected,
or obtained the consent of that
person to the allowance of the credit or refund. These requirements also apply to nontaxable service refunds.
Collectors using the regular method for deposits.
Collectors using the regular method for deposits must use Form 720X to claim a credit or refund if the collector has
repaid the tax to the person
from whom the tax was collected, or obtained the consent of that person to the allowance of the credit or refund.
Collectors using the alternative method for deposits.
Collectors using the alternative method for deposits must adjust the separate account for the credit or refund if
it has repaid the tax to the
person from whom the tax was collected, or obtained the consent of that person to the allowance of the credit or refund. For
more information, see the
Instructions for Form 720.
Taxpayers.
Credits or refunds for nontaxable service that was billed after February 28, 2003, and before August 1, 2006, can
be claimed by taxpayers only on
their 2006 federal income tax returns. Forms and instructions to make the claim will be included with the 2006 income tax
returns. Do not use Form
8849, Form 720, or Form 843 to make claims for nontaxable service; the IRS will not process these claims.
Taxes are imposed on amounts paid for all the following services.
-
Transportation of persons by air.
-
Use of international air travel facilities.
-
Transportation of property by air.
Transportation of Persons by Air
The tax on transportation of persons by air is made up of the following two parts.
Percentage tax.
A tax of 7.5% applies to amounts paid for taxable transportation of persons by air. Amounts paid for transportation
include charges for layover or
waiting time and movement of aircraft in deadhead service.
Mileage awards.
The percentage tax may apply to an amount paid (in cash or in kind) 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. For example, this applies to mileage
awards purchased by credit
card companies, telephone companies, restaurants, hotels, and other businesses.
Generally, the percentage tax does not apply to amounts paid for mileage awards where the mileage awards cannot, under
any circumstances, be
redeemed for air transportation that is subject to the tax. Until regulations are issued, the following rules apply to mileage
awards.
-
Amounts paid for mileage awards that cannot be redeemed for taxable transportation beginning and ending in the United States
are not subject
to the tax. For this rule, mileage awards issued by a foreign air carrier are considered to be usable only on that foreign
air carrier and thus not
redeemable for taxable transportation beginning and ending in the United States. Therefore, amounts paid to a foreign air
carrier for mileage awards
are not subject to the tax.
-
Amounts paid by an air carrier to a domestic air carrier for mileage awards that can be redeemed for taxable transportation
are not subject
to the tax to the extent those miles will be awarded in connection with the purchase of taxable transportation.
-
Amounts paid by an air carrier to a domestic air carrier for mileage awards that can be redeemed for taxable transportation
are subject to
the tax to the extent those miles will not be awarded in connection with the purchase of taxable transportation.
Domestic-segment tax.
The domestic-segment tax is a flat dollar amount for each segment of taxable transportation for which an amount is
paid. However, see Rural
airports, later. A segment is a single takeoff and a single landing. The domestic-segment tax is $3.30 per segment that begins during
2006.
Example.
In January 2006, Frank Jones pays $264.60 to a commercial airline for a flight in January from Washington to Chicago with
an intermediate stop in
Cleveland. The flight comprises two segments. The price includes the $240 fare and $24.60 excise tax [($240 × 7.5%) + (2 ×
$3.30)] for
which Frank is liable. The airline collects the tax from Frank and pays it over to the government.
Charter flights.
If an aircraft is chartered, the domestic-segment tax for each segment of taxable transportation is figured by multiplying
the tax by the number of
passengers transported on the aircraft.
Example.
In March 2006, Tim Clark pays $1,121.20 to an air charter service to carry 7 employees from Washington to Detroit with an
intermediate stop in
Pittsburgh. The flight comprises two segments. The price includes the $1,000 charter payment and $121.20 excise tax [($1,000
× 7.5%) + (2
× $3.30 × 7 passengers)] for which Tim is liable. The charter service collects the tax from Tim and pays it over to the government.
Rural airports.
The domestic-segment tax does not apply to a segment to or from a rural airport. An airport is a rural airport for
a calendar year if fewer than
100,000 commercial passengers departed from the airport by air during the second preceding calendar year (the 100,000 passenger
rule), and one of the
following is true:
-
The airport is not located within 75 miles of another airport from which 100,000 or more commercial passengers departed during
the second
preceding calendar year,
-
The airport was receiving essential air service subsidies as of August 5, 1997, or
-
The airport is not connected by paved roads to another airport.
To apply the 100,000 passenger rule to any airport described in (3) above, only count commercial passengers departing
from the airport by air on
flight segments of at least 100 miles
An updated list of rural airports can be found on the Department of Transportation website at
http://ostpxweb.dot.gov/aviation/domav/ruralair.pdf.
Taxable transportation.
Taxable transportation is transportation by air that meets either of the following tests.
-
It begins and ends either in the United States or at any place in Canada or Mexico not more than 225 miles from the nearest
point on the
continental United States boundary (this is the 225-mile zone).
-
It is directly or indirectly from one port or station in the United States to another port or station in the United States,
but only if it
is not a part of uninterrupted international air transportation, discussed later.
Round trip.
A round trip is considered two separate trips. The first trip is from the point of departure to the destination. The
second trip is the return trip
from that destination.
Uninterrupted international air transportation.
This means transportation entirely by air that does not begin and end in the United States or in the 225-mile zone
if there is not more than a
12-hour scheduled interval between arrival and departure at any station in the United States. For a special rule that applies
to military personnel,
see Exemptions later.
Transportation between the continental U.S. and Alaska or Hawaii.
This transportation is partially exempt from the tax on transportation of persons by air. The tax does not apply to
the part of the trip between
the point at which the route of transportation leaves or enters the continental United States (or a port or station in the
225-mile zone) and the
point at which it enters or leaves Hawaii or Alaska. Leaving or entering occurs when the route of the transportation passes
over either the United
States border or a point 3 nautical miles (3.45 statute miles) from low tide on the coast line, or when it leaves a port or
station in the 225-mile
zone. Therefore, this transportation is subject to the percentage tax on the part of the trip in U.S. airspace, the domestic-segment
tax for each
domestic segment, and the tax on the use of international air travel facilities, discussed later.
Transportation within Alaska or Hawaii.
The tax on transportation of persons by air applies to the entire fare paid in the case of flights between any of
the Hawaiian Islands, and between
any ports or stations in the Aleutian Islands or other ports or stations elsewhere in Alaska. The tax applies even though
parts of the flights may be
over international waters or over Canada, if no point on the direct line of transportation between the ports or stations is
more than 225 miles from
the United States (Hawaii or Alaska).
Package tours.
The air transportation taxes apply to “ complimentary” air transportation furnished solely to participants in package holiday tours. The amount
paid for these package tours includes a charge for air transportation even though it may be advertised as “ free.” This rule also applies to the
tax on the use of international air travel facilities, discussed later.
Liability for tax.
The person paying for taxable transportation is liable for the tax and, ordinarily, the person receiving the payment
collects the tax, files the
returns, and pays the tax over to the government. However, if payment is made outside the United States for a prepaid order,
exchange order, or
similar order, the person furnishing the initial transportation provided for under that order must collect the tax.
A travel agency that is an independent broker and sells tours on aircraft that it charters must collect the
transportation tax, file the returns, and pay the tax over to the government. However, a travel agency that sells tours as
the agent of an airline
must collect the tax and remit it to the airline for the filing of returns and for the payment of the tax over to the government.
The fact that the aircraft does not use public or commercial airports in taking off and landing has no effect on the
tax. But see Certain
helicopter uses, later.
For taxable transportation that begins and ends in the United States, the tax applies regardless of whether the payment
is made in or outside the
United States.
If the tax is not paid when payment for the transportation is made, the air carrier providing the initial segment
of the transportation that begins
or ends in the United States becomes liable for the tax.
Exemptions.
The tax on transportation of persons by air does not apply in the following situations. See also Special Rules on Transportation Taxes,
later.
Military personnel on international trips.
When traveling in uniform at their own expense, United States military personnel on authorized leave are deemed to
be traveling in uninterrupted
international air transportation (defined earlier) even if the scheduled interval between arrival and departure at any station
in the United States is
actually more than 12 hours. However, such personnel must buy their tickets within 12 hours after landing at the first domestic
airport and accept the
first available accommodation of the type called for by their tickets. The trip must begin or end outside the United States
and the 225-mile zone.
Certain helicopter uses.
The tax does not apply to air transportation by helicopter if the helicopter is used for any of the following purposes.
-
Transporting individuals, equipment, or supplies in the exploration for, or the development or removal of, hard minerals,
oil, or
gas.
-
Planting, cultivating, cutting, transporting, or caring for trees (including logging operations).
-
Providing emergency medical transportation.
However, during a use described in items (1) or (2), the tax applies if the helicopter takes off from, or lands at,
a facility eligible for
assistance under the Airport and Airway Development Act of 1970, or otherwise uses services provided under section 44509 or
44913(b) or subchapter I
of chapter 471 of title 49, United States Code. For item (1), treat each flight segment as a separate flight.
Fixed-wing aircraft uses.
The tax does not apply to air transportation by fixed-wing aircraft if the fixed-wing aircraft is used for any of
the following purposes.
-
Planting, cultivating, cutting, transporting, or caring for trees (including logging operations).
-
Providing emergency medical transportation. The aircraft must be equipped for and exclusively dedicated on that flight to
acute care
emergency medical services.
However, during a use described in item (1), the tax applies if the fixed-wing aircraft takes off from, or lands at,
a facility eligible for
assistance under the Airport and Airway Development Act of 1970, or otherwise uses services provided under section 44509 or
44913(b) or subchapter I
of chapter 471 of title 49, United States Code.
Skydiving.
The tax does not apply to any air transportation exclusively for the purpose of skydiving.
Seaplanes.
The tax does not apply to any air transportation by seaplane for any segment consisting of a takeoff from, and a landing
on, water if the places
where the takeoff and landing occur are not receiving financial assistance from the Airport and Airways Trust Fund.
Bonus tickets.
The tax does not apply to free bonus tickets issued by an airline company to its customers who have satisfied all
requirements to qualify for the
bonus tickets. However, the tax applies to amounts paid by customers for advance bonus tickets when customers have traveled
insufficient mileage to
fully qualify for the free advance bonus tickets.
International Air Travel Facilities
A $14.50 tax per person is imposed on amounts paid during 2006 (whether in or outside the United States) for international
flights that begin
or end in the United States. However, for a domestic segment that begins or ends in Alaska or Hawaii, a $7.30 tax per person
applies only
to departures. This tax does not apply if all the transportation is subject to the percentage tax, discussed earlier.
Transportation of Property by Air
A tax of 6.25% is imposed on amounts paid (whether in or outside the United States) for transportation of property by air.
The fact that the
aircraft may not use public or commercial airports in taking off and landing has no effect on the tax. The tax applies only
to amounts paid to a
person engaged in the business of transporting property by air for hire.
The tax applies only to transportation (including layover time and movement of aircraft in deadhead service) that begins and
ends in the United
States. Thus, the tax does not apply to transportation of property by air that begins or ends outside the United States.
Exemptions.
The tax on transportation of property by air does not apply in the following situations. See also Special Rules on Transportation Taxes,
later.
Cropdusting and firefighting service.
The tax does not apply to amounts paid for cropdusting or aerial firefighting service.
Exportation.
The tax does not apply to payments for transportation of property by air in the course of exportation (including to
United States possessions) by continuous movement, as evidenced by the execution of Form 1363, Export Exemption Certificate.
See Form 1363 for more
information.
Certain helicopter and fixed-wing air ambulance uses.
The tax does not apply to amounts paid for the use of helicopters in construction to set heating and air conditioning
units on roofs of buildings,
to dismantle tower cranes, and to aid in construction of power lines and ski lifts.
The tax also does not apply to air transportation by helicopter or fixed-wing aircraft for the purpose of providing
emergency medical services. The
fixed-wing aircraft must be equipped for and exclusively dedicated on that flight to acute care emergency medical services.
Skydiving.
The tax does not apply to any air transportation exclusively for the purpose of skydiving.
Excess baggage.
The tax does not apply to excess baggage accompanying a passenger on an aircraft operated on an established line.
Alaska and Hawaii.
For transportation of property to and from Alaska and Hawaii, the tax in general does not apply to the portion of
the transportation that is
entirely outside the continental United States (or the 225-mile zone if the aircraft departs from or arrives at an airport
in the 225-mile zone). But
the tax applies to flights between ports or stations in Alaska and the Aleutian Islands, as well as between ports or stations
in Hawaii. The tax
applies even though parts of the flights may be over international waters or over Canada, if no point on a line drawn from
where the route of
transportation leaves the United States (Alaska) to where it reenters the United States (Alaska) is more than 225 miles from
the United States.
Liability for tax.
The person paying for taxable transportation is liable for the tax and, ordinarily, the person engaged in the business
of transporting property by
air for hire receives the payment, collects the tax, files the returns, and pays the tax over to the government.
If tax is not paid when a payment is made outside the United States, the person furnishing the last segment of taxable
transportation collects the
tax from the person to whom the property is delivered in the United States.
Special Rules on Transportation Taxes
In certain circumstances, special rules apply to the taxes on transportation of persons and property by air.
Aircraft used by affiliated corporations.
The taxes do not apply to payments received by one member of an affiliated group of corporations from another member
for services furnished in
connection with the use of an aircraft. However, the aircraft must be owned or leased by a member of the affiliated group
and cannot be available for
hire by a nonmember of the affiliated group. Determine whether an aircraft is available for hire by a nonmember of an affiliated
group on a
flight-by-flight basis.
For this rule, an affiliated group of corporations is any group of corporations connected with a common parent corporation
through 80% or more of
stock ownership.
Small aircraft.
The taxes do not apply to transportation furnished by an aircraft having a maximum certificated takeoff weight of
6,000 pounds or less. However,
the taxes do apply if the aircraft is operated on an established line. “ Operated on an established line” means the aircraft operates with some
degree of regularity between definite points. However, it does not include any time an aircraft is being operated on a flight
that is solely for
sightseeing.
Consider an aircraft to be operated on an established line if it is operated on a charter basis between two cities
also served by that carrier on a
regularly scheduled basis.
Mixed load of persons and property.
If a single amount is paid for air transportation of persons and property, the payment must be allocated between the
amount subject to the tax on
transportation of persons and the amount subject to the tax on transportation of property. The allocation must be reasonable
and supported by adequate
records.
If tax is collected and paid over for air transportation that is not taxable air transportation, the collector may claim a
credit or refund if it
has repaid the tax to the person from whom the tax was collected or obtained the consent of that person to the allowance of
the credit or refund.
Alternatively, the person who paid the tax may claim a refund. For information on how to file for credits or refunds, see
the Instructions for Form
720 or Form 8849.
Previous | Up | Next
Publications Index | 2006 Tax Help Archives | Tax Help Archives Main | Home
|
|
|