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Ticket tax refunds axed thanks to retroactive FAA legislation

There's good news and bad news on the Federal Aviation Administration funding front.

Using Congressional procedural maneuvers available when the chambers are in recess, the Senate today signed off on the FAA bill that had passed the House in July. Obama has signed the bill into law.

The good news is that around 4,000 federal transportation personnel and the 70,000 or so contractors working on airport projects should be back on their jobs Monday.

The bad news is that the potential ticket tax refunds some passengers had hoped to recover no longer exist.

Effective date kills ticket tax refunds: The short-term measure -- it reauthorizes FAA operations until mid-September, meaning Congress will hash out the issues that held the law up in the first place when members return next month -- is retroactive to July 23, the day the old law and its ticket taxes expired.

When the taxes were not on the books, there was a lot of talk about possible refunds for which some passengers -- including me, who took Southwest up to Dallas for an Internal Revenue Service conference last week; yeah, I, too, love the tax and travel irony -- might qualify. We were the around 12.5 million airline customers who bought our tickets before the taxes expired, but didn't get on a plane until after they had lapsed.

What followed was a lot of refund speculation and back and forth between airlines and the IRS as to how to issue these refunds.

But this new law, with its July 23 effective date, makes all the tax refund chatter moot.

Since the ticket taxes never technically faded from the books, they were officially in effect when we flew. So we don't get the tax money back.

The bad news was made official with this IRS website notice posted immediately after the new FAA bill became law:

"Today's Congressional action extending the Federal Aviation Administration authorization reinstates retroactively the airline ticket taxes for passengers who traveled during the lapse of the FAA's authorization. As a result of the bill Congress passed today, passengers who purchased tickets prior to July 23 and traveled between July 23 and the date of enactment of today's legislation are not entitled to a refund of the airline ticket excise tax. "

That's right. No in-flight meals, no airline provided blankets, but ticket taxes. Air travelers stiffed again.

About that uncollected tax money: But what about people who bought tickets on or after July 23 and didn't pay the taxes because collection of the levies wasn't authorized again until today?

They are the lucky ones.

Uncle Sam lost about $30 million each day the airlines didn't collect the lapsed taxes. That comes to around $400 million give or tax a couple of million that the Treasury didn't get.

And while that's a nice chunk of change, the IRS is just going to write it off.

Yesterday, the top tax writers in both the House and Senate sent a letter to IRS Commissioner Douglas Shulman suggesting that his agency simply forget about the uncollected airline ticket tax money.

Reps. Dave Camp (R-Mich.) and Sandy Levin (D-Mich.), the House Ways and Means Committee chairman and ranking member, respectively, along with Senate Finance Committee Chairman Max Baucus (D-Mont.) and ranking member Orrin Hatch (R-Utah) noted that trying to retroactively collect the taxes from airlines and passengers isn't really in the IRS' best interests, given its limited resources.

So, the Congressmen wrote to Shulman, "we encourage you to utilize all your discretion and authority to extend relief for passengers and airlines with respect to ticket taxes that were not paid or collected because of the lapse and provide the industry a three-day period of time to restart processes to collect the taxes."

Shulman and crew got the message. That same IRS website message announcing no ticket tax refunds also noted:

"Additionally, the IRS intends to provide relief for passengers and airlines with respect to ticket taxes that were not paid or collected because of the lapse."

Airlines come out OK, too: Notice the references in both the Congressional letter and the IRS statement about the airlines?

That's right. The air carriers are lucky, too. They don't have to come up with the uncollected tax money -- an estimated $400 million, give or take a couple of million -- either.

Most airlines have the cash. When the taxes lapsed, instead of discounting fares by the ticket tax amount, they just pocketed the difference.

And now their greed is being sanctioned.

Some members of Congress have suggested that the airlines instead transfer that excess amount into the federal Airport and Airway Trust Fund. Such naivety and/or political posturing are duly noted, but that recommendation is never going to happen.

While the IRS no doubt took into account what a public relations debacle it would be to try to collect the temporarily lapsed ticket taxes, the airlines know we all hate them anyway.

So when it comes to minimal positive PR by being good corporate citizens and paying the taxes or keeping the money, odds are that the money in hand wins.

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