4 ms·

A clarification: it's not quite true that baggage fee income is tax-free. It is simply free of the government's 7.5 percent transportation federal excise tax (p

A clarification: it's not quite true that baggage fee income is tax-free. It is simply free of the government's 7.5 percent transportation federal excise tax (pre-income-tax tax). Baggage fees aren't deductible on a corporation's income tax return.

delinka 16y ago
Wait. So they are free of the transportation excise tax. BUT they are NOT free from income tax; e.g. Delta spends $100 billion running its business, sells $70 billion in tickets (and the necessary transportation taxes), and collects $40 billion in baggage fees, there's still $10 billion left to pay income taxes on. On YOUR company's taxes (because you're company is not the airline but pays for you to travel by air to Timbuktu), it's still an expense and still deductible as such. Right?
- michaeldhopkins 16y ago
  I'm not sure what you are asking. Yes, if my company sends an employee somewhere, we deduct the full expense (if we are paying it) on our tax return. And yes, Delta in that example has a taxable income of $10BB. If the IRS ruled that the travel tax applied, then taxable income would be $7BB due to the additional $3BB in excise tax from $40BB of baggage fees (ignoring the question of whether the cost would be passed on.) The Hipmunk graphic suggested that, by your example, Delta would have $110BB of income, $100BB of expenses and a $40BB deduction (if baggage fees were not taxable.) This would be a $30BB loss for tax purposes. Even using real numbers this would be outrageous...but it is not the case.
  - delinka 16y ago
    Not really asking as much as clarifying. "Baggage fees aren't deductible on a corporation's income tax return." This makes it sound like I can't deduct it as a travel expense.
    - michaeldhopkins 16y ago
      Oh, yes it does sound like that. I meant it in the context of avoiding paying taxes on revenue. Sorry about that.

delinka 16y ago

Wait. So they are free of the transportation excise tax. BUT they are NOT free from income tax; e.g. Delta spends $100 billion running its business, sells $70 billion in tickets (and the necessary transportation taxes), and collects $40 billion in baggage fees, there's still $10 billion left to pay income taxes on. On YOUR company's taxes (because you're company is not the airline but pays for you to travel by air to Timbuktu), it's still an expense and still deductible as such. Right?

michaeldhopkins 16y ago
I'm not sure what you are asking. Yes, if my company sends an employee somewhere, we deduct the full expense (if we are paying it) on our tax return. And yes, Delta in that example has a taxable income of $10BB. If the IRS ruled that the travel tax applied, then taxable income would be $7BB due to the additional $3BB in excise tax from $40BB of baggage fees (ignoring the question of whether the cost would be passed on.) The Hipmunk graphic suggested that, by your example, Delta would have $110BB of income, $100BB of expenses and a $40BB deduction (if baggage fees were not taxable.) This would be a $30BB loss for tax purposes. Even using real numbers this would be outrageous...but it is not the case.
- delinka 16y ago
  Not really asking as much as clarifying. "Baggage fees aren't deductible on a corporation's income tax return." This makes it sound like I can't deduct it as a travel expense.
  - michaeldhopkins 16y ago
    Oh, yes it does sound like that. I meant it in the context of avoiding paying taxes on revenue. Sorry about that.