Cheap travel and cheap airplane tickets in particular will not be burdened with federal airline ticket taxes being added to baggage fees and on-board food sales, according to the IRS.
The IRS ruled earlier this month that since these services are not paid as a condition of receiving air transportation they should not be taxed at a federal level. The IRS views checked baggage fees as an optional service and not necessary for a passenger to fly.
The federal tax for domestic transportation amounts to a flat fee charge of $3.70 per segment (which means paying for each leg of a connecting flight) plus 7.5 percent of the ticket price.
Interestingly the federal government used to effectively collect taxes on baggage checked since airline tickets were on average more expensive when the airlines allowed passengers to check bags for free. Back then the government was collecting taxes on the higher ticket prices thus generating more revenue.
In the third quarter of 2009 the countrys largest airlines took in almost $2 billion in ancillary (non-taxable) revenue, according to the Transportation Department. Experts forecast that the nations five largest airlines will raise almost $1.8 billion in checked baggage fees alone for 2010.
Experts believe that it is easier to charge and increase fees for ancillary services than it is to increase base airline ticket prices.