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Travel taxes under scrutiny as travellers change plans to avoid them

Analysis

The US Travel Association is advancing its attack on high travel taxes, having found that half of all travellers change plans in order to avoid them.

Percentage of travellers who believe taxes are high* on specific travel goods & services

For its part, the US airline industry seems to have given up on lowering taxes, instead its message to Washington is to do no more harm. Still, airline executives continue to complain, including US Airways Chair Doug Parker who noted airline tickets are taxed higher than most items such as alcohol and cigarettes which are known as 'sin taxes'.

Travel taxes have significant* influence on your trip decisions?

The issue was raised last week as Emirates addressed complaints against its rapid development. The airline's Senior VP Public, International and Industry Affairs, Andrew Parker, noted that Western governments' propensity to tax is something the UAE does not understand.

Mr Parker brought the issue into high relief last week at the Phoenix Aviation Symposium when he suggested that, instead of complaining about the new powerful competition from the Middle East, European and US airlines should use Gulf airlines as examples of what can be accomplished by not burdening the airlines with heavy taxes which distort airline costs, as is regularly done in Europe, Canada and the US.

"Our government is very pro aviation," Mr Parker said. "When you look at Europe and the APD (UK's Air Passenger Duty) and the ticket taxes in the UK and Germany, the Canadian charges, for us it is extraordinary. We will be a threat as long as government policies continue to harm carriers."

His sentiments definitely play into the Obama Administration's mantra about making US companies more competitive, but there are few who are willing to hold their breath waiting for tax relief to happen. About 20% of every air ticket goes to government/airport taxes and fees.

Government-imposed taxes/fees on commercial air travel

Special Aviation Tax or Fee

1972

1992

1/1/2011

AIRPORT & AIRWAY TRUST FUND (FAA)


Passenger Ticket Tax 1a (domestic) 8.0% 10.0%

7.5%

Flight Segment Tax 1a (domestic) --- ---

$3.70

Frequent Flyer Tax 2 --- ---

7.5%

International Departure Tax 3 $3.00 $6.00

$16.30

International Arrival Tax 3 --- ---

$16.30

Cargo Waybill Tax 1b (domestic) 5.0% 6.25%

6.25%

Commercial Jet Fuel Tax (domestic) --- ---

4.3¢

Noncommercial Jet Fuel Tax (domestic) 7.0¢ 17.5¢

21.8¢

Noncommercial AvGas Tax (domestic) 7.0¢ 15.0¢

19.3¢

ENVIRONMENTAL PROTECTION AGENCY (EPA)


LUST Fuel Tax 4 (domestic)

---

0.1¢

0.1¢

LOCAL AIRPORT PROJECTS


Passenger Facility Charge --- Up to $3.00

Up to $4.50

DEPARTMENT OF HOMELAND SECURITY (DHS)


September 11th Fee 5 --- ---

$2.50

Aviation Security Infrastructure Fee 6 --- ---

Varies

APHIS Passenger Fee 7 --- $2.00

$5.00

APHIS Aircraft Fee 7 --- $76.75

$70.75

Customs User Fee 8 --- $5.00

$5.50

Immigration User Fee 9 --- $5.00

$7.00

Of higher interest is the US Travel Association's recent launch of a price elasticity project to get a better fix on price sensitivity and the impact of taxes and fees on demand. That will be especially interesting given the trend toward rising air fares.

"Government leaders are understandably facing difficult budget decisions," said USTA CEO Roger Dow. "But too often they are setting travel tax policy without a full understanding of how taxes affect travel demand and impact their local economies. The Travel Tax Institute will equip policymakers and industry leaders with the tools they need to make informed decisions."

The US Travel Association has taken up the consumer advocate role, rolling out the conclusions of the first study issued by its newly formed Travel Tax Institute, which it describes as "the nation's preeminent centre of research and expertise on rising travel taxes at the city, county and state levels."

"Travelers are often considered an easy tax target, but few public officials understand how rising travel taxes influence consumer behavior and impact the economy," said Mr Dow, "We believe it's important that political leaders see travelers not just as 'out-of-towners,' but as key supporters of local jobs, businesses and development."

The initial study for the Institute showed the impact between taxation, planning and spending decision. Findings suggest that high taxes do impact travel planning with 49% of travelers having already altered their plans by either staying at a less expensive hotel or generally spending less on shopping, restaurants and entertainment. They also plan vacations around the off-season whenever possible.

Sixty eight percent said hotel taxes where either high or very high and the study found 66% thought the same about air fares. Some 64% indicated that rental car tax rate is "much more than expected compared to other travel taxes while 65% expect travel taxes will continue to rise.

Clearly, the respondents were part of the travel industry, given the sophistication of their responses. Indeed 60% thought any taxes on travel should be poured back into infrastructure while 49% thought it okay to tax to fund travel and tourism marketing."

In addition to surveying consumer attitudes, the Travel Tax Institute is creating a comprehensive database to track travel taxes in 50 US destinations - from taxes on airfare and lodging to rental cars and restaurants. The database will also track the uses of these tax revenues, such as funding of destination marketing programs or contributions to the general fund.

The study and USTA's future efforts may give new life to tax reduction efforts. However, the study did not quantify how much would be lost to federal, state and local governments for reducing taxes, nor did it say how much they might gain. That must be a key component of future studies.

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