CAPA Comment: Ancillary fees are problematic for the government, as well as passengers. As they proliferate and become a very substantial sum across the industry (see CAPA analysis), some in the US Congress want to subject these collections to applicable government taxes. However, in a ruling just released, the Internal Revenue Service has exempted baggage charges from taxation, a decision welcomed by the ATA and its members. Along with baggage, other onboard sales, such as food and entertainment, have been deemed non-taxable. However, charges directly related to base fares, such as upgrades and surcharges are taxable within the language of the law, according to the IRS.
The imposition and regular expansion of taxes and fees has long been opposed by the airlines which note that it is not unusual for these items to add 20-30% to the base cost of a ticket on some itineraries, discouraging consumers by inflating travel costs. While the airlines seem to have prevailed in this case, there is little doubt that governments intend to maintain, and perhaps even expand, the range of taxes and fees they impose. European carriers have also objected to random taxes and surcharges - most notably the much despised British Air Passenger Duty (APD).