Jan. 28 (Bloomberg) -- U.S. airline baggage fees aren’t taxable, the Internal Revenue Service said, a victory for carriers trying to protect a growing revenue stream that may reach $1.76 billion this year. The agency, in a letter this month to an airline, pointed to the IRS code specifying that “charges for transportation of baggage” aren’t taxable. The letter was posted on the IRS Web site and didn’t disclose the carrier that requested the ruling.
The decision is “a positive thing for the airlines,” said Jay Sorensen, president of IdeaWorks, an airline consulting firm in Shorewood, Wisconsin. “It will allow the airlines over the long term to realize all the revenue. They won’t have to share with the government.”
Carriers have been increasingly turning to sources other than tickets for revenue as government figures show fares stagnated at 1998 levels last year amid slumping demand in the recession. Sorensen estimated in a Jan. 20 report that the five largest airlines will collect $1.76 billion to check first and second bags, a $117 million increase over last year.
UAL Corp.’s United Airlines, the third-largest carrier, boosted the charge for the first piece of checked luggage 53 percent to $23 this month to match rivals Delta Air Lines Inc. and Continental Airlines Inc. Most U.S. airlines had charged at least $15 for online check-in of a bag and $25 for a second.
AMR Corp.’s American Airlines followed United, completing increases among the biggest U.S. full-fare carriers.
Airlines paid $16.6 billion in federal taxes and fees for airports, regulators and security last year, including a 7.5 percent tax on passenger tickets, according to the Air Transport Association airline trade group in Washington.
