Fliers Receive Bonus as Airlines Drop Excise Tax

Travelers received a bonus Monday when several airlines stopped collecting a federal excise tax, slashing the cost of domestic air tickets by 10% at a time when some prices were already lower because of a winter fare war.

But travel industry officials urged people to move quickly to take advantage of the savings, because Congress is expected to reinstate the tax, which expired New Year’s Eve. The tax, along with a $6 fee on international departures and a 6.25% tax on air freight, is a victim of the federal budget deadlock that has idled parts of the government for more than two weeks. It was generally included in quoted air fares and passengers often were unaware of its existence.

President Clinton and top congressional leaders are expected to return to the negotiating table tonight and could reinstate the tax within days. The Treasury Department collects $6 billion in annual revenues from it to support such things as airport construction and air traffic control.

American Airlines, Northwest Airlines, Delta Air Lines, Continental Airlines and USAir were among those who turned the tax break into a marketing ploy by trumpeting their cheaper fares as a “temporary 10% windfall.” Monday’s reduction comes on top of domestic price cuts of up to 50%, which were levied last week by airlines seeking to boost winter travel.

“Because we have no way of knowing when or in what form the tax will be reinstated it makes good sense for travelers to buy in the first days of the new year,” said Michael Gunn, senior vice president of marketing for American.

Other airlines broadcast a similar sense of urgency. R.W. Coggin, Delta’s executive vice president of marketing, advised customers to purchase tickets early this week to take advantage of the 10% price cut.

However, not everyone was feeling as generous. United Air Lines, Alaska Airlines and Southwest Airlines said Monday that they had boosted their air fares by 10% to maintain the fares at the same level rather than passing on the savings to customers.

Southwest spokeswoman Ginger Hardage said the airline decided to keep its fares at the current level to avoid confusion when the tax is reinstated, as most industry officials expect.

Travelers who bought tickets prior to Dec. 31 and travel during the period when the tax is not in effect should be eligible for a refund, according to the Air Transport Assn., although the government’s position on the issue is not known. The ATA suggested that passengers who paid the tax and then fly while the tax is in limbo make a claim directly to the Internal Revenue Service on form 8849 when filing taxes for 1996.

But American Airlines is handling its refunds directly. American passengers who fly now and paid for their tickets with a credit card will automatically be refunded the tax, the airline said. Those who paid by another means can obtain a refund form from the airline or their travel agency and file a claim directly with the airline.

Questions remain about how, or whether, the government will attempt to collect taxes on tickets purchased while the tax is not in effect but used after the tax is reinstated. Given the uncertainty, travelers are urged to keep their ticket stubs and other travel documents from this period.

“We need guidance from the IRS on how that should be handled,” said Joe Hopkins, a United spokesman.

But Jon Austin, a spokesman for Northwest, said his airline will “take a dim view” of any request by the government to collect taxes from travelers who already bought their tickets.

Airlines did not report a surge in ticket sales Monday but travel professionals predict more activity when consumers get wind of the unexpected savings. Thomas Nulty, president of Associated Travel International, a Santa Ana-based travel agency chain with 200 locations nationwide, said Monday that he planned to fax memos to his clients urging them to book their travel soon.

“My gut feeling is this is going to be very short-lived,” he said. “This is just an opportunity for some people to save a little money very quickly.”