Airline Ticket Taxes and You: Update on Refunds and Airfares

>Airline Ticket Taxes Resume

UPDATE (8-9-11, 12:30pm CDT): See my new chart just below the podcast: it is a rundown of airline rollback activity, from 10am eastern time today vs. the same time on July 22.

UPDATE (8-8-11, 3pm CDT): Given how volatile prices are right now, I suggest consumers wait to shop for airline tickets until tomorrow (Tuesday) at about 3pm eastern time, in order to make sure they do not get caught paying the tax and the higher base prices that are coming down later today.

UPDATE (8-8-11, 12:30pm CDT):United/Continental has started rolling back prices. US Airways, as previously noted, did rollback prices, but only by a trivial amount.

UPDATE (8-8-11, 9:20am CDT): Moments ago, American, Delta, Frontier, JetBlue, US Airways and Virgin America all began rolling back prices, joining Southwest and AirTran. Only United/Continental is standing pat, for the moment anyway. I expect them to join in rollback activity in a matter of hours.

Listen as FareCompare CEO Rick Seaney tells editor Anne McDermott what the bottom line is for the consumer.

New Chart as of 8-9-11: The following is a run a rundown of airline rollback activity, from 10am eastern time Aug. 9 vs. the same time on July 22, which was the last day before the so-called airline ticket tax holiday.

UPDATE (8-8-11, 9am CDT): Southwest and AirTran have rolled back recent airfare hikes and we expect other carriers to follow later today, so if you must purchase airline tickets, wait until this afternoon when more prices drop. As of 12:01am this morning, the airline ticket taxes that had been dropped for more than two weeks were reinstated, so tickets cost 10-15% more on many carriers, except Southwest and AirTran. Watch this space for updates.

EARLIER: A number of airline ticket taxes that went uncollected for the past two weeks while Congress struggled to come to an agreement over funding for the FAA will be reinstated no later than 12:01am on Monday, Aug. 8 (midnight Sunday).

Whether the airlines that hiked airfaresduring this so-called “tax holiday” period (and that was most of them) will now lower prices in the wake of the tax reinstatement is not known, but I wouldn’t be surprised to see some fares rolled back as we head into the softer fall season. Of course, FareCompare will be monitoring the situation and I expect to have an update sometime early on Monday. See the latest in “Airline Ticket Taxes and You: Update on Refunds and Airfares.”

Passengers: No Tax Refunds

While the tax holiday was underway, the IRS published information on its site that strongly suggested refunds would be available for those who purchased tickets before July 23 and paid the tax, but flew during the period when taxes were not levied. However, the IRS now says there will not be any refunds, “as a result of the bill Congress passed today.”

This does not really surprise me, especially considering the hassle involved in providing refunds, but it’s disappointing nevertheless. There is some good news for passengers who did not pay taxes during this “holiday”: they won’t have to pay these taxes retroactively. Of course, these flyers didn’t really get any tax relief unless they flew Alaska or Spirit because all the other airlines raised their prices to fill the tax gap.

Should Travelers Buy Tickets This Weekend?

If an airline or agency starts collecting taxes before Sunday at midnight, consumers could pay too much for airfare since the airlines might wait until the last minute or even Monday to roll back prices (if they roll them back at all). I suggest waiting until the dust clears, as long as your departure date is not in the next week. Again, we will be monitoring price changes in real- time and will update as events unfold.

Winners and Losers

Who won and who lost during this very strange two week-long episode in the air travel industry? My picks:

Winner: The airlines. They didn’t lose any tax money, since it wasn’t theirs in the first place; they merely collected it on behalf of the government. When it was temporarily removed, carriers just raised their prices and made some money.

Loser: Passengers. They didn’t get tax relief, since the airlines hiked fares, and passengers who did pay taxes get no refunds. That’s what’s called a lose-lose.

Loser: FAA and construction employees. Nearly 75,000 people were out of work for two weeks, with no money coming in. Way to go, Congress.

Loser: Congress. They dashed the hopes of flyers who thought they were going to get a refund, put people out of work, and now they’re off on vacation. Question: why did we have to go through all this, anyway?

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Published: August 5, 2011