Katy Stech The Wall Street Journal
Lawmakers Say IRS Could Sink Alaska's Small Airlines
October 26, 2012
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  • A scene in National Geographic’s “Alaska Wing Men” television series shows pilot Jack Barber weaving his small charter airplane in and out of white plumes that hide the Merrill Pass’s jagged cliff line. A narrator explains that ice forming at such a high altitude threatened to pull Barber’s plane, loaded with bear-hunting passengers, to the ground.

    The 13-episode show has filmed slippery glacier landings and merciless weather, but Barber and federal lawmakers say the state’s charter airplane industry of roughly 230 operators is also facing serious headwinds from a tax dispute with the Internal Revenue Service.

    A fight over $1 million in unpaid taxes has already caused Barber to put his Anchorage-based company, Alaska Air Taxi LLC, and its fleet of seven small airplanes into Chapter 11 bankruptcy protection.

    Alaska Democratic Sen. Mark Begich is accusing the IRS of trying to collect years’ worth of back payments from charter operators for a tax that he says is vaguely defined and shouldn’t be charged at all on certain flights. His office said that tax bills of up to $1 million have been sent to the state’s charter airline operators, which carry tourists to remote spots, support the oil-and-gas industry and deliver cargo to hard-to-reach villages in a state where 82% of communities are not accessible by road, according to the Alaska Air Carriers Association.

    “This thing is going to affect all the tourism in Alaska, if not the United States,” Barber said of the IRS’s interpretation of the rules.

    An IRS spokeswoman said she couldn’t comment on pending legislation or individual disputes.

    The federal government charges flight operators a $3-per-passenger tax for trips that are flown at regular, scheduled intervals. Specifically, that tax is due on routes that are flown “with some degree of regularity,” according to the federal rulebooks.

    The segment tax, as it’s called, is also chargeable every time the airplane touches down and takes off again during the same trip.

    But the rulebooks don’t define “some degree of regularity,” and the IRS has been stricter about designating routes that some charter operators take as “regular,” according to the Alaska Air Carriers Association.

    “This is a perfect example of the kind of confusing, nonsensical behavior from the federal government that drives ordinary people crazy,” Begich’s office said in a statement. “It doesn’t make sense, and it needs to be fixed.”

    Begich proposed a bill in July that would straighten out the rules. The bill would change the wording so non-scheduled charter flights to areas that aren’t reachable by paved roads won’t have to charge the tax.

    The bill would also get rid of the rule that makes operators charge the tax multiple times on sightseeing flights. Those flights often make “intermittent stops to view an attraction, as is common practice for many Alaska flightseeing trips,” according to the office.

    The bill hasn’t had a hearing yet. (Alaska Rep. Don Young, a Republican, is in charge of rallying support for the legislation in the U.S. House of Representatives.)

    The Alaska Air Carriers Association points out that the charter airline industry makes up a large chunk of the state’s commerce. The aviation business contributes $3.5 billion to the state’s economy—8% of the state’s gross product—and employs 10% of the state’s total workforce, according to the association.

    Eighty-five percent of the state’s fleet of 10,947 aircraft are single-engine planes that charter operators often use.

    Barber’s 15-person company flies passengers and cargo for big oil and mining companies. He recently flew supplies to the under-construction Fire Island wind turbine outside Anchorage.

    Barber’s fight with tax auditors began about six years ago when they determined that he should have paid $240,000 in segment taxes over the years. His tab has grown to about $1 million because of interest and penalties, he said.

    Barber’s trips appeared on the “Alaska Wing Men” series, which first aired on the National Geographic Channel in January 2011. One of the clips was scary enough to make us sweat a little, but Barber said the situation was safer than it looked.

    If the plane iced suddenly, he said that he could have dropped altitude to “get out of the ice.”

    “It was kind of like scuba-diving where you could stand up and get a breath of fresh air,” Barber said.