Topic of the Week: Should Taxes Be Broken Out?

Awhile back, the feds decided to do something that happens in almost no other industry – it mandated that the entire price of an airline ticket, including taxes, be the advertised price. Now there’s an effort in Congress to repeal that decision. Those in favor of this change say that taxes should be broken out as it’s done in nearly every other industry because it’s unfair for the government to be able to hide taxes increase in the fare. Others, of course, think that’s not right.

So, two questions this week.

1) Should this rule be repealed?
2) Will it actually be repealed?


56 Responses to Topic of the Week: Should Taxes Be Broken Out?

  1. Jorg says:

    ‘You Americans’ are used to seeing the price without tax. I’ve never understood that. At the end, when I pay, I have to pay the taxes too, so why not include it? Here in Europe prices are always with tax (at least, for end users). So naturally, we think airline prices should include taxes.

    I do think it’s easier to compare prices when taxes are included. Flying from/to secondary airports might be cheaper because of the value added by the government.

    So yes, in my opinion you should see what you pay.

  2. HH says:

    I think the rule shouldn’t be repealed. Removing the taxes from the advertised price makes it hard for consumers to accurately compare pricing.

  3. TimH says:

    Here’s the thing, though – if I see an add for an iPhone at $199, 1) the price will vary by locality (some states have higher sales tax), and 2) consumers are generally in a place where they know what the tax is.

    Neither of those apply to airfares – the average consumer has no idea what all the taxes and fees are, AND when you try digging down, it isn’t necessarily clear what’s a tax and what’s not (9/11 fee? Tax. Passenger Facility Charge at [Airport]? Not a tax… exactly. Federal excise tax? Tax.)

    It’s a way of telling consumers that it isn’t their job to know the ins and outs of airline pricing.

    So should it bee? I really don’t know – but the argument in favor of ‘no’ is that people don’t understand what the taxes on airline tickets are.

  4. Sanjeev M says:

    Yes in nearly every other country, I have always seen the VAT or any other tax included. I wasn’t sure how I liked the change at the beginning, but after booking a few flights I think I like the taxes-included requirement.

  5. Shane says:

    Taxes should be included as they are now. The whole reason for the change was that airlines were gaming the way they included or did not included taxes and fees into the airfare. Depending on how many segments and what options are taxable, you could end up with a significantly higher airfare at purchase but not know until you go through the entire booking process. The current system is much more friendly to consumers and less confusing.

    I know that the reason is because those that are more libertarian leaning want consumers to know how much of your ticket is going towards taxes, which is a significant amount. This is more about grandstanding on taxes than making the ticket purchasing process more consumer friendly. If congress feels that the American consumer needs to better understand the taxes involved, then just amend the current law by requiring a breakdown of taxes on the side of the search result. In other words, still show my flight as being $150, which includes $xxx in taxes and government fees. That way everybody gets what they want.

  6. Kris says:

    There is nothing stopping airlines from displaying taxes before purchase. I know Delta does this already. If the airline industry wants to bring attention to the taxes so much they are more than capable of advertising the taxes as prominently as they want.

    • CF says:

      Kris – The rule requires that the total price be most prominent on the page, but you can break out taxes in a small font below that if you’d like. And as you mention, others do it already.

      • Ron says:

        What about those airports or countries which collect a departure fee payable in cash to the local authority? Is this also disclosed?

        • CF says:

          Ron – No, that’s not included. That isn’t part of the paid ticket so how could it be included?

          • Ron says:

            Not included — disclosed. If an airport charges an improvement fee of $10, you can include that in the displayed fare, but rather than collect it, give a notice that this will be collected in cash upon departure (sort of like “fee due upon delivery”). Not that I think this makes sense, but I’m trying to figure out why — an airport improvement fee is no different that a PFC. Somehow it makes sense that the seller is only responsible for advertising the price they’re collecting (including collection on behalf of other parties).

  7. Matt says:

    Without question the taxes ought to be broken out. People should understand just how high the tax burden on air carriers is – especially when they are complaining about not receiving complimentary bags and free drinks on a $70 ticket – not entirely, but certainly part of the problem is that the carrier is only receiving, lets call it $40 of that $70. That should, at the very least, be transparent.

    Real world example – Virgin Atlantic (VS) has been offering 0 GBP base fare tickets from LHR-EDI, charging a 12 pound fuel surcharge and ~GBP 42 in taxes – for a grand total of 54 GBP. The layman would not have a clue that he only paid 22% of his total price to the airline while a whopping 78% went to the government. That is the absurdity of burying taxes and why it should not be allowed.

  8. TomAustinTX says:

    1) Should this rule be repealed? No.
    2) Will it actually be repealed? Probably.

    Airlines will tease customers with $49 fares… but at the VERY END (after adding government taxes and fees, plus the airlines new la carte charges) will you learn the final price is $300. Transparency?

    The Airline Lobby is big and the US government is basically pawns of big business anyways.
    The Airline Industries clam that “affordability is imperiled by rising government taxes and fees” is
    lame. Everything in the U.S. is imperiled by rising government taxes and fees.

    Gasoline Prices include all taxes and fees.
    This just shows how complicated and terrible the U.S. tax system is.

    • CF says:

      TomAustinTX – To clarify, this rule has nothing to do with airline-added fees. This would only apply to taxes and fees imposed by the government (though I believe airport PFC charges would be included in that as well – those are usually government run anyway).

    • Quest says:

      Gasoline prices do include tax, but if you look on the pump, it clearly shows how much tax per gallon goes to the federal and state governments. At least here in AZ they show that information.

      • TC99 says:

        In the state of Florida, this is not broken out and each county has a tax as well. I live in Miami, and Miami-Dade’s gas tax is less than Broward’s by a few pennies. Most people don’t know that so when they see the same price at the pump at stations near the County Line, the stations in Miami-Dade are making a few more pennies per gallon that, if managed correctly, will fall to profit on the bottom line.

  9. TomAustinTX says:

    The Cruise Line industry learned this system doesn’t work and is now starting to have all inclusive pricing. In the end customers hate gettting nickel and dimed.

  10. Noah says:

    The taxes are really high, so it is nice to see an “all in” price. As a consumer, I do prefer that. I understand the airlines perspective that taxes are ridiculously high and consumers then direct high price anger at airlines, not the government who is responsible for 30% of it.

    I would rather the government go after hotels for mandatory “resort fees” controlled by the property simply to get people in the door and show up higher on search engines, then screw the guest when they arrive before going after airlines for government spending.

    • CF says:

      Noah – I think the hotel example gets to the main point of the argument. It’s bad enough that other industries rarely have to include taxes (gasoline being an exception, as noted by others), but when others in the tourism industry don’t have to deal with the same rule, it’s just silly.

      Hotels are by far the worst. Resort fees are like fuel surcharges – mandatory and have no business being excluded from the base price. (Airlines haven’t broken out fuel surcharges in probably more than a decade, well before this recent rule went into effect.) Car rentals are terrible as well. So my opinion is that there should be consistency. You want airlines to include the all-in price? Make everyone else do it too. Otherwise, nobody should have to include it.

      • Although getting the hotels and car rental companies to provide an all in fare is tougher, since they generally are regulated by the state or local government, and many of those have a vested interest in tourism.

      • Ron says:

        Hotel taxes in the US are somewhat unpredictable: about a year and a half ago I booked a hotel room in San Diego, and then sometime before my stay, the city decided to jack up the tax rate effective in short notice. The hotel was very good about proactively sending an email to alert me. But this is why when you book a hotel room they only quote “estimated taxes and fees”: these may change by the time you pay. Now, how they deal with prepaid stays when there’s a tax rate change, I don’t know.

        I think taxes should be included in the advertised price, always, but especially so when the tax rates are such that customers are unlikely to know what to expect, as in the case (in the US) of gasoline, airfare, and hotels. Now, how are they going to advertise prices at the new businesses that will open with the recent passage of Long Beach Prop A? ;-)

        • Bet with the prepaid deals the hotel just has to back it out of their revenue.. Although, they could also just mark the revenue as received when you pay them, and tax it at that time.. Probably requires a lawyer to dig through the whole thing.. (which most won’t do, and its not worth the city or county’s time to figure it out either..)

      • DesetGhost says:

        You hit the nail on the head, Brett. Consistency is the key issue here. Disclosure rules should be as consistent as practically possible.

      • Jim says:

        Cranky, I don’t see any problem with requiring this for airlines and not for hotels. American Airlines and Hilton are not competitors. If American Airlines is too expensive, you can’t fly Hilton instead.

  11. uke_d says:

    I’m in favor of it being broken out because I want consumers to be aware of the additional tax load that the government is forcing on them. Why should the airlines be treated any differently than every other industry? If the government is concerned about price transparency It would be better to start with healthcare (where consumers have no idea what they’re going to have to pay until they receive the bill).

    The airlines need to more clearly group what taxes/fees/etc are mandated by the government and what is an airline surcharge.

    In my ideal world I would also like for employers to stop withholding taxes from employees paychecks. If each voter had to write one large check every year for these taxes they might be a bit more concerned about how that money is actually spent. Today it’s money that they never received so it doesn’t trigger the same emotional response. Unfortunately, I believe that I’m in the minority and this will not be passed.

    • Mark Skinner says:

      Nobody is stopping the airlines from doing that now.

      They just have to make the total price clear, and most prominent.

      I want to be able to compare fares up front, not get a lecture on tax policy, or be nickel and dimed for the various taxes and fees so airlines can make it hard to compare prices.

  12. MeanMeosh says:

    The most coherent argument I’ve seen about not breaking government taxes and fees out is that unlike something like sales tax, where most people are familiar with the rates in their local jurisdiction, federal/state/local taxes and charges can vary widely from airport to airport, and depending on the number of connections involved. Ergo, allowing the airlines to advertise a fare of $200 from DFW to LAX is unnecessarily confusing, because the end price could differ based on routing, connections, etc., whereas if you walk into a store here in Dallas and buy a TV advertised for $200 in the paper, you know what the final price will be, assuming you can do the math. Then again, you can make a corollary argument that this situation is exactly why taxes & fees should be broken down separately, to illustrate how LAWA fleeces passengers going through ONT, for instance. And for that matter, if “total price” is the fair way to display airfares, then why aren’t we applying the same rules to hotels and car rentals, where taxes and “resort” fees are arguably even more insidious than what you see with the airlines? Overall I’m fairly ambivalent about the whole thing. Shane’s solution seems like a fair compromise to me, though it will be difficult to administer in print ads.

    What I do find somewhat disturbing is the hyperbole on the part of some opponents that this will allow airlines to advertise $109 fares from DFW to LHR by hiding things like fuel surcharges. The proposed bill, as I’m reading it, applies only to “government-imposed” taxes and fees, not fuel surcharges, so those would still have to be included in the “base fare”. To use Tom’s example, you simply aren’t going to see a $49 fare balloon to $300+ because of taxes and fees on a domestic fare, because that level of tax simply doesn’t exist (a $301 base fare from DFW to LAX, for example, includes $42 of tax – high, but not 86% of the price). If we’re going to have a conversation about this topic, can we please leave out the scare tactics?

  13. David SF eastbay says:

    What taxes are they taking about? If there are talking about segment tax (AY) and PFC’s (XF) a nonstop flight would be less of those two taxes then connecting flights so would an airline have to start publishing fares by how many possible flight segments there might be?

    International taxes for other countries could never be included since you also can pay taxes for countries you are just connecting in so that would never be know until booked what those taxes are.

    What the Feds need to do is stop the airline scam of fuel surchanges and insurance charges being shown on the ticket as tax codes (XQ/XR) and misleading the public into thinking those are taxes which they are not, they go right to the airlines so should not appear as a tax on your ticket. Those fees should be included in the airfare. As someone mentioned that $49 fare would now show the true $249.00 amount it is once the airlines add their (made up) fuel charge amounts. I say made up since the airlines set the price by country and not by how much fuel is being used. Examply NYC-LON could be way more money in fuel surchanges then NYC-TYO which would use a lot more fuel.

  14. Jonathan Reed says:

    Look at the way Spirit Airline prices tickets. There is the total price and then there is the line that shows “the government’s take.”

    Showing the price with taxes makes its easier to compare fares. Nothing prevents airlines from showing how much of the price is taxes and fees.

  15. Southeasterner says:

    1) Should this rule be repealed? Absolutely Not
    2) Will it actually be repealed? Absolutely

    If the airlines are so worried about taxes just show the customer how much taxes they are paying after they purchase the ticket. Hiding the full cost of the fare (with taxes) should be considered misleading and prohibited.

    However, the same airline lobby that convinced the U.S. government to bail them out under bankruptcy protection, and take over their underfunded pension plans will also pay off enough “representatives” to repeal this decision.

  16. I don’t think the rule should be repealed, I think it should be refined:

    For advertisements such as print ads and static web ads, an airline should be able to list the lowest possible price, including any charges that go to the airline and not a passthrough to an airport or government. There should be an asterisk next to that price that links to “*plus taxes and fees of no less than $x.xx” Is this smart from an airline’s perspective? Oh no. Its a bit of bait and switch, but Spirit will love it.

    For fare listings, an airline should be able to list an all in price, Fare (all airline charges) + airport fees + taxes, or Fare (all airline charges) + fees and taxes combined.

    But, even before this airlines have a good deal of work that they can do to make this cleaner. On emailed receipts US Airways just lists a rolled up total, Delta lists a rolled up total then the booking codes. On fare listings United is a total fail, and lists the individual fares, line by line, AA and Delta nicely roll them up.

    I think they should take a page from telephone companies and have an “Airport Fees” section and a “Taxes” section where the total rolls up. Break it down by how much you’re paying in each airports PFCs, how much you’re paying in security taxes, and how much you’re paying in excise taxes.

    Oh and an aside, I despise that some airlines (UA and DL in this example) list it as a September 11th security fee. I realize they’re probably following the government’s lead, but there is no need other than fear mongering to list it that way. The Federal Excise tax on your telephone bill isn’t called the Spanish American War tax, although that’s the origin of it.

    • David SF eastbay says:

      good point Nick on that last part. Airlines should have to call the tax by its proper name. It’s the ‘Passenger Civil Aviation Security Service Fee’ which was implemented due to 9/11, so people should understand it’s paying for every day security and not paying some old bills from 9/11.

  17. Gantt says:

    I hope we will once again be able to show the taxes as a plus. The cruise industry can advertise without including port charges. Hotels can advertise without including taxes. What about phone companies, cable companies, etc?
    I think it is good for consumers to see how high air taxes are. Most people don’t realize it (especially on international tickets where you have 2 goverments with their hands out!)…Look at at USA-JAMAIACA or MEXICO similar ticket. Taxes are in the $140-$150 per person range. Outrageous!
    That being said, I think the PLUS should ONLY be goverment imposed taxes as it was prior to the new ruling. No funny business with Fuel Surcharges, etc….make sure everyone is on the same playing field.

  18. Gantt says:

    PS…And I do know how to spell government! Sorry!

  19. Ben Rich says:

    No, it should not be repealed. Yes, it probably will because our governent has no interest in representing the population, just themselves! I like seeing the WHOLE price and can do without surprises! A good example are some Europe fares where the actual fare is Zero or close to it and the taxes make up the rest of the fare. I have flown Aer Lingus a couple of times with $0.00 airfares and only paid taxes and baggage charges.

  20. Matthew McDermott says:

    Yes, taxes on airfares are high compared with buying just about anything else (although if you look at the list of charges an taxes on telecommunications services it might run a close second). From the consumer perspective it makes sense to see it all in – how much is it going to cost me to go from point a to point b on the airlines I want to fly on?

    Every industry wants lower taxes on their products or services, no big newsflash there. At least it’s a level playing field. If Southwest is competing with United on a route, they both have to include it so no one gets any special advantage however it ends up getting presented.

    As an aside, if taxes were reduced that wouldn’t necessarily mean a reduction in airfares – the airlines would raise their base fare to capture whatever reduction in rate occurred, sort of a stealth fare increase.

  21. Tom says:

    The taxes (and especially fuel surcharges) should definitely be included as they are now. The airlines would love to see that law repealed so they can go back to their old deceptive advertising practices of advertising deceptively low prices. People are much more likely to be lured in by advertising of low prices… People are invested a certain amount and are more likely to still buy if you somehow can get them l to that last page where all taxes are thrown at them. Fewer people even shop when they see the higher true prices including fuel surcharges and taxes.
    Now of course I expect it to be repealed as the US government is in the pocket of big business as the latest round if anti-competitive and anti-consumer merger approvals clearly shows.

    • Quest says:

      I don’t think it is deceptively low if they are advertising their fares. You would have to say just about every industry are deceptive in their use of advertising. Car commercials generally do not include the tax and registration required for the vehicle. McDonald’s dollar menu commercials don’t say its the $1.08 menu. Many people have said the hotels, which are way more deceptive than airline, since they are not included fees that are not taxes that you have to pay.

      I don’t understand why people feel the airlines have to play by a different set of rules.

      Personally, I would like to see the entire fare listed, but with three lines in the same font size. One with all airlines fares and fees, the next with the government taxes and fee, and the third the subtotal. It seems this would answer most individual’s concern with the full price show and the breakdown being show at the same time.

  22. Jon M says:

    Transparency! Transparency! Transparency! Travelers should be able to see exactly what they pay and for what they are paying including taxes.

  23. JayB says:

    One of the differences with airlines is that how the charge is is regulated federally, by DOT. Not the the Federal Trade Commission and State Attorneys General, like most all other commerce is regulated. If we want to change all that, fine. Then, we can go the way of gasoline sales, hotel billing, rental car billing. Maybe that would be good.

    But, why do we have the fees and taxes in the first place. I don’t think a bunch of us passengers rose up and said this is what we want. Blame it instead on our politicians and the airlines. Now, if the airlines think federal transportation taxes on the tickets, the Sept. 11 security fee(s), the PFCs, the flight segment taxes, are not necessary, and they believe that they could do a better job of paying ro whatever these fees and taxes go for, fine. Let ‘em do it. Just another cost of doing business, like fuel and labor, buried in the price of the ticket.

    How many travelers do you know who really understand what these fees and taxes are used for? Very, very few, I’ll bet! I say, throw them in the pot and include them as the price of the ticket. In any event, for me, if I see one more statement by an a airline where it says, stipulates, whatever, that ” *additional fees, taxes, and charges may appy,” I’m going to throw up!

  24. marek says:

    The only thing which matters to me is the price I am being asked to pay.

    Airlines – like any other business – have lots of costs. Some of them are payments to the government, some are payments to employees, some of them are about buying the planes in the first place, and so on and on and on.

    It’s not at all obvious why payments to governments should be singled out. But if they were going to be, why not all of them – payroll taxes and corporate taxes have an effect on ticket prices, just as sales taxes do.

    So splitting out taxes makes buying tickets more confusing without even the very minor redeeming feature of giving remotely meaningful information about where your money ultimately ends up.

  25. Jack says:

    The problem is the airline web sites! Some make you buy the ticket before they will tell you the TOTAL.
    Pain in the A–s! So the total should be shown on ads and on web sites.
    The same problem with rental cars too.

  26. Dave Starr says:

    To my mind the “List the total, but break out the taxes” camp is right. I’m an American who lives overseas in the Philippines. Our domestic carriers here have some really astoundingly cheap fare deals, but when you purchaser one taxes and fuel surcharges and such can easily double the touted price. I mean consumers should “know” this, and most do, but it leaves a very sour taste at purchase time, none-the-less.

    When taxes are buried as is common with US flag carriers, one typically is lead to believe the the US carriers are far, far more expensive .. when in fact they are not, their are often very price competitive overall with the foreign “no-name” airlines … It’s bad for business (US-based business at least) and It’s bad for consumers of all countries because it denies the consumer a real chance to compare overall costs vs..value.

  27. Alan Green says:

    There’s an argument that the US economy would be better off if consumers were given the total cost of a potential purchase – including taxes and customary tips – as early as possible in the purchasing process. Several commenters have pointed out examples of how hiding tax information makes it difficult for the average consumer to compare between options, such as alternate airports and alternate routes, and this information hiding leads to inefficiencies.

    However, the problem is much larger than just airline ticket prices. A fix will require a large cultural change, and I don’t think the US is ready yet.

    In the mean time, we can rest assured that airlines won’t be spending lobbying dollars on legislation that makes them less money, no matter what ideological or moral tag lines they dress it up with.

  28. Doug Swalen says:

    I’m with Brett…let’s have consistency. My feeling is that all taxes and fees should be included so let’s do it for travel related things like rental cars, hotels, etc…

  29. Jim says:

    The title is rather misleading. Taxes are already broken out. The actual question is “Should advertised prices include taxes?”

  30. David M says:

    Have a second line showing how much the government-imposed taxes is fine, but I like having the final cost to me shown up front. Rather than singling out airlines for this treatment, let’s make it across the board in every industry. When I’ve been in Oregon, where there’s no sales tax, it’s rather nice to actually pay the posted price for something.

    Airlines aren’t the only place where tax is unpredictable. Supermarkets can be complicated, since at least in California, most foods aren’t taxed but some are. Heck, at Subway, whether or not I get my sandwich toasted can make a difference on whether or not I pay sales tax on it.

  31. Jeff G says:

    Keep it? Heck yes. Expand it even to other industries — the hotels and other travel, as others have noted, and anything else that has those kind of taxes, and I’m looking at you in the cell phone industry.

    When I see a number advertised, I don’t want to go in and find out that the final price is 20% or more higher due to taxes and fees, government-mandated or not.

  32. Hillrider says:

    Airlines are trying to increase search costs for consumer so they can charge them more. This is an awful law that is being missold: airlines are free to break out all taxes as it is.

    There’s little hope for America if Congress gets bamboozled by this; obviously a few Congresspersons have already shown bad ethics for sponsoring it.

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