Are airlines lying about taxes?

How far will an airline go to make an extra buck? Fudge a few numbers on their taxes, maybe?

That’s the question Kenneth Babineaux recently raised — with a little help for the airline industry. And to be honest, I’m not sure if I have a definitive answer, except to say, “Watch this space.”

This space, meaning airlines and taxes.

Before getting to Babineaux’s problem, let me put this into a little context: After the Transportation Department began requiring airlines to quote a fare that includes all mandatory taxes and fees in December, and with Tax Day approaching on April 15, the airline industry decided to take a stand on taxes.

Nicholas Calio, president of the airline trade association A4A, complained that passengers now pay 20 percent of a typical domestic round-trip ticket price to the government, and called for tax reforms.

Airlines aren’t really concerned that you have to pay these taxes; it’s that their fares look more expensive as a result of this regulation. Those higher prices are costing them business, because air travelers are highly price sensitive. A $1 difference is enough to push air travelers to one airline at the cost of a competitor.

You can only imagine what happen if airfares dropped 20 percent overnight, or even 10 percent.

Anyway, back to Babineaux’s question. He’s flying on Virgin America in May, and after booking a ticket from Dallas to San Francisco recently, he says he noticed something “disturbing.”

“International taxes and customs fees appeared on my itinerary,” he says. “I have written two letters to the president and spoke to a supervisor.”

Babineaux’s letter to the airline’s president wasn’t answered, but a supervisor blamed the international fees on a system problem, but insisted the fare was correct.

“Bottom line,” he says, “I do not trust their words and wanted an outside opinion.”

Before I go on, I have to make a confession: I’m not the guy to ask about taxes. I’m kinda bad with numbers, and I’m terrible at doing my own taxes. After being audited by the IRS a few years ago, I hired a professional, and I refer all tax questions to him.

But this isn’t really a tax story. Babineaux seems to be suggesting that these mandatory fees are either part of the fare, or that Virgin America is charging a tax that it shouldn’t, and pocketing it as profit.

I asked Virgin America if it could offer a more complete answer. In an email to Babineaux, the airline thanked him for “reaching out” to me.

“We apologize for the confusion, the taxes were charged correctly but there is currently an issue with the way they display on the web,” a representative added.

Currently an issue?

In fact, Virgin’s technology problems are pretty well-known. Here’s a story from last November. Since then, I’ve been sending a fairly steady stream of complaints to my Virgin contact, who I had hardly spoken with in years, except to tell her how much I admire her airline.

But Babineaux wasn’t happy with that answer. He replied to Virgin, sending it screen shots of his purchase, which show international taxes being charged on a domestic flight.

“So sorry for these issues,” a Virgin representative responded. “But this is a labeling issue, I promise.”

The passenger remains incredulous. “I have no confidence in Virgin America now, and I have not even flown them yet,” he says.

After reviewing the back-and-forth between Virgin and Babineaux, I have a few thoughts. First, I don’t think Virgin is hiding anything or overcharging passengers for taxes. I’ve done a lot of stories about airline lies, and this doesn’t have the telltale signs of a lie. This really does look like a system problem.

Airlines are much smarter when it comes to deceiving their customers. If Virgin were trying to pull a fast one using international taxes, this would be the work of a rank amateur, and the government would quickly catch on to it.

So there’s my outside opinion: nothing fishy going on here, probably.

The bigger issue that Babineaux’s questions raise is, what are airlines going to do about these taxes? Now that they must include government fees in the price of their ticket, they’re shifting to a strategy of lowering those taxes. But what if they’re unsuccessful?

Would an airline charge a tax that wasn’t due and pocket it, hoping no one will notice? I’m sure some of the folks in charge of identifying new revenue streams have thought about it, but dismissed it as too risky. (Never mind the fact that it’s also a crime.)

That isn’t to say airlines are completely above board, when it comes to paying taxes. For example, do you ever wonder what happens to the taxes paid on nonrefundable tickets that are unused? Aren’t you entitled to getting that money back? Yet most airlines won’t refund those fees. They don’t have to pay them to the government, either. So where do they go?

Babineaux may not realize it, but he’s on to something. And now that the airline industry is making a fuss about its taxes too, it’s only a matter of time before someone digs around and exposes the industry’s real tax cheats.

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