Clarity On AAM Aircraft Tax Exemptions Is Required By A GAO Report

Clarity On AAM Aircraft Tax Exemptions Is Required By A GAO Report
Courtesy by Aerospace America - AIAA

According to a new report from the U.S. Government Accountability Office (GAO), lawmakers should clarify tax exemptions for advanced air mobility (AAM) aircraft.

Several AAM companies plan to launch air taxi and cargo delivery services in 2025, but most of the U.S. lacks the infrastructure to enable these operations, including vertiports. The GAO estimates that infrastructure projects could cost anywhere from $500,000 to $10 million each. According to the GAO, early AAM infrastructure will rely mainly on private funding, but as AAM gains broader adoption, public funding may increase. 

As part of its responsibilities, the Federal Aviation Administration (FAA) certifies new aircraft, prescribes ground-based infrastructure requirements, and operates the national air traffic control system. Taxes paid by aviation users support the FAA's budget, which is mostly funded by the Airport and Airway Trust Fund (AATF). Passengers' taxes, cargo taxes, aviation fuel taxes, and facility taxes are included in this category. Certain taxes are exempt from payment under federal laws administered by the Internal Revenue Service (IRS). 

In this report, the GAO identified funding and infrastructure issues related to AAM and examined whether existing aviation taxes would apply to it.

It is unclear if current tax exemptions will apply to new types of aircraft, including electric vertical takeoff and landing aircraft, according to the GAO. The U.S. tax code determines whether helicopters or fixed-wing airplanes are eligible for tax exemptions in aviation. 

In addition to combining the qualities of helicopters and fixed-wing airplanes, new eVTOL aircraft are not included in the tax code. Like helicopters, eVTOLs can take off and land vertically, but they can also use runways like conventional fixed-wing airplanes, using their wings to generate lift. Additionally, neither the term "helicopter" nor the term "fixed-wing" is defined in the tax code, which further complicates the issue of how eVTOLs will be classified and taxed. 

The GAO reported that the AATF tax structure was established in 1970 before the underlying technologies of the AAM industry were available. Subsequent amendments to the tax code have not accounted for these new technologies. Businesses could face unexpected tax audits without clarification of certain aspects of the current tax structure. The IRS might also use its own resources to develop AAM policies "that might not align with what industry anticipated," according to the report. 

According to the report, uncertainty about AAM operations' eventual tax obligations could skew how the industry develops or even prevent private investments. AATF tax exemptions for AAM aircraft were recommended by the GAO as a means of updating the tax codes. For example, AATF excise tax exemptions may be determined according to takeoff versus in-flight lift mechanisms, new aircraft categories may be created, and jet aircraft may be further defined as new technologies emerge.

For review and comment, the GAO submitted its report to the FAA, IRS, and NASA.

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