Bag Fees: To Tax or Not to Tax?

Want to receive stories like this every day? Subscribe to our free Deal Alert newsletter!

With new airline legislation working its way through Congress, many are wondering if the government should collect on the billions in bag fee revenue airlines are raking in. The answer, so far, seems to be: No.

According to the Dallas Morning News, the chairman of the tax-writing Senate Finance Committee, Max Baucus, said he would not propose a bag fee tax in the Federal Aviation Authority (FAA) Reauthorization Bill currently being debated in the Senate.

The Government Accountability Office (GAO) says taxes collected from bag fees could add roughly $240 million each year to a fund that pays for improvements to airports and air traffic control. Airlines earned a combined $2.6 billion in bag fees through the first three quarters of 2010, including nearly $1 billion in the third quarter alone. Delta brought in the most revenue from bag fees, with a whopping $259 million in the third quarter.

Of course, any tax on bag fees wouldn’t be paid by the airlines. Like most standard airfare taxes and fees, bag fee taxes would be passed along to the consumer, thus jacking up the cost of a service many people still think should be free. And airlines are understandably worried that a tax may cut into their revenue by deterring people from checking bags and paying the charge.

“We believe any additional taxes on commercial aviation put an unfair burden on our passengers who already pay more than $60 in taxes and fees on an average $300 ticket, amounting to more than $17 billion annually,” Jean Medina, a spokeswoman for the Air Transport Association, told the Dallas Morning News.

How … considerate.

For the time being, no tax on fees appears imminent. But as fees continue to grow into a crucial part of the airlines’ business model, you can bet the conversation isn’t going away. My guess is it’s only a matter of time before the potential tax revenue is too big to ignore any longer.