How are medical flights taxed? Are there any exemptions or exceptions from the excise taxes? How do these exemptions/exceptions apply? How do the excise taxes apply to charitable flights? How about income taxes? What about Corporate Angel Network?
Let’s first take a look at medical flights of which there are two types in the eyes of the IRS. There are emergency medical flights on aircraft equipped for emergency medical services and then there are medical flights on aircraft not equipped for emergency medical services.
For emergency medical flights on aircraft (fixed & rotary wing) that are equipped for emergency medical services and which are dedicated to that end for that particular flight, the amounts paid are exempt from the transportation of persons tax (IRC 4261), the transportation of property tax (IRC 4271) and the fuel tax. (IRC 4261(f))
If the medical flight does not fall under the above, there are some IRS Revenue Rulings and Private Letter Rulings that offer clarification of how the taxes do and do not apply. The following is a synopsis of a couple of them.
Revenue 72-535. Amounts paid for air flight and standby time in connection with unscheduled air ambulance service furnished by a nonprofit organization are subject to the tax on air transportation.
Revenue Ruling 77-75. The commercial transportation tax does not apply to in-flight medical costs referred to as “call-out medical fees,” since such charges are related to patient care and not to transportation. This fee includes charges for attending personnel, medical dressings, medication, plasma, monitoring equipment and various types of pumping or intravenous feeding equipment.
Private Letter Ruling 9052017. A charter operator contracts with an unrelated nonprofit hospital to provide exclusive 24-hour unscheduled charter air transport services and the contract price is based on a monthly service fee and an hourly rate. The hospital contracts directly with the passenger regarding the service and fees and hills its patients an amount for the air transportation and a “callout medical fee” for medical in-flight care. Among other things, the hospital provides communications and dispatch services aviation fuel, in-flight medical supplies and equipment, parking permits, airport landing fees, licenses, taxes, permits, special assessments and taxes connected with aircraft operations. Under the contract, Company A is required to furnish qualified pilots, maintenance crews, parts, supplies, maintenance service, ground hull insurance and liability coverage for passengers, cargo and third parties. Based on the information provided, the taxable air transportation of persons is being provided to the patient/passengers of the nonprofit hospital. However, according to IRS Code Section 4261-7(h)(1) and (2), it is the nonprofit hospital that is responsible for collecting and remitting the tax on the taxable service associated with the charter of Company A’s aircraft. Company A is merely acting as an agent of the hospital. It should be noted that it is the responsibility of Company A to advise the hospital of its responsibility for collecting and remitting the tax.
The commercial transportation of persons tax is due on amounts paid and since there are no monies involved in charitable flights, the transportation of persons tax does not apply. However, there are no exemptions from the Federal fuel tax on charitable flights.
With regard to State fuel taxes, some States exempt fuel used in charitable flights from the state taxes on fuel. In addition, if an aircraft is purchased by a nonprofit, some States may exempt the purchase price of the aircraft from the State sales or use tax.
CAN is recognized as exempt from Federal income tax as an organization described in IRC Section 501(c)(3). CAN is a charitable organization that arranges for cancer patients to get to and from cancer treatment centers by use of available space on corporate business flights. There is no additional cost and the patients are not employees of the participating corporate donor.
Internal Revenue Code Section 61(a)(1) provides that gross income includes compensation for services including fringe benefits. However Section 132 of the Code provides an exclusion from gross income for fringe benefits that qualify as a no-additional cost service.
The IRS in a letter to CAN on August 9, 1985 stated, “…the new fringe benefit provisions of the Code do not apply to the flights arranged by CAN.”
So as you can see there are various rules and interpretations of how Federal and state taxes apply to medical and charitable flights, therefore it is incumbent upon the operator to know how these rules may or may not apply to them.