DOT Issues Favorable Opinion on Skydiving Taxes

Following a two-year effort by the U.S. Parachute Association, the U.S. Department of Transportation formally responded to a USPA question regarding the efforts of states to tax revenues from skydiving. On December 30, 2013, USPA received an opinion letter from the Office of the DOT General Counsel asserting that the federal Anti-Head Tax Act (AHTA) preempts any state efforts to tax gross receipts on skydiving operations. The AHTA, passed by Congress in 1973, prohibits states or political subdivisions from ““… collecting a tax, fee, or other charge “… on the gross receipts from “… air commerce “…” The DOT letter says, “Aircraft operations carrying skydivers fall under the definition of air commerce “…” and makes clear that states cannot tax the gross receipts from the retail sales of skydiving operations, no matter whether the state calls it an amusement tax, an entertainment tax or a tax by any other name. The DOT letter even rebuts one state’s assertion that it was taxing the skydiver’s freefall, not the airplane ride to altitude. The DOT notes that states are permitted to collect taxes on revenues derived from the sale of ancillary goods or services, such as DVDs of first skydives or T-shirts.

By early 2012, a growing number of skydiving businesses were being audited by state departments of revenue, which were presenting the skydiving companies with tax bills for back taxes that states impose on other retail service businesses. USPA recruited a legal team to research and draft a position paper telling state departments of revenue that federal law preempts any state taxation of skydiving. However, many state officials dismissed the USPA position paper as simply the opinion of a skydiving association. Now the U.S. DOT has issued an official federal opinion, which states cannot ignore. “As the DOT affirms, states and other political subdivisions may not tax businesses engaged in air commerce, including skydiving businesses,” said USPA Executive Director Ed Scott. “This DOT letter should end states’ efforts that are contrary to federal law.”