States profit from your airline ticket

It will probably come as no surprise that taxes are a major contributor to the cost of airline tickets. It might, however, come as a surprise to learn that the effect of taxes goes far beyond the amount added to the purchase price of tickets in the form of excise tax and special-use fees.

Commercial jetliner being fueled
A new report published by The Tax Foundation shows that state taxes on the jet fuel airlines use in large quantities varies quite dramatically, from no state tax in Texas – home to Dallas-Ft. Worth (DFW) International Airport – to $0.15 per gallon in Georgia, $0.27 per gallon in California to a nation-wide high of $0.328 per gallon in Illinois.

These figures are noteworthy for several reasons.

Fuel expenses range from 20% to 40% of any given airline’s operating cost; therefore, taxes on that fuel are a significant driver of ticket prices.

In addition, the three states with the highest taxes are home to several of the nation’s busiest airports, including Atlanta’s Hartsfield Airport (ATL), Los Angeles International (LAX), San Francisco International (SFO) and O’Hare International (ORD) in Chicago. Taxes in New York and Maryland, the locations of John F. Kennedy International (JFK) and Baltimore-Washington International (BWI), respectively, are among the nation’s lowest.

Given their razor-thin profit margins, it would not be inconceivable that airlines consider state taxes when deciding where to expand operations and develop new hubs. Perhaps that is one factor driving Delta Air Lines’ (NYSE:DAL) expansion of service to and from Seattle-Tacoma International (SEA), where the state tax on jet fuel is $0.04 per gallon, about one-seventh the rate of neighboring California. (See previous post).

The full report from The Tax Foundation is available here and makes interesting reading.

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Photos by Carl Dombek
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