The taxation of frequent flyer miles isn’t the only time travel butts heads with the IRS. Taxes on your tickets isn’t the only other place, either.
It turns out that Anchorage airport is being hamstrung by the tax code (HT: Julie D.)
- It’s striking that the Anchorage airport got audited.
- The airport has $500 million in tax free bonds outstanding.
- The terminal that was renovated in part with these bonds is thus bound by IRS rules. And therefore they cannot build sleeping pods.
Here’s the story:
The restaurants, shops and even a beauty salon that already exist don’t violate IRS code because they are for the sole use of airport travelers and employees. It seems obvious that sleeping pods would also be used only by the traveling public, since they would be on the other side of the TSA security screening area. However, IRS code section 142.C.2.a specifically forbids “any lodging facility” from being built when tax-free bonds are still outstanding.
The idea there is that tax free financing shouldn’t create an uneven playing field with private business, in this case private businesses outside the airport. One imagines that the lodging industry explicitly lobbied for this protection. And it was put in place before anyone conceived of putting sleeping pods airside.
You can have them at airports where the concourses don’t have outstanding tax free bond financing attached, but not at ones that do it seems.
Sleeping pods would seem especially well-placed in Anchorage, given the late night operations there. Plenty of flights arriving late, before people can check into hotels, and departing late long after people check out.
And the airport could take a tax position which could accommodate the pods, but they are playing it conservative.
A possible solution to the sleeping pod problem could be in the so-called “bad use” or “dirty use” provision, which allows facilities built with tax-free bonds to dedicate up to 3 percent of their area to uses that would otherwise violate the IRS code. But airport financial managers didn’t want to take the risk that the tax agency could disagree.
“Even the possible penalties are so complex it just taints the debt,” Day said.
Perhaps one of the tax experts out there could weigh in, given their reticence to pursue such a course recommend that they seek a private letter ruling?
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