On The Radar
GAO Report Calls for Clarity on Tax Exemptions for AAM Aircraft
A new report from the U.S. Government Accountability Office (GAO) calls for lawmakers to clarify tax exemptions for advanced air mobility (AAM) aircraft and their associated infrastructure.
Though several AAM companies plan to launch air taxi and cargo delivery services in 2025, most of the U.S. still lacks the infrastructure required to enable those operations, such as vertiports and other takeoff and landing sites. Individual infrastructure projects could cost anywhere between $500,000 and $10 million each, according to the GAO. In its report, the GAO noted that early AAM infrastructure will rely mostly on private funding and that public funding may increase over time as AAM becomes more widely adopted.
The U.S. Federal Aviation Administration (FAA) is tasked with certifying new aircraft, prescribing requirements for ground-based infrastructure, and operating the national air traffic control system. Most of the FAA’s budget comes from the Airport and Airway Trust Fund (AATF), which is supported by taxes paid by aviation users. These include taxes on passengers, cargo, aviation fuels, and facilities. Federal laws administered by the Internal Revenue Service (IRS) determine who is exempt from paying certain taxes.
For this report, the GAO was tasked with identifying funding and infrastructure issues related to AAM and the extent to which existing aviation taxes might apply to the AAM industry. The GAO found that while the same taxes that currently fund aviation systems will apply to AAM operations, it is unclear exactly how current tax exemptions might apply to new types of aircraft, particularly eVTOLs. In the U.S. tax code, eligibility for tax exemptions in aviation often depends on the type of aircraft being used, with two options being helicopters or fixed-wing airplanes.
New eVTOL aircraft are not represented in the tax code, and they share qualities of both helicopters and fixed-wing airplanes. For example, eVTOLs can take off and land vertically and hover like a helicopter, but they can also use runways to take off and land like a conventional fixed-wing airplane, using their wings to generate lift. The GAO also noted in its report that neither “helicopter” nor “fixed-wing” is explicitly defined in the tax code, either, which further complicates the matter of how eVTOLs will be classified and taxed under existing laws.
The AATF tax structure was established in 1970 when the underlying technologies of the AAM industry did not yet exist, and subsequent amendments to the tax code have not accounted for those new technologies, according to the GAO’s report. Without clarification, certain aspects of the current tax structure will lack transparency and be difficult to administer, and businesses could face unexpected tax audits. The IRS could also end up using its own resources to develop policies pertaining to AAM “that might not align with what industry anticipated,” the report states.
“Furthermore, uncertainty regarding AAM operations’ eventual tax obligations could skew how the industry develops or even hinder investment from the private sector,” according to the report. The GAO concluded by recommending that Congress consider new legislation to update the tax codes to clearly define AAM aircraft for the purpose of AATF tax exemptions. “This might include clarifying whether AATF excise tax exemptions should be determined in accordance with the takeoff versus in-flight lift mechanism, creating new aircraft category types, further defining jet aircraft as it relates to newer technologies, or other approaches.”
The GAO submitted its report to the FAA, IRS, and NASA for review and comments.