Purchasers of frequent flyer miles from domestic airlines may be eligible to claim a refund of the 7.5% federal excise tax paid upon such purchase. Hotels, retailers, banks, foreign airlines, and car rental companies typically purchase these miles from domestic airlines for use in their rewards programs. Members of these rewards programs can then redeem points for a variety of goods and services, including air travel.
Taxation of Frequent Flyer Miles
A federal excise tax of 7.5% is imposed on the amount paid for taxable transportation of persons by air1, which includes amounts paid to an air carrier for the right to provide mileage awards redeemable for taxable transportation.2 Taxable transportation generally means a flight that begins domestically or from the designated zone in Canada or Mexico ' generally within 225 miles of the domestic border ' and ends domestically or within such zone.3 If a holder of frequent flyer miles redeems them for any other item offered by the rewards program, such as international flights, gift cards, hotel stays, subscriptions, rental cars, televisions, or services, such item is considered nontaxable transportation and not subject to tax. Although the excise...
