In May 2026, a federal court of appeals handed Flight Options (now an affiliate of fractional operator Flexjet) a victory in a long-running dispute over federal excise tax on fractional-program fees. The IRS sought payment of $39 million (which included interest and penalties) for Flight Options’ failure to collect 7.5% federal excise tax (FET) on fractional program monthly management fees (and membership fees for a now-defunct jet-club program).
It’s important to note that under current law, fractional programs with the ability to operate their aircraft under Part 91K of FAA regulations aren’t subject to 7.5% FET. Instead, they are treated as non-commercial transportation, subject to the regular 21.9 cents per gallon fuel tax, plus a 14.1 cents per gallon surcharge. The Flight Options case dealt with FET prior to the law change in 2012.
While the decision isn’t noteworthy in how it may affect Part 91K fractional programs currently, the decision contains several important holdings (that is, statements with legal precedential effect) regarding FET. First, the court ruled that the statute itself labeled FET as a “ticket tax,” concluding that Congress intended for it only to apply to flight-by-flight usage charges. The court noted that the idea of “transportation,” and a tax on transportation, implies that the tax applies to the use or movement of an aircraft. Fixed charges that don’t vary based on flight activity and are incurred even if the aircraft does not fly, don’t involve “transportation.” The court also observed that besides the 7.5% tax on amounts paid, the FET statute also imposes segment charges for flight legs actually flown. These segment charges suggest that the tax only applies to movement of aircraft. The fact that the provider of transportation is required to collect FET from customers at the time of purchase also suggests that the tax is tied to a particular aircraft use. The court found that the IRS’ own regulations treat FET as a usage tax rather than a tax on fixed charges. The court declined to interpret the text of the statute, “amounts paid for transportation,” more broadly as, “amounts paid reasonably necessary for transportation.”
Second, the court noted the uncertainty and complexity of extending FET to other amounts paid by fractional owners. There is the purchase price of the undivided interest in the aircraft (or the monthly lease payment, if the program offers leases). The monthly management fee may extend to items that aren’t necessarily related to the operation of the aircraft (such as overhead and non-flight crew employee salaries). There is also the thorny question of how to allocate fixed costs between domestic flights (subject to 7.5% tax) and international flights (which are not subject to 7.5% tax, unless between U.S. and certain destinations in Canada and Mexico).
The court’s decision has a binding effect on all courts in the Sixth Circuit (which includes Ohio, Michigan, Kentucky and Tennessee). Other courts may find a unanimous decision by a federal circuit court to be persuasive authority. The court’s decision is a strong indication that only charges specifically incurred for a particular flight are subject to 7.5% FET, which is helpful to all kinds of operations under Part 91, Part 91K, and Part 135.
Aero Law Group
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