Starting a couple of years ago, there is now a 7.5% federal excise tax on all FF miles award for reasons other than actual air travel. It's up to the company awarding the miles to decide whether to pass the tax onto the consumer. As others have already stated, most car rental companies do, most hotels don't, most credit cards don't, and perhaps it varies between phone companies.
<font face="Verdana, Arial, Helvetica, sans-serif" size="2">Quokka wrote:
If credit card companies thought they could get away with it, they'd charge such a fee as well.</font>
Actually, Diners Club instituted just such a charge at the end of 2001. I can't remember if they specifically referred to the federal excise tax, or just called it a "service fee." But since it applies only to redemptions for airline miles and not hotel points, it's pretty clear what they're doing: passing along the federal excise tax to the cardholders.
I had been a happy DC cardmember for several years, but when they announced this new fee, I made a serious effort to look for a replacement card. Fortunately, I found the newly-released Starwood American Express card, which in most respects is a much better card for mileage junkies. Even though I think the Starwood card is better for mileage earning, I very well may have never switched to it if it were not for the DC redemption fee. As others pointed out at the time, this would spread like a cancer to other credit cards if left unchecked, so I decided to switch because of it. I've never looked back.
[This message has been edited by Steve M (edited 10-26-2003).]