Originally Posted by
Lux Flyer
The same way every other airline gets away with it. When **AA** inquired a decade ago, the IRS determined that the 7.5% transportation excise only applies to base fare and mandatory airline imposed fees on the ticket itself (conveniently the same thing on the ticket used for things such as award mile spend earnings). The sticker-type upgrades are considered ancillary purchases same as a seat purchase or any other ancillary product the airline might sell to go along with the ticket. Also remember the 7.5% is actually a tax imposed on the passenger, not the airline. And I realize some may argue that UA is inflating the cost of a PCU by 7.5% to then pocket it, but I'd consider that an unlikely case/irrelevant point because they're going to charge whatever they think they'll get for it, same as they do for tickets. Though the numbers probably wouldn't come out so conveniently on a whole dollar amount every time if they were applying a 7.5% adjustment to it. Regardless, the IRS, being the IRS always gets their money, UA pays their tax on ancillary revenues along with all their other income as part of their corporate taxes.
The customer ultimately pays the tax either way; no argument. But, it seems to me that UA could simply take its regular fares and decide that $50 was transportation and the rest was an ancillary purchase of an upgrade, and save all of its passengers 7.5% / raise their pretax income by 7.5%. I'm not suggesting that what they're doing is illegal; rather, I'm amazed that Congress hasn't closed that loophole (presumably taxing baggage and change fees at the same time).
And, sure, the IRS gets some of the money as corporate tax, but they're getting less than they would if these purchases were taxed at the 7.5% excise tax rate. Example: $100 upgrade fee, no excise tax, 30% corporate tax rate: $100 * 30% = $30 in tax revenue. $100 upgrade fee, inclusive of a 7.5% excise tax, 30% corporate tax rate: $93.02 base price * 30% = $27.91 + $6.98 excise tax (7.5% of $93.02) = $34.89.
Originally Posted by
Lux Flyer
Ultimately refaring vs paid upgrade accomplishes two different things (which is why the tax applies in one case but not the other).
Yes, it does two different things. No, it's not
why the tax applies in one case but not the other; there's correlation but no causation.
Originally Posted by
Lux Flyer
Doing a paid upgrade causes the ticket to be revalidated in United's system to reflect the new booking code (to answer OPs question: the J upgrade waitlist will be prioritized based on whatever O/A/R booking code the PCU puts them in).
Or ON or RN. That's why I said, you can't know for sure ahead of time.