Taxing Times - A Tax on Hot Air Balloons & Fun?!

In this episode, we’ll trace the origins, evolution, and demise of the hot air balloon tax, and we’ll see how it reflected the changing legal, economic, and political realities of the nation. 

Additionally we will start delving into the "Amusement Tax" where the US applies additional taxes on Fun!

So, let’s inflate our curiosity and find out more about this intriguing and sometimes infuriating tax. 

Transcript

"Hello and welcome to Taxing Times, the podcast that explores the fascinating, controversial and often wacky history of taxation. I'm your host Nupur Kumar - aka Super Nupur, a major tax & history nerd and the managing partner of FACT Professional, a CPA firm.”

Today we’re going to talk about the hot air balloon tax. Yes, you heard that right, the hot air balloon tax. It’s a real thing. So buckle up, or should I say, strap in, as we take off on this amazing journey.

In this episode, we’ll trace the origins, evolution, and demise of the hot air balloon tax, and we’ll see how it reflected the changing legal, economic, and political realities of the nation. We’ll also hear from some of the people who resisted or challenged the hot air balloon tax, and how they influenced its fate. So, let’s inflate our curiosity and find out more about this intriguing and sometimes infuriating tax.

Before we leave the ground I want to preface this case with some thoughts. The hot air ballon tax is a great example of how out of the box and random some taxes can seem. The truth is that the government needs to create and find unique ways to tax its residents. However, one of the interesting issues in the USA is that we have two sets of laws that can oppose or agree with each other – the Federal vs the State Tax Laws. 

And with that we are ready to take off! 

 The hot air balloon tax was born in 2010, when the Kansas Department of Revenue issued a ruling that classified hot air balloon rides as either amusement or transportation, depending on whether they were tethered or untethered to the ground. A tethered hot air balloon is one that is attached to the ground by a rope or cable, and does not travel any significant distance. An untethered hot air balloon, on the other hand, is one that flies freely in the air and can be piloted to different locations. 

 The ruling was based on the state law that imposed a sales tax on admissions for “any place providing amusement, entertainment or recreation services” and the federal law that prohibited states from levying “a tax, fee, head charge, or other charge” on air transportation. The logic was simple: if the balloon was tethered to the ground, it was considered an amusement service, and subject to the sales tax. If the balloon was untethered and traveled some distance downwind from the launching point, it was considered an air transportation service, and exempt from the sales tax. 

 This brings up the question – why are “amusement services” taxable? 

The amusement tax is a tax that some local governments impose on the admission charges or receipts of entertainment or recreational events, such as concerts, movies, sports, or night clubs. The tax rate and the exemptions vary by jurisdiction, and the tax is usually collected by the venue operator and passed on to the customer. The tax is sometimes justified as a way to raise revenue for public services or to discourage nonessential spending, but of course it is also criticized as unfair, regressive, and outdated. And a conclusion that I am drawing is that America taxes everything…even fun & amusement!

 You might wonder why there is a difference in taxation between tethered and untethered hot air balloon rides. The reason has to do with the federal law that regulates air transportation and commerce. According to the Anti-Head Tax Act of 1973, states and local governments are prohibited from imposing taxes or fees on air transportation or air commerce. This law was enacted to prevent states from interfering with or discriminating against interstate and international air travel.

 Now the ruling was not surprising or unprecedented, as other states had similar laws and interpretations, but it is a fun illustration of the interplay of federal and state taxing authority where interstate commerce was concerned. The ruling also had some significant impacts, such as affecting the pricing, demand, and supply of the hot air balloon rides, and creating administrative and legal difficulties for the hot air balloon operators and the customers. The ruling was not very popular, but it was not very controversial either, since it affected only a small and niche segment of society. I personally feel that Kansas voted this way based on a Wizard of Oz related vendetta against hot air balloons but hey that’s just me. 

But what counts as air transportation or air commerce? According to the Federal Aviation Administration (FAA), any aircraft that operates in the national airspace system is subject to federal regulation and jurisdiction. This believe it or not includes hot air balloons, which are considered aircrafts by the FAA. And as Dorothy from the Wizard of Oz proved – the hot air balloon is indeed a mode of transportation! However, not all hot air balloons operate in the national airspace system. Only those that fly above a certain altitude or distance from the ground are considered to be part of air commerce. 

This is again where that distinction between tethered and untethered hot air balloon rides comes in. Tethered hot air balloon rides usually stay within 80 feet of the ground, and since they do not travel beyond the launching point they are not considered to be part of “air commerce” and are subject to state and local taxation. Untethered hot air balloon rides, however, can fly higher and farther, and enter the national airspace system. Therefore, they are part of air commerce, and are exempt from state and local taxation.

This difference in taxation has been upheld by several court rulings in recent years, and by other states as well. For example, in 2010, the Missouri Supreme Court ruled that untethered hot air balloon rides were not subject to sales tax, because they were a form of air transportation. The court relied on the federal law and the FAA regulations to make its decision since it set the precedent. 

And yet, this of course impacted many parties: 

The hot air balloon tax influenced various people, such as:

• The hot air balloon operators and the customers, who had to pay different taxes depending on whether the balloon was tethered or untethered to the ground. Some of them resisted or challenged the tax in court, arguing that it was unfair, unconstitutional, or inconsistent with the federal law.
• The state governments, who tried to collect revenue from the hot air balloon rides, but faced legal obstacles and administrative costs. Some of them modified or repealed the tax in response to the lawsuits or the public pressure.
• The federal government, who had to clarify and enforce the law that prohibited states from taxing air transportation, but also allowed some exceptions for local taxes. The government also had to balance the interests of the states and the hot air balloon industry.
• The hot air balloon enthusiasts and the general public, who were fascinated by the history and the technology of the hot air balloons, but also confused by the tax rules and the legal disputes. Some of them supported or opposed the tax based on their views on taxation, commerce, and aviation.

The hot air balloon tax is an example of how federal and state laws can interact and conflict with each other, especially when it comes to new or emerging technologies. This is something to consider as new technologies are popping up it seems every day. How will taxation impact Artificial Intelligence, Apps on your phone, and other new technologies? 

It also shows how taxes can reflect the political and economic realities of their times. The hot air balloon tax may seem like a trivial or silly issue, but it has implications for the broader questions of taxation, regulation, and commerce.

That's all for this episode of Taxing Times. You can also follow us on instagram @factprofessional and send us a message for other podcast ideas. For tax or accounting questions, you can email our office info@factprofessional.com. And don't forget to subscribe to this podcast on your favorite platform and leave a review. Thank you for listening and stay tuned for more Taxing Times!"