SECTION 2. BACKGROUND

Section 4261 generally provides a tax rate of 7.5 percent of the amount paid for taxable transportation. However, the rate is 9 percent for transportation beginning after September 30, 1997, and before October 1, 1998, and 8 percent for transportation beginning after September 30, 1998, and before October 1, 1999. The

rate is 7.5 percent for transportation beginning after September 30, 1999.

In addition, § 4261(b) subjects each domestic segment of taxable transportation to a segment tax. The initial tax rate is $1.00 per domestic segment for segments beginning after September 30, 1997, and before October 1, 1998. The segment tax increases to a fully phased in rate of $3.00 per domestic segment for segments beginning during calendar year 2002. After calendar year 2002, the $3.00 segment tax will be indexed for inflation.

Transportation segments beginning or ending at a rural airport are not subject to the temporary 9 percent and 8 percent rates and are exempt from the segment tax. Thus, transportation segments beginning or ending at a rural airport are subject only to a 7.5 percent rate on the amount paid for the transportation segments.

An airport is a rural airport, as defined in § 4261(e)(1)(B), for a calendar year if (i) fewer than 100,000 commercial passengers departed by air during the second preceding calendar year from that airport, and

(ii) the airport is either (A) not located

within 75 miles of another airport from which 100,000 or more commercial passengers departed during the second preceding calendar year, or (B) receiving essential air service subsidies as of August 5, 1997.