Monday, September 11, 2017

Football Champs and CEOs Alike Sidestep Taxes With Private Jets




When the Super Bowl champion New England Patriots take their first road trip later this month, players like quarterback Tom Brady will be setting the standard for comfort and legroom on the team’s new private widebody jet.

Moreover, by simply changing from a commercial charter to their own private plane, the NFL franchise also will be skirting a significant portion of the taxes and fees that pay for the U.S. aviation system.

It’s not just sports teams. Operators of the gleaming private jets that have become a symbol of wealth and success pay far less in taxes than airline passengers and other commercial flyers, according to a Bloomberg News analysis and government reports.

On a per flight basis, a private jet could generate as little as two percent of the taxes and fees paid by airline passengers on an identical route, Bloomberg found in its review. High-performance private planes make up about 10 percent of U.S. flights under air-traffic control, yet pay less than 1 percent into a trust fund that finances air-traffic control and other Federal Aviation Administration operations, an agency study found this year.

"By and large, a private aircraft costs the same for the FAA to process as a large aircraft," said Michael Ball, senior associate dean at the University of Maryland’s Robert H. Smith School of business and co-director of an aviation research consortium. "If you look at it from that standpoint, they clearly aren’t paying their due.”

Unlike most of the rest of the world, which charges fees based on aircraft weight and distance flown, the taxes private jets in the U.S. pay are different from the ones imposed on airlines.

Private aircraft operators pay 21.8 cents per gallon of jet fuel. By contrast, airlines and charter operators have three separate taxes: an excise tax of 7.5 percent on tickets or charter charges, a fee of $4.10 per passenger and 4.3 cents per gallon of jet fuel.

The result is that airline passengers are subsidizing some of the world’s largest corporations and wealthiest people under the current system, said Matthew Gardner, a senior fellow at the nonprofit Institute on Taxation and Economic Policy.

"Pretty clearly, we all feel the pain every time we buy an airline ticket and see how big a share of the costs those fees are," Gardner said.

Bloomberg calculated the difference between airline and private-jet taxes on 10 domestic routes, ranging from 2,500 to 340 miles on a variety of typical aircraft. While the taxes can vary significantly due to many factors, there were sharp disparities in all of the examples. On average, private flights generated only about 7 percent of comparable airline taxes in the examples.

A transcontinental flight from New York to Los Angeles on a Virgin America Inc. Airbus SE A320, would be charged about $3,900 in taxes, assuming the plane was 85 percent full and passengers paid the average fare calculated by the Transportation Department’s Bureau of Transportation Statistics.

The tax bill for a flight between the same cities on a privately owned Bombardier Inc. Global 6000, one of the world’s longest range corporate jets, would be about $525. That’s about 87 percent less than the airline flight.

The differences can be far greater if the private plane is a smaller model that burns less fuel.

A trip from Nashville, Tennessee, to Philadelphia by Southwest Airlines Co., which typically uses a Boeing Co. 737-700 on that route, would typically be charged more than $2,000 in taxes. An Embraer SA Phenom 100E, a smaller and more fuel efficient corporate jet, on the same leg would be assessed about $50, or roughly 2 percent of the Southwest plane.

Groups representing private aircraft, known as general aviation, have vigorously fought attempts to alter the current tax system, calling it equitable. Three main trade groups have spent a combined $56 million on lobbying on this issue and others in the past decade, according to the Center for Responsive Politics.

"I haven’t seen anything to suggest we are not paying a fair share," Ed Bolen, president and chief executive officer of the National Business Aviation Association, a Washington-based trade group representing more than 11,000 companies, said in an interview.




Business aircraft are an important segment of aviation tying rural areas to the rest of the U.S., and that sector supports $200 billion in economic activity each year, Bolen said. They impose fewer costs on the system than airliners because they often fly to less congested airports, he said. The group believes many costly elements of the air-traffic system were put in place to accommodate air carriers at large hub airports, and operators of smaller aircraft shouldn’t have to pay for them.

Mark Baker, president and chief executive officer of the Aircraft Owners and Pilots Association, which represents more than 300,000 private pilots, said the Bloomberg analysis was similar to the airline industry’s "false criticisms of general aviation."

"The fact is that from infrastructure to technology to labor, the airlines drive the costs and general aviation is a very small part of that," Baker said.

The starkly different tax rates have been a long-simmering point of contention between airlines and their brethren in the corporate aviation world, and they help explain why the two groups have been at each other’s throats on a House proposal to move the air-traffic system out of the FAA and into a nonprofit corporation.

In Canada, where air traffic is managed by such a corporation, private jets pay less than airliners, but at rates that are far more equitable than in the U.S. Such an arrangement would cost American private-plane operators hundreds of millions of dollars a year, according to FAA documents and a Bloomberg assessment of sample flights.

Airlines have supported moving to such a private system, while private-aviation groups are adamant opponents.

However, even critics of the tax rates concede the situation isn’t likely to change anytime soon. The powerful lobby representing high-end private aircraft operators has successfully fought off several such attempts in recent decades.

Aviation Taxes

Any potential changes in the taxes on private aviation were effectively taken off the table this year by the powerful chairman of the House Transportation and Infrastructure Committee, Pennsylvania Republican Bill Shuster.

In order to mute opposition to his plan to create a nonprofit company to operate the air-traffic system, Shuster’s bill would keep the current tax levels for private planes. Shuster’s attempt to mollify private plane owners has had little effect as they continue to oppose his proposal. The bill has passed the committee and is awaiting a vote before the full House.

The taxes on different aviation sectors fund the Airport and Airway Trust Fund, which helps pay for the FAA, air-traffic control and airport construction projects. Last year the trust fund contributed $14.3 billion toward the FAA’s $16.3 billion budget, or 88 percent.

Overall, high-performance business aircraft -- those powered by jets or turbo props -- accounted for about 10 percent of all flights overseen by FAA controllers last year and eight percent of miles flown, according to an agency estimate. 



Trust Fund

The FAA estimated that these business planes contributed $104 million to the trust fund in 2016. That amounts to just 0.7 percent of the overall aviation taxes. That compares to 92 percent of the tax payments, or more than $13 billion, that came from U.S. carriers, foreign airlines and charter carriers -- most of which were paid directly by passengers.

While the use of private aircraft has occasionally drawn criticism -- such as when Detroit automakers flew on separate company planes to Washington in 2008 to seek bailouts from Congress -- it has tended to be short-lived.

Both George W. Bush and Barack Obama floated proposals to hike taxes or fees on private jets while they served as president. Both considered adding a per-flight fee for private flights and Obama in 2011 suggested changes in how private planes were depreciated on tax returns, which would have increased what owners paid. None of the plans came to fruition.

The disparity in aviation tax payments hasn’t changed much in decades, said George Donohue, a professor at George Mason University in Virginia who served as associate administrator of the FAA during the 1990s. Donohue studied the issue during his tenure at FAA and said the disparities were about the same as now.

"I always found it amusing that people in the business jets are great capitalists, except when they get cross subsidies," he said.




Fewer Charters

The Patriots, fresh off their come-from-behind Super Bowl victory this year, decided to enter the world of private aviation as sports teams have found it increasingly difficult to charter large aircraft.

Their purchase of two 767s, one a spare to ensure they won’t miss a trip due to maintenance, illustrates how the tax rates can vary significantly for identical flights.

Flying from the team’s home base in Providence, Rhode Island, to the first road game Sept. 17 in New Orleans on one of the private 767s, the team would be charged an estimated $1,100 in fuel taxes. That’s higher than a typical private jet because the twin-aisle 767, designed for long-range international routes, burns more fuel.

But it’s still far less than if the team made an identical flight on a chartered 767. The taxes on a charter would be more than three times higher, an estimated $4,700, based on published rates and Boeing’s estimate of fuel use. The team’s private flight would also raise far less than a plane load of Patriots fans would pay taking an airline from Boston to New Orleans -- about $2,400 -- even though they’d be on a much smaller plane that burned significantly less fuel.

Patriots spokesman Stacey James declined to comment.

If the purpose of aviation taxes is to create an equitable way to pay for the air-traffic centers, computers and radars, the existing system is a failure, said Robert Frank, a professor at Cornell University’s Johnson Graduate School of Management.

“It doesn’t sound like this fee structure comes even close to imposing fees on the costs respective users impose on the system,” Frank said.

Read more here:  https://www.bloomberg.com

1 comment:

Tom Brusehaver said...

I am not sure this article is clear on all taxes the airlines pay. Passenger Facility Charges (PFC) and such are paid by the airlines. The PFC is not paid on charter flights, because the the flights typically don't use the same terminal the airlines use.

If you say taxes per flight, you need to specify what they are so the reader understands why something is taxed or not.