Football champs, CEOs avoid taxes with own 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 a private plane, the NFL franchise also will be skirting a significant part 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 fliers, according to a Bloomberg News analysis and government reports.

On a per flight basis, a private jet could generate as little as 2 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 United States 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.

SHARP DISPARITIES

Bloomberg calculated the difference between airline and private-jet taxes on 10 domestic routes, ranging from 340 to 2,500 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 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, Tenn., to Philadelphia by Southwest Airlines, which typically uses a Boeing 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 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,” said Ed Bolen, president and chief executive officer of the National Business Aviation Association, a Washington-based trade group representing more than 11,000 companies.

LESS CONGESTED AIRPORTS

Business aircraft are an important segment of aviation tying rural areas to the rest of the United States, 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 United States. 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.

TAKEN OFF THE TABLE

Any potential changes in the taxes on private aviation were effectively taken off the table this year by the 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.

George W. Bush and Barack Obama floated proposals to raise taxes or fees on private jets while they served as president. Both presidents 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.

SundayMonday Business on 09/10/2017

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