The US3 v ME3 airline battle is adding a new angle of attack. Efforts to restrict flights from the ME3 carriers into the United States through adjustments to the Open Skies treaties haven’t seen any tangible progress. So now the airlines are turning to Congress to help their cause.
Taxing the ME3
The current budget bill includes an new clause changing the tax exempt status of some airlines from corporate taxes within the United States. It was proposed by Sen. Johnny Isakson of Georgia (Hi, Delta!) and is structured to target a very small number of airlines, including the ME3.
In general airlines do not pay taxes for the short stops they make in foreign countries. Calculating the tax liability in those cases is a pain and the idea that reciprocal treatment keeps those countries from imposing similar taxes on US-based airlines flying in. Isakson’s proposal tweaks the rules so that airlines from countries where the US does not have an explicit tax treaty AND where US carriers don’t operate would now be subject to those taxes. And this list from the IRS suggests that neither Qatar nor UAE have those treaties in place. Saudi Arabia is also potentially affected while Morocco and Turkey have the treaties so should not be affected.
The actual revenue from this tax is likely to be de minimus relative to the real impact of the tax. The goal is to make it onerous for these companies to do business in the United States.
BizAv gets a boost
Also in the not-too-surprising list of exemptions being added to the bill is a big win for private jet owners.
UN-REAL. Check out what they added to the Senate bill the other night, at the same time that they made all the tax cuts for families expire.
A new tax break for private jets.
Page 51: https://t.co/6ySLW6Tpcs pic.twitter.com/YhLDwEVE5a
— Seth Hanlon (@SethHanlon) November 16, 2017
This proposal exempts all sorts of expenses around owning and operating private jets from the Excise Tax that otherwise covers aviation. And it is pretty much everything around the costs of those operations that gets exempted. Hiring and training of crew, flight planning, weather forecasting, storage, maintenance and fuel costs are all on the list.
Update: WSJ says this is just codifying existing practice. Still not sure I like that.
What a great time to be exceedingly wealthy or a corporation.
Thanks RF for sharing the news
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Unfortunately the ignorant imbeciles trump deplorables don’t have the cognitive capacity to understand that they shot themselves in the foot by voting for them and will be the ones paying the price forever.
This isn’t quite as bad as it sounds – read the whole thing.
The excise tax applies to commercial transportation, not personally flown aircraft. So it’s never been a question that someone who owns and operates their own airplane isn’t commercially providing transportation and wouldn’t pay the excise tax (how would you calculate it anyway?) The confusion arises when someone (a company or individual) owns an aircraft but then pays a management company to handle maintenance, pilots, scheduling, etc. Is the management company commercially providing transportation to the aircraft owner? The IRS initially decided yes, and audited a bunch of these companies, but then in 2012, stopped collecting the tax pending further guidance. The proposed law just makes this clear.
At least, that’s how I understand it – happy to be proven wrong though.
I added a clarifying point from the WSJ that suggests this is pretty much on track. That said, many of these planes (and the management companies) are now operating as pseud-commercial transport services through JetSuite and that ilk. If we’re going to clarify what is and is not commercial transport I’d lean towards saying more things are, not fewer.
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