Tuesday, November 21, 2017

Private jets may be free from paying taxes for management service

On November 14, 2017, the US Senate Republicans released changes to their tax bill, proposing exempting excise taxes on the management fees of private planes.

The bill ensures that private jets under management companies that handle storage and upkeep do not face the same taxes as commercial airlines, aviation tax attorney Troy Rolf told The Wall Street Journal.

As for now, a 7.5% „ticket“ tax is imposed on each commercial air travel in the US. Until several years ago, owners of private aircraft using planes for personal or business travel were free from this type of tax. However, they paid management companies for aircraft assistance.

In 2012, the Internal Revenue Service (IRS) issued a Chief Counsel Advice which said that private jet owners should also pay a 7.5% tax. According to the organization, a management company provides all of the essential elements necessary for air transportation and the owner “relinquishes possession, command, and control to the management company.” Thus, according to the IRS, the management company was required to collect the appropriate federal excise tax from the aircraft owner and remit it to the IRS. In 2013, the IRS suspended its attempts to collect the tax, faced opposition from the aviation industry.

The main Senate bill on the taxation of private jets was proposed by Senator Sherrod Brown. Jennifer Donohue, a spokeswoman for the Senator, told the Wall Street Journal that “this provision in no way cuts taxes for private jet owners, but simply clarifies what the law already says—that service companies made up of mechanics and service workers do not pay ticket taxes, because they don’t sell tickets.”

According to the Joint Committee on Taxation, exempt payments are the amounts paid by an aircraft owner for management services. They include “support activities related to the aircraft itself, such as its storage, maintenance, and fueling, and those related to its operation, such as the hiring and training of pilots and crew, as well as administrative services such as scheduling, flight planning, weather forecasting, obtaining insurance, and establishing and complying with safety standards.”

Following the Republican bill, on November 15, 2017, the US National Air Transportation Association released an official statement which says that “tax reform legislation has a long way to go, but this is an important step and small aviation businesses are appreciative of the inclusion of this provision, which provides them the tax certainty they have long sought. ”

According to the JCT letter issued in 2016, it is estimated that the exempting owners or leasers of private aircraft from paying taxes on the costs related to the maintenance of the jets will reduce federal fiscal year budget receipts by less than $500,000 for the period 2017-2026.

(AeroTime News)

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