In 2011, then President Barack Obama took on the business aviation crowd by proposing a $100 per-flight user fee on corporate jet flights and a change in the depreciation schedules of those aircraft to match those of airliners. The industry needs to pay its "fair share," the administration said, leading a chorus of many who would agree—especially airline executives.
“Corporate jets” was the moniker of the day because a consulting firm determined that phrasing evoked a sense of wealth and excess. Or so we were told.
President Obama wasn’t the first to call on business aviation to pay more. This was just a continuation of claims that have spanned decades and continued into the 2010s. These proposals ratcheted up what at times has been a brutal fight on Capitol Hill—at one point bringing key leaders almost to fisticuffs—often delaying FAA reauthorization bills by years and forcing dozens of extensions.
While those efforts have been unsuccessful, the Biden Administration has now taken those proposals off the shelf, dusted them off, and put its own spin on them. And then some.
Instead of corporate jets, now the White House is going after “private jets.” But the rhetoric is the same. “President Biden believes corporations and wealthy people who use corporate and private jets should pay their fair share,” the White House stated recently, rolling out proposals it believes would accomplish just that.
This time, though, the White House is going for the trifecta: it has unleashed the IRS on corporate operators to find all the cheats, it is resurrecting the proposal to change the depreciation schedule of business jets from five to seven years, and it is going after more fuel tax money from business aircraft operators to the tune of a fivefold increase.
The first "fair share" announcement that trickled out was from the IRS that it now has the funding to beef up its audit staff to make sure business flights are just that—not luxury flights being written off as business purposes. The IRS reasonably explains that the regulations are so complicated, it wants to make sure operators understand and follow them. However, the Administration has been more plaintive, saying it is going after operations that are using loopholes to avoid their taxes.
Are there cheats? No doubt. There are in every walk of life. Is it more prevalent in the business aviation realm? NBAA president and CEO Ed Bolen disputes that view. “Our companies are some of the most respected and admired companies in the world and are very focused on compliance, safety, [and] security,” he maintained. “To suggest that we think within the industry there would be noncompliance with appropriate taxes and regulations, we just don’t understand the foundation for that.”
However, what is understood is that the regulations are complicated, and it may be that companies will learn just how complicated they truly are through these audits.
The second prong of "fair share" is the changing of the depreciation schedule. In “normal times,” a business jet is depreciated over five years while an airliner over seven years (normal times is in quotes because, in many years, Congress has granted an accelerated depreciation schedule to encourage sales of business equipment such as aircraft).
This proposal seems to fly in the face of Congress, which—in its bipartisan tax agreement rolled out and passed the House earlier this year—called for a continuation of the so-called bonus depreciation, or 100 percent expensing. This covered qualified aircraft placed into service before Jan. 1, 2027. The tax package stalled in the Senate, but not over the expensing provision. That seemingly was non-controversial and supported on Capitol Hill.
But the argument stands as to why business aircraft should have shorter depreciation schedules. The response may be that five years is in line with other business assets such as cars and that airliners can be used to generate income. However, instead of why business aircraft have five-year schedules, has the question been raised of why airliners have seven-year schedules? Just a thought.
The third "fair share" prong may be the one that generates the most noise: increasing the jet-A tax for private operators from the current 21.9 cents per gallon to $1.06 per gallon over five years. This would raise jet-A tax revenues by $44 million in Fiscal Year 2025 and grow that by $300 million in FY2029.
This tax rate has remained the same since the 1990s (some say 1997 and others 1993 as to when it was last changed). Is it time for an increase? Maybe. Is it time for a fivefold increase? That would outstrip even the cost of inflation. If the fuel tax was adjusted accordingly, it would be 47 cents per gallon today. But admittedly, fuel and other taxes in other modes of transportation are not adjusted for inflation.
Then there’s the argument that business aviation contributes a minuscule amount in taxes in comparison to its use of the system. According to the Administration, private jets account for 7 percent of operations handled by air traffic control but contribute just 0.6 percent of taxes into the Airport and Airway Trust Fund (AATF, also called the aviation trust fund). But also according to the Administration, “business aviation accounts for approximately 3 percent of the FAA’s costs while contributing less than 1 percent to AATF revenue.”
Disregarding discussions about 7 percent of operations or 3 percent of costs, the point is that business aviation is not paying an equal percentage of its use of the system in comparison to its taxes paid. Industry leaders, however, have long argued that business aviation is an incremental user of a system built for airlines and stressed by hub-and-spoke systems.
More recently, NBAA’s Bolen likened it to two parties going out for a meal: one orders the finest wine, most expensive salad, and steak, while the other has a glass of water and the blue-plate special. The check comes and the party ordering the most expensive meal pushes for the check to be split equally—after all, two people came to the table. We’ve all been there.
While a fivefold increase may smack as overdone, would NBAA support any increase? The organization has, in the past, offered support of a modest increase that could be justified. But modest means pennies, not dollars. More recently, Bolen told AIN that he has not seen such justification.
If there is such justification—for example, the system needs more money—are there other more logical fees that could be increased in the system? Aircraft registration fees, for instance, also have stayed the course for decades, and now it is cheaper to register an ultra-long-range business jet—$5 for a seven-year FAA registration—than a car for just one year.
Then there’s the aviation trust fund. While everyone squabbles over which parts of the industry pay what, long forgotten was its original purpose—to pay for the nation’s airport projects and support the airways. These days, it pays for just about everything involving the FAA, save for some 3 percent of the agency’s operations. Why that matters is that nearly all the benefits of the system are for the users, those who operate in and fly in it. Theoretically, the public benefit of the National Airspace System is only token, at least according to how it is funded.
And of course, there’s also fuel fraud. A little confusing, but essentially in the early 2000s, the IRS, and by extension Congress, became concerned that truckers were tapping into aviation jet fuel to avoid the extra tax on diesel fuel (amounting to two pennies per gallon compared with noncommercial jet fuel). The answer was to equalize the tax at the terminal rack level and then have approved aviation “ultimate vendors” demonstrate what was used for aviation, facilitating a refund on the difference between the diesel and jet-A taxes.
The trouble is that these taxes first go into the Highway Trust Fund and stay there until the vendors demonstrate that the fuel was used for aviation purposes. In 2016, the Government Accountability Office estimated that the aviation trust fund had lost perhaps up to $2 billion that way. No one appears to know. Nothing has changed since. And there is no appetite to change it because it helps in a small way to mask the financial problems that seem to forever plague the Highway Trust Fund.
So, who or what is this proposed tax increase really helping? The question then becomes what problem the White House is really trying to fix.
Finally, all of this circles back to the perception of business aviation as an example of wealth, luxury, and even excess. It is an industry constantly battered. Or "under attack," as Bolen recently said.
Industry leaders are constantly having to explain the public benefits, whether as a means to access remote locations, business efficiencies, security necessities, emergency resources, charitable resources, economic contributions, or positive export balance contributions.
They say these things over and over. The industry listens. But does anybody else?
The opinions expressed in this column are those of the author and not necessarily endorsed by AIN Media Group.