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Public Subsidies for Private Luxury Jets

March 15, 2024

Summary

Economic subsidies for private luxury aircraft include no sales tax, no use tax, no storage tax, no facility property tax, public subsidized airports, public subsidies for private hangars, no local fuel tax, federal tax deductions, and no local permitting. These incentives, exemptions, and subsidies place an undue burden on the normal taxpayer and benefits a few wealthy individuals. Each of these is discussed in turn.

No sales tax

The state sales tax is a represents over 20% of the total revenue for the Commonwealth of Massachusetts, raising about $8.7 B per year, and affects all citizens. While average citizens pay taxes on their appliances, automobiles, automobile repairs, furniture, cell phone service, restaurant meals, etc, there is a remarkable exemption in Massachusetts for the purchase of luxury private aircraft, parts, and aircraft storage.

Chapter 64H of the Massachusetts General Laws, enacted in 2001, provides for a number of exemptions from sales tax for private aircraft:

Section 6 (uu) Sales of repair or replacement parts exclusively for use in aircraft or in the significant overhauling or rebuilding of aircraft or aircraft parts or components on a factory basis.

Section 6 (vv) Sales of aircraft.

The sales tax is a regressive tax which already is disproportionately levied on the lower and middle classes. Creating an exemption for private luxury aircraft creates a loophole by which wealthy individuals avoid a tax on a type of property only affordable to the wealthy.

No tax on private jet flights or hangar storage

Chapter 64I of the Massachusetts General Laws provides for a number of exemptions from use tax for private aircraft:

Ch 64I, S7(d) Storage, use or other consumption of repair or replacement parts exclusively for use in aircraft or in significant overhauling or rebuilding of aircraft or aircraft parts or components on a factory basis.

Ch 64I, S7(e) Storage, use or other consumption of aircraft.

Tax deductions for private luxury jets have been justified on the claim that reducing taxes cause additional private luxury aviation activity which will offset any tax lost. There is no evidence of any gain in jobs, state revenue, or economic growth after this exemption was put in place. This is an absurd argument that can be used to justify the exemption of almost any product or service from sales tax.

No facility property tax

Massport, which was created by the legislature, is the owner and operator of Hanscom Field. Under the enabling act of Massport all facilities on its properties are exempt from property taxes. This includes hangars, conference facilities, accommodations, etc. This exemption was justified because Massport was expected to be providing a general public service. However, unlike Logan Airport, Hanscom Field provides private luxury jet services not available to the general public; services only available to a few wealthy elite individuals. The exemption of such discriminatory luxury services was never contemplated when Massport was created. It is unfair for both residential and commercial taxpayers that such an exemption exists for this elite club.

Publicly subsidized airports

Airports require regular expensive maintenance, upgrades, and improvements. The type of infrastructure work required includes regular runway and taxiway paving, safety area maintenance, control tower, flight instrumentation, etc. Most of this funding comes from the federal government in the form of grants, which the airport does not need to repay. The source of this funding is from fees primarily charged to commercial flight passengers. The private luxury jet operators essentially are provided the use of these airports almost for free.

Therefore, the use of the airport, runways, control towers, etc. by private luxury jets is essentially subsidized by common people paying fees on their airline tickets.

No local jet fuel tax

Federal law does not allow local or state assessment of sales tax on fuel for private luxury jets, UNLESS the proceeds of such tax are used for airport purposes. Therefore, states and towns cannot enact any tax for general use.

When this law was enacted in the 1990s, it grandfathered any local taxes already in existence prior to 1984. In the case of Hanscom Field, there was in existence a 5% excise tax, which is today grandfathered, which is distributed to the four surrounding towns. This tax cannot further be raised under the law. Therefore, while states can charge fuel tax on cars and trucks, they cannot charge fuel tax private luxury jets. However, in a special case, there is a grandfathered tax today at Hanscom Field.

Federal tax deductions

Owners of private luxury jets, in addition to sales tax exemptions, can use their operating costs as a tax deduction, dramatically reducing the effective cost of private luxury jet travel. First, there is a special provision allowing private luxury jets to be immediately depreciated. This creates a large loss which can be used to offset income for tax purposes.

Second, private jets are normally placed into a Limited Liability Corporation, or LLC, which the owner creates and claims as a business. The owner might rent the aircraft to others when he is not using it, for a nominal fee. All of the expenses of the aircraft, pilots, cabin crew, fuel, storage, etc. are declared as an expense by the LLC. The income is small and the expenses are large so the LLC loses money. Therefore, almost all the expenses become instead a loss, which passes through to the owner and can be used to offset income for income tax purposes.

No local permitting

Every business in a municipality is required to meet local bylaws and permitting requirements. However, the Massport enabling act makes all projects on Massport property exempt from local permitting. The exemption of such discriminatory luxury facilities was never contemplated when Massport was created. This shields airport operators from meeting local requirements and is yet another form of subsidy benefiting the private luxury jet users of the airport.

State hangar construction subsidies

In the case of Hanscom Field, the proponent of the North Airfield project is proposing to build 16 new hangars and renovate a single old Navy hangar. The proponent claimed this renovated private luxury jet hangar to be historic and applied for $6,000,000 in State historic preservation funds and a similar amount in federal funds.  To date the proponent has had grants of $1,800,000, with the remainder still under consideration. This private luxury hangar has no historic significance, is within a private fenced off compound, and will not be accessible by, or even visible to, the public. This represents a gross misuse of public funds for an environmentally destructive purpose.

Federal planning subsidies

Large projects typically require environmental review. Private hangar projects do when they are beyond a certain size. For other types of private projects, the developer must retain environmental and building consultants to prepare the required analysis and reports. However, in the case of private hangar projects, the FAA will pay all expenses related to permitting and reports. There is no reason for this subsidy to exist for private projects that do not serve the general public but only serve an elite few wealthy travelers.

Other proposed benefits

Lobbying groups have introduced federal subsidies for constructing private luxury jet hangars into the FAA reauthorization bill of 2023, which provides for $1 billion of general funding including $170M over five years to add private hangars. In addition, this bill proposes to hide or disguise ownership of private luxury jets, which is today public information; this is to prevent identification and public shaming of super-emitters.

Other creative financial benefits

In one case an owner at Hanscom Field sent his jet to Guam with just his tax return in it. He had the return postmarked and mailed in Guam. The mail delay from Guam saved him significant interest due to the delay of receipt of the tax return by the IRS. Such a single round trip flight takes 34 hours, using an international-capable jet burning about 450G/hr, corresponding to about 364 Tons of CO2e. This is approximately the amount of CO2e prevented by a 1 megawatt solar array in a year, or the amount generated by about 72 cars in a year. It is not right that this kind of behavior and tax avoidance should be financially subsidized by the taxpayers.

Illegal financial benefits

The above listed benefits are legally available to private luxury jet owners. However, there is considerable evidence that other illegal benefits are costing society considerable amounts. Beyond the obvious advantages of private jets transporting contraband, guns, cash, and drugs, there are significant illegal tax benefits routinely claimed. Companies deduct jets as business expenses, allowing them significant tax breaks, yet the aircraft are used for resort and personal travel for executives and their families and friends. Such claimed write-offs are clearly illegal by law, yet the passenger lists are not public information so the IRS has difficulty identifying the illegal use. Additionally, the beneficiaries of such travel are required to declare it as taxable income, but rarely do. The IRS has announced a special program to identify these tax cheats and recover the appropriate tax.

Conclusion

There are significant financial subsidies related to private luxury jets, which have been obtained by lobbying groups over a number of decades. Such incentives are enacted to encourage or incent a certain activity, which is this case is private luxury jet travel.

There is no evidence that private luxury jet travel should be subsidized or encouraged. The incentives are for the benefit of a few wealthy individuals who don’t need tax breaks. There is no evidence that is important to the economy of the commonwealth. The arguments that subsidizing private luxury aircraft somehow creates jobs or generates a net positive revenue for the Commonwealth are absurd and could be used to justify the elimination of sales tax on virtually any type of product.

Conversely, there are important reasons to discourage the use of luxury private jets. These super-emitters generate prodigious amounts of greenhouse gases while providing a luxury for a few individuals. The use of these aircraft is not essential, because there are less polluting travel alternatives. They are a luxury.

Average citizens are not aware they are subsidizing private luxury jet travel and are justifiably angry when they learn of it. Furthermore, citizens who are making commitments to reduce greenhouse gas emissions, who will need to make sacrifices to do so, are shocked when they learn their efforts are being negated and overwhelmed by the growing emissions of private luxury jets.

Private luxury jets should not be subsidized but instead should be taxed heavily to discourage their use.

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