Earlier this month, there was news that the IRS was suing Berkshire Hathaway over unpaid taxes at its NetJets business.The issue has actually been brewing for a while longer, but obviously the irony was delicious, given Buffett’s semi-populist crusade in favour of higher taxes on the rich.
So what’s the dispute all about?
In his latest column, Andrew Ross Sorkin explains the deal:
At the heart of the tax battle is whether NetJets and a sister division should have collected a special transportation tax — often called a “ticket tax” — from the fractional owners of its fleet. (Fractional owners own a stake in a private jet, entitling them to a certain number of flight hours a year, in a way that’s similar to someone owning a time-share vacation property.)
You and I — the rest of us who fly commercial — pay a federal excise tax when we fly (7.5 per cent of the ticket price plus $3.80 for each leg of travel.) People who own an entire plane outright have not been subject to the same tax since, ostensibly, there is no ticket to buy. Mr. Buffett, for example, who owns a jet he once jokingly named the Indefensible — he has since renamed it the Indispensible — does not pay a ticket tax when he flies his plane.
So it turns out that fractional ownership isn’t seen as ownership by the IRS.
As Sorkin goes onto explain, it’s not enough to just have a stake in a plane… you actually have to possess, command, and control it.
It’s actually a little trickier than just the above, since there are two parts to the tax: A tax for the flight, and a maintenance tax, and in fact NetJets has been collecting a flight tax since 2003. Then it gets even more complex, in that there’s question over whether NetJets should pay the tax, or whether all of the “owners” should pay the taxes themselves. So it gets very tricky, but the bottom line is that fractional ownership of a jet doesn’t quite seem to be the same thing as real ownership in the eyes of the law.