NetJets, IRS May Settle Tax Dispute

 - June 2, 2012, 6:00 AM

There have been two key developments in recent efforts by the U.S. government to extract more tax money from fractional-share operators, the subject of a NetJets lawsuit against the government and the government’s counter-lawsuit.

In the recently passed FAA reauthorization funding bill, Congress offers relief for fractional-share providers. The bill requires fractional operators to pay an extra 14.1 cents per gallon surtax on top of existing general aviation fuel taxes. Thus these operations won’t have to pay federal excise taxes because the bill specifically identifies fractional flights as non-commercial.

The NetJets-IRS dispute may yet be settled because on April 13 the U.S. District Court in Columbus, Ohio, granted a joint motion filed by NetJets and the U.S. government. The two parties had filed a motion to stay proceedings, pending private mediation. The judge ruled that all proceedings in this case are stayed until August 28 “so that the parties may proceed with private mediation.”

Meanwhile, there have been no developments in the attempt to persuade the IRS that Part 91 flights are non-commercial and should therefore not be subject to the federal excise tax. While NBAA has met with the IRS’s chief counsel and is regularly discussing the issue with the IRS, nothing has changed as this issue goes to press. The IRS issued a memo on March 9 that appears to make a case for why the agency believes that the so-called ticket tax should apply to Part 91 flights. The consequences of the IRS’s action could mean that aircraft management companies would have to ask owners to pay excise taxes on any fees or services billed to the owner.