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Netjets and taxes

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marqmarq

Well-known member
Joined
Apr 12, 2002
Posts
121
Monday, June 2, 2003
Taft wants tax break for NetJets


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Proposal would eliminate millions in revenue

By Spencer Hunt
Enquirer Columbus Bureau


COLUMBUS - A fast-growing international company that runs a fleet of private jets for corporate executives, sports stars and other high-fliers could soon get a big tax break from Ohio.

Confronted with a $4 billion budget deficit over the next two years, Gov. Bob Taft has pushed lawmakers for months to raise taxes on businesses and to slap a sales tax on everything from real estate commissions and parking fees to massages and manicures.

But the Taft administration is also seeking legislators' help to stop taxing the airplane parts, supplies and other maintenance services purchased by NetJets, a company with major operations in Cincinnati and Columbus and one that includes golfers Tiger Woods and Annika Sorenstam as high-profile clients.

The plan also would put an $800 cap on the total tax Ohio could collect from businesses and individuals who spend millions buying the time-shares needed to travel on NetJets planes.

A legislative estimate shows this proposal would cost state government between $6 million and $12 million a year in lost revenues.

Taft officials and NetJets executives argue that the cost is more like $2 million a year. They say the $800 cap will actually encourage the company to sell timeshares in Ohio, instead of in states like North Carolina and Oklahoma that charge no taxes at all.

They also said that the tax breaks will help the company hire up to 1,000 new maintenance workers in Ohio. Those jobs could easily wind up in a more tax-friendly state, said Steve Bishop, NetJets' chief financial officer.

"I'm flying planes all across the United States and I can decide where I want to have the maintenance work done," Bishop said. "We'd like to bring that work to the state of Ohio."

Officials disagree

Taft spokesman Orest Holubec said the decision to offer a break to the company is not at odds with the governor's other budget proposals, which hinge on more than $3 billion in new taxes.

"This whole strategy is designed to make Ohio a competitive place to do business," Holubec said. "That means new jobs for the state and good jobs for Ohioans."

State Sen. Leigh Herington, D-Ravenna, disagrees.

"Why, when we are talking closing tax loopholes, are we going to add one?" Herington asked. "Corporations are not paying their fair share and we're overtaxing the middle class."

Herington is an outspoken critic of the tax exemptions and accounting strategies some corporations use to lower their state tax bills.

The governor's sweeping tax reform plan, unveiled in February, would increase state corporate income taxes $780 million over the next two years. It also would raise another $1.3 billion by expanding the sales tax to cover currently exempt services like real estate commissions, cable and satellite TV, dry cleaning, massages, manicures and amusement park tickets.

Majority Republicans have so far ignored the bulk of Taft's tax proposals, and appear poised to instead pass a temporary 1-cent increase in the state sales tax.

But Senate Republicans did include the jet tax break in their $49.2 billion two-year budget bill, which could pass the chamber this Wednesday.

"The growth in that industry is just phenomenal," said Sen. Bill Harris, R-Ashland, chairman of the Senate Finance Committee. "I would think we'd want to be competitive to keep as much of that growth in the state."

Success story

NetJets - which has its U.S. headquarters in Woodbridge, N.J. - stands out as a success story in an aviation industry beset with layoffs and bankruptcies.

NetJets sells "fractional ownerships" of its planes to businesses and individuals.

A one-third interest in a Hawker twin-engine jet, for example, can cost about $1.9 million. That allows the owner to use the plane any 10 days each month, with additional charges for things like insurance, hangar fees and per-hour flight costs.

While that is a lot of money, it's a bargain compared to the cost of owning, maintaining and staffing an entire plane.

NetJets, which operates worldwide, has ordered 942 aircraft during the past seven years and, as of last year, had $17 billion worth of new planes on order. Executive Jet Management, a Cincinnati-based sister company to NetJets, posted its best business month ever in March, with an 11 percent increase in charter flights.

While an $800 maximum state tax on timeshare buyers would appear to be a tiny fraction of the amount the state could collect on a $1.9 million sale, Bishop points out that Ohio currently collects nothing at all on those sales. He said NetJets owners buy their interest in planes in states that don't tax the transactions.

"No one in their right mind would do that," Bishop said about buying a fractional ownership in Ohio.

Just how much money the proposal would cost the state is a matter of debate.

The Legislative Service Commission, a group that drafts and analyzes bills for lawmakers, puts the loss in state revenues between $6 million and $12 million a year.

County governments would also lose between $1.2 million and $2.4 million a year, it said.

The Department of Taxation, which answers to Taft, sees things much differently. It estimates a loss of $2 million a year. There was no estimate of the impact to local governments. There also was no explanation of why the two estimates are so far apart.

Regardless, Sen. Harris said Ohio needs the new jobs that NetJets will create more than any lost tax dollars.

Said Harris: "This is a company that's in Ohio that wants to stay in Ohio and grow in Ohio."

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