BOSTON (Reuters) – As U.S. corporate jet use approaches pre-financial crisis levels and chief executives take an increasing number of personal trips on the company tab, many investors are being kept in the dark about the true cost of the perk.
For the S&P 500 companies that pay for their CEOs to use corporate jets for private trips, the estimated median value of that flying climbed 11 percent last year to $107,286 from $96,532 in 2017, according to the latest available figures from compensation research firm Equilar Inc. That is up 27 percent from $84,636 in 2007, the year before the financial crisis.
This is taxable income for executives. The estimates are often based on what a first-class seat would have cost on a commercial flight rather than on the true, much higher cost of using a corporate jet.
But not only are companies left to pay the full cost of those flights, which can be for anything from family vacations to trips to major sports events or a commute from a distant family home, but they can also find that their tax bills can be significantly higher because of lost deductions.
That is because the U.S. Internal Revenue Service has limited a company’s deductions on personal aircraft use to the estimated valuation of the executives’ flights.
As a result, companies forfeit a long list of tax deductions for the time the jets are used for personal trips, including pilots’ salaries, maintenance costs, insurance, aircraft depreciation and finance charges. Companies usually can deduct the full cost of these expenses when planes are used for business flights.
Exacerbating the issue, U.S. President Donald Trump’s 2017 Tax Cuts and Jobs Act eliminated deductions on two kinds of flights, said Ruth Wimer, a tax expert and partner at law firm Winston & Strawn LLP in Washington. They are for trips taken purely for business entertainment – such as a CEO taking clients to a golf tournament – and an executive’s use of a corporate jet to commute to work from his home, she said.
However, given that the U.S. Securities and Exchange Commission does not require disclosure of such lost deductions, investors are none the wiser.