The Advisors' Blog

– Lynn Jokela

We blog quite a bit around here about private jets – it’s a “perks” quandary that keeps on giving. Here’s more proof of how tricky it can be: a recent Reuters article asserts that CEO jet use adds millions to a company’s tax bill through lost deductions – mostly unbeknownst to investors due to lack of disclosure. Here’s the logic:

Among S&P 500 companies that pay for their CEOs to use the company jet for private trips, the estimated median value of those trips increased 11% last year to $107,286 from $96,532 in 2017.  The value of those trips is taxable income for the CEO.

The argument about lost tax deductions stems from an IRS rule limiting a company’s deductions on personal jet use to the estimated value of the personal flight, which is frequently based on the price of a first-class ticket on a commercial flight – not the actual cost of flying the company jet.

This means companies lose tax deductions when companies pay for private trip use – because these trips include pilot and flight attendant salaries, maintenance costs, insurance, depreciation of the jet, etc.  These costs are usually fully deductible when the jets are used for business purposes but aren’t taken into account when companies value a personal trip based on the price of a first-class ticket.

As the article points out, SEC rules don’t require disclosure of lost deductions – so most investors aren’t getting the full picture of the cost when companies pay for personal travel on company jets. Two companies disclosing the value of lost tax deductions resulting from personal use of company jets are Visa and Comcast – to the tune of $4.7 million for Visa and $8.8 million for Comcast.

For more on deductibility, see Mike Melbinger’s blog that covers how independent security studies can impact this.