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The New England Patriots may not have been thinking about the tax benefits of owning a corporate jet when the team recently purchased two Boeing jets.
But business tax deductions could help professional sports teams like the Patriots offset ownership costs if they decide private ownership is the way to go.
ESPN reported Aug. 9 that the Patriots had purchased the two Boeing 767 wide-body, extended range jets. The market value of the used planes is about $5.5 million each, according to Flight Fleets Analyzer, a data tool offered by FlightGlobal that also confirmed the purchase. The NFL team retrofitted the jets with all first-class seats and will rent out the planes when the team isn’t using them, ESPN said. The Patriots didn’t return a Bloomberg BNA request for comment.
“Having a private jet and using it in your business is an important tool that allows people to get to places they need to get to on a more efficient basis,” said Greg Rosica, a tax partner at Ernst & Young LLP who leads the firm’s private aviation consulting practice. As a bonus, if a professional team—or any other type of business—is using a plane for business purposes, it will be able to reap some tax benefits, Rosica said.
The Patriots aren’t the first sports team to opt for a private aircraft, rather than a chartered one. In the NBA, Mark Cuban’s Dallas Mavericks have used their own customized private jet since 2002, and the Detroit Pistons until recently flew their own plane.
David Williams, vice chancellor for athletics and university affairs and the athletics director at Vanderbilt University, told Bloomberg BNA he wouldn’t expect a “wholesale rush” by other NFL teams to purchase a plane—or planes—but a select few are likely to “follow the lead of the Patriots.”
Here are four tax considerations for professional sports teams and other companies thinking about buying their own planes.
The Internal Revenue Service allows businesses—including NFL teams—that own and operate an aircraft to take a tax deduction on depreciation of the aircraft.
A professional sports team that buys its own plane should be able to write off the entire purchase price of the aircraft plus the cost to renovate it for the team’s use over about a five- to seven-year period, said Jed R. Wolcott, a certified public accountant and president of Wolcott & Associates PA, a CPA firm dedicated to aviation issues.
Rosica said expenditures to upgrade the plane—like the Patriots did to retrofit their aircraft with new seats—should be capital improvements that are eligible for business depreciation deductions.
Additionally, if 50 percent or more of the planes’ usage is for business purposes, the team would qualify for accelerated depreciation, which is a front-loaded write-off, allowing for larger deductions in the first few years after the asset is placed in service.
Accelerated depreciation wouldn’t “change the total depreciation but it would give them additional depreciation in the early ownership years,” Wolcott said.
If a company purchases new planes—unlike the Patriots—it would be eligible for bonus depreciation, which allows businesses to deduct a substantial amount of a long-term asset’s cost in a single year. For 2017, that amount is 50 percent. The Protecting Americans from Tax Hikes Act of 2015 extended the bonus depreciation benefit through the end of 2019 with a gradual phaseout.
In addition to the depreciation deduction, a company can take tax deductions for expenses incurred when employees—players, coaches, and other staff in the case of sports teams—travel on the corporate jets for business.
Michael L. Eckstein of the Eckstein Law Firm in New Orleans said deductible expenses include ordinary maintenance, hangar expenses, insurance expenses, pilot expenses, and Federal Aviation Administration compliance expenses.
Teams like the Patriots can also deduct expenses for food, beverages, medical supplies, and other items consumed during a flight to a game, said Eckstein, who practices both sports and tax law. However, those business expenses are deductible whether a team is chartering or flying its own private plane, he said.
Wolcott said that while tax deductions tend to reduce overall ownership costs, they won’t entirely offset them.
For a sports team, the majority—if not all—of its flights will be business flights, Rosica said.
However, if someone who isn’t associated with the team’s business flies on the team’s plane, there could be negative tax consequences.
For example, if an executive flies on a corporate jet for a business trip and is joined by a spouse who doesn’t work for the company or isn’t associated with the business meeting, there can be income imputed to the executive, Rosica said.
Taxpayers use the IRS’s Standard Industry Fare Level (SIFL) formula to determine the income benefit of the flight to the non-business passenger.
Wolcott said it’s unlikely that the Patriots purchased the two planes strictly for tax reasons. Their decision most likely stemmed from other considerations, including the rising cost of charters as availability of large aircraft in the marketplace dwindles, he said.
American Airlines Inc. suspended charter arrangements for the 2017-18 season with six NFL teams: the Baltimore Ravens, the Arizona Cardinals, the Miami Dolphins, the Indianapolis Colts, the Jacksonville Jaguars, and the Pittsburgh Steelers, according to an April 15 Forbes article. The airline, in a memo to employees, cited a lack of sufficient aircraft as one reason behind the decision.
This trend in the market may actual present a business opportunity for sports teams if they decide to rent out their private planes when not in use—which the Patriots reportedly plan to do.
“The fact of the matter is that they now have two planes and could actually go into the leasing business,” said Williams, who in addition to his other roles at Vanderbilt is a tenured professor with the university’s law school where he teaches sports and tax law. “And it’s at an important time when it is becoming harder and harder for the charter companies to actually own and provide these size planes,” he said.
A private jet can be customized to fit the specific needs of a sports team, Williams said. Like the Patriots, the Dallas Mavericks invested in larger seats that are more comfortable for tall athletes.
Cuban told Bloomberg BNA in an email that the private jet allows the Mavericks to “treat injuries, feed players” and provides “room for 7 footers to stretch out and sleep. We think it’s a competitive advantage.”
Flexibility of travel is another key consideration in professional sports, especially in leagues like the NBA, where teams play more than 40 games on the road each season.
Normal businesses also consider flexibility and total hours flown per year when deciding whether to purchase a private jet, Rosica said. “Executives that need to visit multiple cities on their trip may find it very easy to do on a private jet and impossible to do on scheduled commercial air travel,” said Rosica, whose clients typically own planes that hold four to 12 passengers—a much smaller capacity than those purchased by the Patriots.
Rosica said the expansion of private jet ownership among NFL teams—which play far fewer away games than teams in other professional leagues—likely boils down to supply and demand, and whether there is an adequate supply of chartered jets of the size teams need at a competitive price.
“If so, I think many teams will continue” to use charters, he said.
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