Four years after the financial collapses of Enron, Tyco and Worldcom, Congress is still trying to penalize excessive spending by corporate chieftains. However, the latest plan to curb the globe-trotting travels of business titans apparently won't hurt executives but instead their pilots, aircraft mechanics and ultimately the aircraft assembly line workers in Wichita.

When Congress returns to work this week, it will try to wrap up the controversial Tax Relief Act of 2005. While the Senate version would cut taxes by $11 billion this year and $57.8 billion between now and 2010, it contains two measures that would dramatically recalculate the taxability of non-business use of corporate aircraft. The House and Senate version of the tax cut measure differ significantly and the two chambers have yet to begin to iron out their differences. The House bill does not include these same business travel tax clauses, said Michael Nichols, the National Business Aviation Association's (NBAA) director of tax economics and operational service.

In 2004, Congress changed the deduction rules for business use of corporate aircraft. If someone traveling on a business flights, such as an executive's wife, joins a trip purely for social reasons, Nichols said her travel cannot be deducted and is taxed as a fringe benefit. The IRS rules have skewed the impact of the costs of the spouse's social travel so that is it "dramatically more" than the value of her airfare, he said.

Congress in 2004 limited the impact of this tax change to a company's "controlling officers" and directors.

Nichols said the Senate version, which was approved in November, applies the accounting rules to all company employees. For example, if a pilot were to bring his child along on the trip, the pilot would now have to pay a fringe benefit tax and the company would lose a business expense deduction, he said.

The second proposed change impacts the way in which a company would value this travel as a fringe benefit. The Senate bill would require the company to either use the fair market value or the full costs, whichever is greater. Nichols said the pilot could face a tax for his child that could be calculated at $1,500 an hour. "It will be substantially more expensive for any person to travel for non-business.

"Personal travel is not just entertainment, but could include travel for charitable boards, other corporate boards, educational functions and advisory boards," Nichols said.

The changes would impact not just the corporation with its own planes but also the deductibility of charters it may arrange, or an owner's stake in fractional plans, he said.

A congressional committee estimates that these changes and similar ones that reduce tax shelters would generate $537 million in new taxes this year, or $5.2 billion by 2010.

"Congress is preoccupied with the abuses of executives, but it does not hurt those executive who are flying," Nichols told Regional Aviation News. Instead, it would hurt lower-level employees. A company may cut back on its flying, hurting pilots, the mechanics and the fuel dealers, he said. In the end, fewer new planes will be purchased, which then will harm those who work on the aircraft assembly lines, he said.

As NBAA tries to keep the Senate provision from becoming law, Nichols said the group is not trying to overturn the 2004 changes.

Even as the industry tries to fight off these tax hikes, it is coping with a confusing aviation fuel tax hike.

Language deep in the highway bill that was enacted last October includes a provision hiking the aviation fuel tax paid by non-commercial operators by 2.4 cents to 24.4 cents per gallon. However, these tax receipts are paid into the highway trust fund instead of the airport trust fund, said Todd Jorns, the legislative director for Regional Aviation Partners (RAP). However, if either the fixed-base operator (FBO) who sells the fuel or the aircraft operator who buys it applies for a 2.4 cent per gallon refund, the IRS will issue the refund and the 21.9 cents in tax receipts will then be transferred into the airport trust fund, Jorns said.

Jorns said the IRS has not clarified who should apply for the refund. There is a fear that the FBOs will simply pass on the higher tax and not file for a refund. The operator may not realize the fuel bill is higher because of a tax hike, Jorns said. If neither party files for the refund, then the entire 24.4 cents remains in the highway fund, depriving the airport trust fund of expected dollars.

RAP, NBAA and the National Air Transportation Association are urging their members to contact Congress to get the law changed.

>>Contact: Mike Nichols, NBAA, (202) 783-9000; Todd Jorns, RAP, (602) 685-4112.<<