NetJets Fight Sheds Light on Tax Break for Super Wealthy

Warren Buffett
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Warren Buffett

has been one of President Barack Obama’s favorite investors at least since last year, when the Berkshire Hathawaychief pointed out that he paid less of his income in taxes than his secretary did. That led to the “Buffett Rule,” under which anyone earning $1 million a year or more would pay 30 percent of their income in taxes. Obama has been pressing Congress to turn it into law.

Now a lawsuit in Ohio may call into question Buffett’s commitment to paying his fair share.

The federal government is suing NetJets, the Berkshire Hathaway company that sells and manages fractional ownership in private planes, for $366 million in back taxes. The government’s case is based on a transportation tax airlines collected on commercial airline flights. A “ticket tax” equal to 7.5 percent is added to the price of every ticket sold by commercial carriers, plus an additional $3.80 for each leg of the trip.

Wealthy jet owners—even partial owners like NetJetters—get to fly tax-free. The IRS argues, however, that NetJets is providing a taxable transportation service to the owner-customers of its fleet—and therefore should be charging the ticket tax. (My colleague Andrew Ross Sorkin describes the case in greater detail here.) NetJets, and by extension Buffett, is saying their customers should be exempt.

Even if NetJets prevails in the Ohio case, the company may well lose. Obama has often singled out other tax breaks for private jets in the past. “This would be a great election year issue for Obama,” one Democratic adviser told me. He thinks the Obama administration would threaten this tax break if it shows up on its “political radar.”

That move, in turn, would likely provoke the president’s opponents to use the case to portray Buffett’s calls for taxing the wealthy as insincere.

That’s what’s called a win-lose proposition.