If you plan to charter a private jet or buy a jet card, there’s good news and bad news.
First, the bad news. The 5,593-page Consolidated Appropriations Act, 2021 passed by Congress last night offers continuing waivers and reductions of the Federal Excise Tax for renewable energy, beer, wine and other industries. However, the 7.5% FET tacked onto private jet charters for domestic flights as well as trips that begin or end within 200 miles of our northern and southern borders was not extended. That means it will kick back in on Jan. 1, 2021.
The good news is that there’s still a chance to fly FET-free well into the future. The taxable event takes place when you purchase your flights, not when you fly. If you book and pay for flights before midnight on New Year’s Eve, your future flights won’t be charged the excise tax.
Congress didn’t extend the holiday on collecting the 7.5% FET on domestic private jet flights. … [+]
What about funded jet cards? You deposit money – typically at least $100,000 – with a jet card provider. Each time you fly, the cost of the trip is deducted from your account. Some are sold by brokers and others by operators of the private aircraft.
While the IRS doesn’t have an official position, at least a dozen companies believe that the taxable event is when you purchase the jet card. That includes many of the segment’s largest players such as NetJets, Wheels Up and Sentient Jet.
In some cases, there is a window on how long you have to fly. For example, NetJets’ Marquis Jet cards have a 24-month term. Others will let you deposit as much money as you want and promise tax-free flights until your funds are used.
It means that between now and when the ball drops, there could be a literal Black Friday for jet card buyers. Savings can be significant. If you buy 100 hours on a Gulfstream G450 from Magellan Jets, you’ll save $94,185 in FET.
Whether it’s a shopper’s paradise or a scenario where only fools rush in will be based on how you fly and your willingness to study the fine print.
But before we get to that, there’s the IRS.
Whether or not the taxable event is when you buy the jet card or when you book your flights and the funds are removed is undetermined. If the taxman decides your flights should have been charged the FET at some later date, it appears that final responsibility would end with the operator – not you. However, consumers should review their contracts to see if there is an allowance for your provider to return to you to collect the tax retroactively.
The more significant issue is, are you joining the right program? While jet cards offer convenience and pricing predictability, the rules and policies governing how each provider charges for flights and what’s extra make airline pricing seem simple and straightforward.
For example, daily minimums vary not only by the provider but aircraft category and even how much you deposit. At a high level, one might assume that Program A with a $5,000 per hour rate on light jets will cost you less than Program B, charging $6,000 per hour. Of course, if you make one-hour flights and Program A has a two-hour minimum, as many do, you would be charged at least $10,000, so 67% more than Program B, even though Program A’s hourly rate was 17% lower.
If you think that you are ‘saving’ $7,500 in excise tax with a $100,000 deposit, the above example shows that by choosing a jet card that doesn’t fit your flying needs, you would give back all of that money after your first return trip.
Another variable that can impact price is the fixed-rate service area, often referred to as the primary service area. The benefit is that you have your contracted hourly rate, which is charged only for the time you are flying. You don’t have to pay repositioning charges.
Your friend loves his card provider and uses it to go to his house in the Bahamas. If it’s good enough for him, it should be good for you, right? That’s until you find out Barbados is not in the fixed-rate area. When you call to book, you are surprised to see you have to pay for the airplane to return to the U.S. after dropping you off and for the empty flight down to pick you up.
There are also long-flight discounts that can save you $30,000 or more on coast-to-coast flights and discounts for qualifying roundtrips that can save up to 40% over one-way pricing. Some jet cards don’t have surcharges on peak days, while others charge premiums up to 100%. The number of peak days varies widely – from 0 to over 100 depending on provider and program. So do the cancelation policies as well as booking windows. Some programs will let you book less than 24 hours before your flight. Others require multiple days’ notice. The same is true if you want to change or cancel, something that might happen more often in a COVID-19 world. If you need to cancel inside the deadline, you could lose the entire cost of your flight, so possibly tens of thousands of dollars. Oh, and some programs include the cost of de-icing while others charge at a cost that can range up to $10,000 for larger jets.
Other variables include a minimum age for unaccompanied minors – vital if you plan to fly in the grandkids. Not all include WiFi. Even bringing pets varies – not all private jets allow your fury friends.
Not to bore you, but there are also minimum seat guarantees. Some programs offer just six seats on a light jet while others have as many as eight. That means with one program, you might be able to do your trip on a less expensive light jet while on another you would need a midsize or even super midsize aircraft. It’s all in the fine print.
In other words, while it may make sense to load up on some jet card hours before the end of the year, I highly recommend only doing so if you have a specific idea of where you want to travel, who’s coming with you and what type of flexibility you have. Many programs are non-refundable, so buy wisely.
I’m Editor-in-Chief of DG Amazing Experiences, a weekly e-newsletter for private jet owners and Private Jet Card Comparisons, a buyer’s guide comparing over 250 jet card programs from major players like Flexjet, Jet Linx, NetJets, Sentient Jet, Wheels Up, VistaJet, and XO to newcomers like FlyExclusive and boutique brokers. You’ll also find performance profiles of popular private jets, from turboprops King Air 350, Pilatus PC-12 and HondaJet to the Phenom 300, Challenger 300 and 350, Gulfstream G450, G550, G650, G700, Bombardier’s popular Global Express family, the iconic Learjet and S-76 helicopter used by both Queen Elizabeth and Donald Trump. There’s a free guide explaining various options and even a guide for first-timers and specifically what you need to know before chartering. And before you fly, find out what’s an FBO. You’ll also find a Deal Book, cataloging M&A activity and launches by key players. I’ve spent my working career in travel and luxury media, for 14 years at Travel Agent magazine, where I began as a reporter, then covered the airline industry as Aviation Editor and ended up rising to Group Publisher. In 2000 I started Elite Traveler, a consumer lifestyle magazine distributed globally aboard private jets, where I was President and Editor-in-Chief until 2014. In 2007, I co-authored of “The Sky’s the Limit: Marketing to the New Jet Set.” In 2014 I wrote “23 Ways to Create More Sales Opportunities 25 Minutes,” and in 2016 I co-authored “Secrets of Selling to the Super Rich.” Verb named me as one of the Top 25 Digital Luxury Experts to follow. For more private aviation and news on jet cards, private aviation memberships, and fractional ownership, visit Private Jet Card Comparisons’ news updates.