The recent tourism type travel of well-known billionaires Richard Branson (July 11) and Jeff Bezos (July 20) is a big deal. It also raises tax considerations. I’m talking about tax considerations beyond whether these wealthy owners of space exploration companies (Virgin Galactic and Blue Origin) engaged in any transaction at the height of there journey where the sourcing of the transaction is uncertain.
Congressman Blumenauer (D-OR), member of the House Ways and Means Committee announced on July 20 that he will proposed the Securing Protections Against Caron Emissions (SPACE) Tax Act. While the text is not yet available, he mentions in his press release “new excise taxes on commercial space flights carrying human passengers for purposes other than scientific research.”
Blumenauer notes that we have excise taxes on air flights and the emissions that are generated (negative externalities). He suggests a two-tiered system. “The first tier would apply to suborbital flights exceeding 50 miles above the Earth’s surface but not exceeding 80 miles above the Earth’s surface. The second tier, which would levy a significantly higher excise tax, would apply for orbital flights exceeding 80 miles above the Earth’s surface.” NASA flights for scientific research would be exempt. He doesn’t address what the application to what we will likely see on future NASA flights – a commercial launch.
I’ve been fascinated with space exploration since I was a kid. For the 50th anniversary of Apollo 11 landing men on the moon, I wrote a tax-related article about it for Tax Notes State (Nellen, Tax Relevance of Tech News: Part 1 – Apollo 11 50th Anniversary, 7/18/19).
I addressed tax within these categories:
1. Federal Tax Rules – updating needed to existing rules such as IRC §863(d).
2. State Authority to Tax – address in an update to PL 86-272.
3. Apportionment and Sourcing – we have some case law here and Cal. Regs. 25137-15, Apportionment and Allocation of Space Transportation Companies. More is needed from all states and uniformity would be helpful.
4. Incentives – the R&D and manufacturing activities of commercial space exploration brings high qualify job to a state and should have a multiplier effect.
5. Excise Taxes – Similar to Blumenauer suggests, similar to other travel, excise taxes on the fuels and/or the tickets is appropriate.
6. Addressing Negative Externalities – the emissions, use of fuel, and creation of some space junk suggest a need for fees or taxes.
Finally, I suggest that a Space Tax Study Group be formed to study and suggest solutions for these federal and state tax issues and to do so sooner rather than later.
What do you think? Professor Annette Nellen, San Jose, CA
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Annette Nellen, CPA, Esq., is a professor in and director of San Jose State University’s graduate tax program (MST), teaching courses in tax research, accounting methods, property transactions, state taxation, employment tax, ethics, tax policy, tax reform, and high technology tax issues.
Annette is the immediate past chair of the AICPA Individual Taxation Technical Resource Panel and a current member of the Executive Committee of the Tax Section of the California Bar. Annette is a regular contributor to the AICPA Tax Insider and Corporate Taxation Insider e-newsletters. She is the author of BNA Portfolio #533, Amortization of Intangibles.
Annette has testified before the House Ways & Means Committee, Senate Finance Committee, California Assembly Revenue & Taxation Committee, and tax reform commissions and committees on various aspects of federal and state tax reform.
Prior to joining SJSU, Annette was with Ernst & Young and the IRS.
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