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Ohio law contains 128 tax breaks that cost the state about $7 billion per year in lost revenue it otherwise would collect, according to the Department of Taxation.
State Rep. Mike Foley, a Democrat from Cleveland, wants to close some of these loopholes so the state has more money for schools, safety forces and other local government services.
Foley co-sponsored a bill in February to establish a committee that would review the state’s tax exemptions every two years. More recently, he tried to get approval for his plan by adding it to a broadly supported general tax bill, House Bill 508, under consideration in the House of Representatives on April 25.
Foley said during a floor speech that tax exemptions need to be reviewed because some of them are "fairly silly," such as a sales tax exemption related to private jets.
"I don’t think we need to be giving exemptions to rich people who own private jets," Foley said. "We’re giving tax breaks to guys that own private jets – that doesn’t make any sense."
Foley’s statement hits on individual tax burdens, a frequently discussed political topic that resonates with many voters. So PolitiFact Ohio decided dig into Foley’s claim.
Foley’s office provided us with a handful of documents to back up his claim, including a tax expenditure report presented in March 2011 by the Ohio Department of Taxation.
But before we examine the report and whether it supports Foley’s claim, let’s look into how these tax breaks work.
Here is the Taxation Department’s explanation:
"Tax expenditures represent tax dollars that are foregone through deductions, exemptions, credits, and other provisions in tax laws," the tax expenditure report says. "Tax expenditures result in a loss of tax revenue to state government, thereby reducing the funds available for other government programs. In essence, a tax expenditure has the same fiscal impact as a direct government expenditure."
Among the tax exemptions in the report is one for people who buy a share of a private jet, or what is called a "fractionally-owned aircraft."
This particular tax break was passed in 2003 as part of the state budget.
It does have some limitations. It was crafted to apply only to those who do business with qualified companies that provide fractional ownership of private jets. Qualified companies would operate at least 100 aircraft and meet other criteria.
The tax break does not apply to individuals who buy their own private jet.
Foley did mention fractional ownership at another point during his floor speech: "If you won a fractional or some other sort of ownership of a private jet, then we’re giving you an exemption on your taxes."
The tax loophole caps sales tax at $800 for the sum of shares of a fractionally owned jet. Fractional owners are charged a fraction of the $800 that corresponds with their ownership stake. So if somebody owns one-eighth of the jet, he would pay $100 in sales tax.
There are only two companies in Ohio that fit the requirements as a qualified company for this exemption, according to the Department of Taxation. That means only people who buy their fractional ownership from one of these two companies qualify for the tax break.
The department, however, would not disclose those companies because "the law prohibits disclosure of almost all information on specific taxpayers," taxation department spokesman Gary Gudmundson said in an e-mail.
Although the state would not say which two companies qualify for the exemption, NetJets and Flight Options are two prominent fractionally owned aircraft companies based in Ohio.
When lawmakers debated the merits of the tax break in 2003, a fractional-ownership company reported that its average share cost was $1.2 million, according to a Department of Taxation analysis of this tax expenditure produced in Jan. 2011. The analysis did not name the company.
The taxation department last year estimated in its tax expenditure report that the tax break for fractionally owned aircraft costs the state about $1 million a year.
So what does all this mean for Foley’s claim?
There is no doubt that a tax loophole exists for people who buy a stake in a private jet.
A listener hearing Foley’s quip about tax breaks for rich people buying private jets could believe he was referring to anyone who buys a private plane. The tax break, however, only applies to fractional ownership programs. That’s additional information that provides clarity. And to his credit, Foley did mention fractional ownership at a different point in his speech on the House floor.
And the average share price previously reported -- $1.2 million – suggests the tax exemption would be available wealthy people, just as Foley claimed.
On the Truth-O-Meter, Foley’s claim rates Mostly True.
The Ohio Channel, archived video of House session on April 25, 2012
Ohio Department of Taxation, Taxation’s Tax Expenditure Report, March 2011
Telephone interview with State Rep. Mike Foley
E-mail correspondence with taxation department spokesman Gary Gudmundson
Telephone interview with Zach Schiller of Policy Matters Ohio.
Policy Matters Ohio, report, "$7 Billion in Ohio Tax Breaks, and Nobody’s Watching," March 2011
Ohio Legislative Service Commission, final analysis of House Bill 95, 125th General Assembly
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