PDF | Free | 37 pages
Download PDF

Tax Flights

Koleman Strumpf

December 2012, English

Tax evasion is difficult to measure, since evaders try to avoid detection and counter-factual behavior is hard to establish. This paper considers evasion in an environment where these two issues can be overcome. Aircraft are taxed as personal property in some American states. Taxes are owed if the plane is hangared in the state on one specific date. Strategic plane owners may try to evade the tax by flying to a non-taxing jurisdiction just before this date and returning shortly thereafter. I assess such tax flights using a database of about twenty million trips covering all general aviation flights in the United States during the period 2004 to 2009. For each flight I know the time, location of the arrival and departure airport, the address of the owner, and the type of plane. I match this to a database of local tax rates and valuation of planes to measure the potential tax bills. To establish the counter-factual flying behavior, I exploit variation in tax policy (at both the state and local level), exemptions for certain classes of planes, type of plane, tax valuation method, and tax date. Preliminary results indicate the presence of tax flights.