Property Tax Web Series

Tax evasion is difficult to measure, since evaders try to avoid detection and counter-factual behavior is hard to establish. I overcome these issues in the context of a mobile asset, general aviation aircraft. Strategic plane owners typically can evade property taxes by flying to certain locations on a particular date. Using a database of several million individual flights, I measure such “tax flights.” To distinguish between tax-motivated flights and typical flight traffic, I exploit variation over time, place and individual in evasion’s benefit (taxing and non-taxing states, state and local tax rates, plane value, exemptions for certain planes, tax valuation methods) and cost (distance to non-taxing jurisdictions and fuel costs) as well as other institutions (assessment date). I find evidence that tax flights are higher in taxing states just before the tax date. There is direct evidence of evasion as planes which take tax flights are missing from local tax rolls. Business-owned aircraft are more likely to make tax flights than personal owned ones, as are planes where the owner lives in very high income or wealth areas. While relatively few planes evade taxes, they are disproportionately high value and so there is a large reduction in the tax base. The results have implications for optimal tax theory and policy, particularly with regards to evasion costs and deadweight loss.

This paper was presented by Koleman Strumpf (Wake Forest University) on May 10, 2024 as part of the 2023-2024 Syracuse-Chicago Webinar Series on Property Tax Administration and Design. Christopher Berry (University of Chicago) was the discussant for this presentation.