Summer vacation season is still a month off but the NY Sun deliver some bad news for the wealthy who are planning to travel by private plane or yacht. A number of states are looking to tax private planes and yachts that come to their states and stay for a short time. Currently New York does not tax nonresidents who bring aircraft or boats into the state but Maine charges pilots who have their plane in the state more than 20 days a "use tax." A use tax is a form of excise tax levied on personal property. The NY Sun article reports that a Massachusetts pilot got a bill for more than $25,000 for keeping his plane in the state in 2003.

The Maine state government website has addressed the use tax controversy clarifying their policies by saying that "in most situations, nonresidents flying into Maine do not owe the tax and are not at risk of being assessed." They also stress that the Maine use tax is not a possibility unless an aircraft comes into Maine within the first 12 months after its purchase by a nonresident and that if the aircraft is present in Maine within the first 12 months for purposes other than repair and maintenance, no Maine use tax is due if a sales or use tax of 5% or more was paid in another state. In the case of the pilot in the NY Sun article he had not paid sales tax when he bought the plane in Massachusetts because Massachusetts does not charge sales tax on planes. Pilots are also wary of traveling in Florida, Illinois, and Washington which have all toughened enforcement of sales and use taxes on aircraft. Each state has its own policies on use tax so it's a good idea to check the state website if you are planning to keep your yacht or plane in a state other than your home state for longer than a couple of weeks especially if your plane or boat is a new purchase and you did not pay sales tax.

And there was more bad news from the Senate recently. The U.S. Senate voted in favor of legislation to raise taxes on gasoline for private jets. The tax hike will help pay for updating the FAA air traffic control system. The bill will have private jet owners paying 36 cents per gallon in tax up from 21.8 cents.

It's the season for worrying every last deduction you can possibly take on your taxes. As you are sweating those last minute details here's a story to make your blood boil. The San Francisco Chronicle reports that Oracle CEO Larry Ellison will get a $3 mllion tax break because his Japanese-style home in Woodside, California is "functionally obsolete."

Ellison's Octopus Holdings LP bought the 23-acre site in May 1995 for $12 million and then sent to work on a nine year project constructing his version of Xanadu, a lavish 8,000-square-foot home based on a Japanese emperor's 16th century estate. Ellison seems to have a taste for all things Japanese, he also bought a home in Atherton in 1987 and turned it into a Japanese-style palace with seven bedrooms, a traditional tea house, bath house, gardens, a koi pond and waterfalls on 2.8 acres. That home was quietly put on the market in 2005 for $25 million. The property website for that home is here.

According to the Chronicle, the assessor's office based its January 2005 valuation of Elllison's Woodside home on reproduction costs, the $166.3 million it should have cost to build the home. The construction actually cost more than $200 million. But attorney William Bennett representing Octopus Holdings argued that the property was worth only $64.7 million at that time and in the two tax years, since entitling Ellison to a $3 million rebate on taxes paid. The appeals board agreed and so the $3 million will come from San Mateo county's property taxes paid this year. Of that $3 million it is estimated that nearly $1.4 million would have gone to schools in the area .

Ellison's home decline in value is shocking in an area that boasts very expensive real estate thanks to the Googleaires, people who made their fortune at Google and invested in big homes locally. The reason for the dip in value is essentially that Ellison created a home that no one else would want to buy. The home is said to suffer from "significant functional obsolescence" because the Japanese architecture, elaborate landscaping and over improvements to the property have made it a home that is costly to maintain and has reduced value to to others.

Ellison, who has a net worth of $25 billion according to Forbes, has turned his attentions to Southern California in recent years. In 2005 he picked up five lots in Malibu's pricey Carbon Beach area for a reported $65 million and is said to be looking into buying an NFL franchise for Los Angeles.

As the Chornicle article points out, perhaps the only good news out of this may come from the fact that it draws attention to the fact that homeowners can have their property values reassessed. With the declining real estate market in many regions some people may be in a situation where their property is being over-assessed but they are not aware of it.

[Thanks to Uncle Roger and Lana for calling our attention to this one]

Is collecting art a luxury or an investment? This simple question has some complex repercussions. The Wall Street Journal reports on the legislation sponsored by two senators, Pete Domenici (R., N.M.) and Charles Schumer (D., N.Y.) to change the tax treatment of sales of art and other collectibles. The capital-gains tax rate of 28% for the sale of art is quite steep compared with only 15% for the sale of real estate and securities (the rate for real estate and securities was also 28% until two measures reduced the rate). The senators argue that the tax rate is unfair to the art industry and punish those who invest and deal in art. Their legislation is endorsed by both Christie's and Sotheby's auction houses and the Art Dealers Association of America.

Another long-standing issue in the art community is the fact that when artists donate their work to museums, libraries and other nonprofit institutions they are only able to deduct the cost of materials rather than the full fair-market-value deduction on their taxes for their gifts. Talk about a disincentive to donate.

Is the problem that the government does not see art as serious business? The WSJ article quotes Joseph Cordes, professor of economics, public policy and public administration at George Washington University who says that the government is interested in encouraging people to invest in business that stimulate job growth and tax revenue and art doesn't really do that. He also says that reducing the capital gains on art sales might discourage certain collectors from donating to museums.

Those opposing changes to the law say that lowering the capital-gains tax rate would just benefit the wealthy without adding anything to the overall economy. The question may come down to the perception of the art world. Is it simply a luxury for the wealthy or is it an industry that impacts people at a variety of income levels? Part of the resistance to these tax bills may be that in supporting them those in Washington could be seen to be creating another way to help the rich get richer.

I can't believe I'm about to say this: Oh, those poor rich people.

But it's kinda true, if you're in a generous and sympathetic mood and willing to look at the numbers. The more money you have the more money you need, it's as simple as that. The luxury market and the prices of luxury goods is rising at about 3 times that of the standard market and of standard goods. Part of the reason for this is the fact that although there's more and more money floating around in the world there is still a finite amount of goods to be purchased with that money, and for people with money to spend status symbols become almost exclusively defined by their price: the higher the better.

It's a LOT more complicated than that, but it really can all be summed up in the simple phrase "it's expensive being rich!"

In what seems to be a strange turn of events in today's tourism-driven world, the island of Sardinia is making an attempt to preserve it's natural beauty (and make a little money) by limiting tourism. The President of Sardinia, Renato Soru, has been fighting for a long time to put "luxury taxes" into effect, and he's finally won. Aimed mostly at the super rich (after all, Sardinia has been nicknamed "the playground of the rich"), the steep set of taxes will affect mostly items like second homes, private yachts, aircraft, and hotel rooms. Opposition of the new taxes are afraid it will drive too much tourism and development out of Sardinia, not to mention possibly give the country a negative image.

As much as I hate taxes, I always have to support efforts to preserve natural beauty and prevent too much tourism -- even if they do make money doing it.

With the Emmy Awards approaching in just a few weeks, the Academy of Television Arts and Sciences (ATAS) took the time to remind celebrities that their swag bags are considered taxable income and need to be reported as such when tax season rolls around. This is no small thing, either. The value of this year's Emmy gifts is estimated to be between $27,000 and $33,000. The ATAS even sent out letters to the presenters asking for compliance with the various tax codes with a waiver to sign, proving that they read it.

One of the reasons that the ATAS is being rather strict is that the IRS reportedly stands to collect over $1million from Oscar bags alone, which were worth over $100,000 each last year, and the ATAS doesn't want to be held responsible for any tax problems stemming from the Emmy Awards.

For a full list of the goodies that the Emmy presenters will be getting, click past the jump.

This year there is a special donation advisory to be aware of, the Katrina Emergency Tax Relief Act of 2005 provides tax benefits for those affected by the storm and for those who have donated. There is a much larger allowable tax deduction for cash contributions made from August 28 and December 31, 2005. This article in the Magic City Morning Star has more details. And although has a lot has been done and the area devastated by the fall hurricanes is still in need of help. There are many places to donate to hurricane relief but theRed Cross and the Bush-Clinton Katrina Fund are two of the most popular.