Cross-border tax questions present some of the thorniest issues in tax. For example: when an American company like Apple takes components from 43 different countries, assembles them into an iPhone in China, and sells it in London or Paris, who gets the income tax on that profit? The day-to-day work of answering that question is about as exciting as watching paint dry. International tax attorneys may not spend their days giving dramatic court arguments like Atticus Finch. But when they pack up for the day, they drive expensive cars home to expensive houses in expensive neighborhoods.
Now, though, the international tax bar is on the cusp of generational opportunity. The Space Port Japan Association has unveiled plans for Spaceport City, a solar-powered base for space-related research and commercial flight. The site will offer a hotel, a 4D movie theater, and a farm shop selling “astronaut food” made from algae and insects. They hope to open the station within 10 years to work with companies like Virgin Galactic, Blue Origin and SpaceX. This is no mere fantasy — Bank of America expects space to become a trillion-dollar-per-year industry by 2030.
Naturally, that got us wondering what will taxes look like for the astronauts, business travelers, and plain old tourists hopping commercial space shuttles for work or play. We’re not just talking about customs duties or sales taxes on moon rocks. The companies launching flights from Spaceport City are looking to make bank. How will those taxes work?
Here in the U.S, the IRS taxes citizens on all income wherever they earn it. There’s a “foreign earned income exclusion” that lets them avoid tax on up to $107,600 of income earned abroad. There’s a foreign housing exclusion for up to $17,206 your employer reimburses you for housing while on foreign assignment. And citizens who pay tax to foreign jurisdictions can claim a credit for those taxes on their U.S. returns. Significantly, those rules all assume the income is subject to tax somewhere else.
Sadly, none of those breaks apply in space because there’s no tax. In 2008, the Tax Court ruled that a married couple couldn’t claim the foreign earned income credit for wages they earned at the McMurdo Station on Ross Island, Antarctica. Why? Because Antarctica isn’t a “country” under the sovereignty of a government other than the U.S. or its territories. And since there’s no government, there’s no tax. That same precedent applies to astronauts earning wages in near-earth orbit, or even the moon. (Fun fact: civilian astronauts typically make between $66,167 and $161,141.)
Having said that, at some point, someone is going to pay an extraterrestrial tax. Maybe bases on the moon or Mars slap a tax on residents. Maybe Spaceman Spiff gets clipped for withholding on Planet Anhooie-4. We can’t imagine that whoever becomes the Neil Armstrong of tax is going to be happy with that particular honor.
(While we’re on the topic, we can’t help but wonder: if we discover extraterrestrials with a tax system that looks anything like ours, can we truly say we’ve found “intelligent” life in space? Or not?)
The good news is, it’s going to be a decade or more before we all have to worry about taxes in space. The bad news is, that doesn’t mean they aren’t going to hurt. (You think Ellen Ripley from all those Alien movies doesn’t think she deserves a break?) So fix your gaze on the stars, and count on us to help with a soft landing!