Paying taxes is an inescapable reality – even in space

How will we tax a mission to Mars? Law professor Adam Chodorow ponders how the IRS will think about space.

NASA aims to get astronauts to the vicinity of Mars by the mid-2030.

Taxes are going to play a big role in a Mars mission, both in getting there and upon arrival, Adam Chodorow, a law professor at Arizona State University in Tempe, said at an event hosted by Future Tense, a partnership of Slate, the nonprofit New America Foundation and Arizona State University.

"Taxes matter, and the way we colonize space will probably be driven by the tax system," Chodorow told the audience. "We're heading to Mars soon, so we need to be thinking seriously" about the role taxes will play, he added.

Humanity will almost certainly rely on private enterprise to build the ships to get humans to the Red Planet, he said. Companies may go to Wall Street for funding, but investors won't send capital to outer space without making some profit, so the government will probably provide support in the form of tax breaks. [Life in Space: An Astronaut's Video Guide]

"To get [to Mars], we're probably going to be giving tax incentives to ships," Chodorow told in an interview. "Once we get there, if you're a U.S. citizen or U.S. company, you will owe taxes on the money you make," he added.

The U.S. tax system gives money back in two ways: deductions and credits. A tax deduction offers indirect relief by reducing the amount of taxable income, whereas a tax credit directly reduces the amount of tax owed, Chodorow explained.

Companies contracted to build ships to go to Mars will most likely receive tax credits, Chodorow said.In 2003, Congress attempted to set up just such a system, with the Invest in Space Now Act, which would have given tax credits to investors in commercial space launch vehicles, but the bill didn't pass.

How does the current tax system apply to profits made in space?

The U.S. employs worldwide taxation, but this could more accurately be called "pangalactic taxation," Chodorow said. Even astronauts have to pay taxes. During NASA's Apollo 13 lunar mission in 1970, astronaut Jack Swigert, who was originally part of the backup crew, ended up in space on Tax Day having not filed his taxes. He applied for an extension and received one, before a serious malfunction caused the crew to abort their moon landing and get back home safely.

Another question for space-based taxpayers might be, "What's the appropriate tax year?" The Martian year is 686 Earth days, while a day on Uranus is 34 Earth years. "Think about the deferral opportunities," Chodorow said. And what would happen if you traveled at relativistic speeds, which would make time appear to run more slowly for you? "You might have to file your taxes 100 times in one year," he said.

And then there's the matter of tax filing and collection in space. Electronic filing will make things easier, but once people travel to Mars, there will be a communication delay. "If you think it's hard to get through to the IRS today, try it with a 21-minute delay," Chodorow said. Also, the IRS doesn't have a way to come audit you in space, he added.

Once companies have taken up residence on Mars, they will organize outside of the United States to avoid paying taxes. Americans who live on Mars may renounce their U.S. citizenship for tax purposes, as many Americans who live abroad already do, Chodorow said.

Taxation on Mars may be decades away, but giving it some thought now could have more direct benefits.

"It may be early to really seriously think about what our tax system for Martians should be, but thinking about it might actually improve the current system" on Earth, Chodorow said.

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