But there's nothing wrong with an employer covering an employee's taxes per se (at least as I understand it). Employers commonly "gross up" certain bonuses and other payments/benefits where tax is due but the employer chooses to cover it for employees.

It can get a little complex, but examples just from companies I've worked with:
- Everyone in the company gets a fitness tracker as a holiday gift. The gift is taxable as a fringe benefit valued at $100, so the employer also adds a holiday gift bonus to the employee's paycheck which, after the bonus itself is taxed, makes up the amount of tax owed for the fitness tracker. In this case, the paycheck from which the fitness tracker is taxed ends up being the same net amount as every other regular paycheck that employee receives.
- Company decides to offer the same health benefits to domestic partners as to spouses, but laws in some states do not allow those benefits to be offered for the same premium rates. For those employees, employer adds an additional income payment to each paycheck for the impacted employees which, after taxes, makes up the difference in premiums between spouses and domestic partners. In this case, the paycheck for an employee who enrolls their opposite-sex spouse in a medical plan experiences the same net reduction as an employee who enrolls their same-sex domestic partner in the same plan and has the same salary.

In the case of miles, where we're saying that taxation is included in the original purchase of airfare from which the miles are earned - it's just a bit simpler in that the employer pays the tax directly (or...via he airline), vs. having to make the adjustments on employees' paychecks or at year-end. It's more akin to the employer covering the sales tax when an employee is reimbursed for buying meals or client gifts.