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# Aviation Fuel Tax Revenue Questions for the FAA from NASAO Members February 25, 2015
I. First, it is clear that 1987 is the grandfather point. For clarity, a tax in place before then and unchanged is grandfathered, but what if there is a tax in place before 1987 which has been amended either to change the rate, or to add or subtract what is covered (for example when Virginia changed its sales tax laws 25 years or so ago to exclude certain foods and medicines). Does that change the grandfathered status?
o It could since it depends on  Exempted aviation fuel, then added back in-not exempted  Rate changed from 4% to 6%, then only the 4% revenue is “grandfathered” – the overage must be used for airport purposes  What if tax “sunsets” but was then extended? Depends on if gap.  Amendments to the legislation may or may not result in exempt status. FAA will need to review the enabling and amendment language.
o Grandfather cutoff date for existing aviation fuel taxes is December 30, 1987. FAA will need to receive documentation filed with the action plans to determine the grandfather status of aviation fuel taxes. Amendments to legislation may or may not result in negating the grandfathered status depending on the amendment itself. FAA will need to review the legislation or amendments to aviation fuel taxes in order to confirm compliance with the federal requirements. II. What will be the enforcement mechanism for states and localities that do not come into compliance? Will funds be withheld? Other?

o If state or locality is an airport sponsor: treat as normal revenue diversion (finding of non-compliance, civil penalties, withholding of transportation grants, filing with U.S. district court to seek enforcement of order).2

o If state or locality is NOT an airport sponsor: impose civil penalties AND apply to U.S. district court for a cease and desist order. III. How will Block Grant states be impacted? Are there some additional penalties possible for block grant states?
o If block grant state is levying a tax on aviation fuel contrary to the revenue use requirements and the FAAs Revenue Use Policy, it could be a breach of contract between FAA and Block Grant State. o Sponsors and non-sponsors would be treated same whether under a block grant or not.
IV. One state has a general state sales tax on jet fuel. The state statutory provisions dedicating jet fuel sales taxes to aviation in the state passed in 1993. However, there were certain constitutional provisions in place in the state before 1987 that dedicate a portion of any general sales taxes to three other purposes (education, conservation, parks and soils). A legal interpretation was given in that state that said because the constitutional provisions dedicating general sales taxes to those other purposes were in effect before 1987, they are grandfathered in and the state should be in compliance with the FAA’s policy. Does the FAA agree with that interpretation?
o In general, FAA would agree, but we would want to make sure that i. The general sales tax subject to the constitutional provision was in place before December 30, 1987, and unchanged thereafter. ii. In general, if the revenue diversion was lawful, FAA would not be concerned with how the funds are spent – if tax was in place before December 30, 1987. V. If a state has a tax that is subject to the FAA’s policy and the revenue from that tax is constitutionally earmarked for non-aviation purposes: 1. May the state come into compliance with the FAA policy by exempting aviation fuel from that tax?
oSimply, yes. If aviation fuel is exempt from any state or local tax, there would be no issue. o This would be the easiest solution as far as FAA is concerned.3

2. Assuming the answer to the first question is yes, how long will the state have to implement such an exemption without incurring penalties or sanctions (assuming that until the exemption kicks in, the revenue will continue to be distributed according to the constitutional earmark)?
o The state will have one year (from December 8, 2014) to include the exemption of taxes on aviation fuel in the action plan. o Exemption to be implemented within a reasonable transition period, not to exceed three years (no later than December 8, 2017). 3. Will the FAA be providing formal notification to states on whether they are potentially not in compliance?
o Not unless the FAA receives a complaint or notification. o Too many possible state/municipality combinations for FAA to provide direct notification. 4. If so, when will that occur?
o Not applicable - won’t occur. VI. Is the FAA policy limited to aviation fuel sales tax revenue from all NPIAS airports or only federally obligated NPIAS airports?
o The issue is whether the aviation fuel is being taxed. The limits on use of aviation fuel tax revenues apply to any tax imposed on aviation fuel by either a State government or a local government taxing authority whether or not acting as a sponsor or airport owner or operator. o NPIAS does not come into consideration within the guidelines of the amendment. The restrictions on use of aviation fuel tax proceeds apply regardless of whether or not the airport is currently subject to the terms of an AIP grant agreement. VII. If only federally obligated airports: For the purpose of the FAA policy, does accepting a planning grant only (no construction grants) result in an airport falling under this new policy?
o For this purpose, an airport receiving a planning grant is deemed as having “received federal assistance” and therefore, this policy applies. (See clarification in the 2014 amendment to the grant assurances at 79 Fed. Reg. 18733, April 3, 2014.)4

oA sponsor undertaking a federally funded planning project is subject to the revenue use requirements. VIII. Offsets. Can tax on aviation fuel revenue be collected and used for non-airport/state aviation system purposes and then be off-set by equal or higher expenditures from the state/municipality on state aviation programs/airports?
o Under review by FAA.