March 31,2016 

SENT BY EMAIL and FEDERAL EXPRESS 

Byron K. Huffman, Acting Director 

Office of Airport Compliance and Management Analysis 

Federal Aviation Administration 

55 M Street SE 

Washington DC 20003 

Re: City of Plwen ix/A viation Fuel Taxes 

Dear Mr. Huffman: 

We represent the City of Phoenix (the "City"), sponsor of Phoenix Sky Harbor International 

Airpmi, with respect to compliance with the FAA's Policy and Procedures Concerning the Use 

of Airport Revenue (the "Revenue Use Policy") as it relates to the use of proceeds from taxes on 

aviation fuel. The FAA granted the City an extension from December 8, 2015 until March 31, 

2016 to sub.mit an action plan under the Revenue Use Policy. Having now carefully reviewed 

the City's taxes on aviation fuel, we are of the view that they are grandfathered and, accordingly, 

that there is no need for the City to take any conective actions. 

Federal Regulatory Bacl{ground 

The City has for many years been a recipient of federal grants under the Airport Improvement 

Program ("AlP"). Since 1982, Congress has mandated that the City, as a sponsor of AlP grants, provide a grant assurance to the Secretary of Transportation, acting through the Federal Aviation 

Administration ("FAA''), that the City will only use airport revenue for the capital and operating 

costs of its airport system, and not fot General Fund purposes. This requirement is cmTently 

codified as 49 U.S.C. § 47107(b)(l); it is the subject of AlP Grant Assurance 25; and it is 

amplified by the FAA's "Policy and Procedures Concerning the Use of Airport Revenue," 64 

Fed. Reg. 7696 (Feb. 16, 1999) (the "Revenue Use Policy"). 

ANDERSON & KREIGER LLP I ONE CANAL PARK, SUITE 200, CAMBRIDGE, MA 02141 I 617.621.6500 
1987 statute, that 

[ s ]tate or local taxes on aviation fuel (except for taxes in effect on December 

30, 1987) are considered to be airpmi revenue subject to the revenue-use requirement." 64 Fed. 

Reg. 7716. The Revenue Use Policy was otherwise silent on the issue. In November 2013, the 

FAA gave notice of a proposed amendment to the Revenue Use Policy that would focus on 

compliance with the 1987local aviation fuel tax provision enacted by Congress. See 78 Fed. 

Reg. 69789 (Nov. 21, 2013). After receiving comments, the FAA promulgated a formal 

amendment to the Revenue Use Policy in November 2014. See 79 Fed. Reg. 66282 (Nov. 7, 

2014) (the "Amended Revenue Use Policy"). 

The FAA's Amended Revenue Use Policy took effect on December 8, 2014. 79 Fed. Reg. 

66283. The Policy requires that affected airport sponsors (and non-sponsoring units of 

government imposing aviation fuel taxes) submit "action plans" to the FAA by December 8, 

2015 detailing how they will comply with the Amended Revenue Use Policy and the underlying 

1987 statutory provision. See 79 Fed. Reg. 66386. 

The Phoenix Taxes on Jet Fuel 

The City has continuously imposed taxes on the sale and use of jet fuel since at least April1, 

1987.2 Phoenix Ordinance G-2976 (a true and correct copy of which is attached at Tab A), 

effective April 1, 1987, rewrote Chapter 14 of the Phoenix City Code ("PCC"), "Privilege and 

Excise Taxes," in accordance with the State's model tax code. Section 14-460(a) of the new tax 

law imposed a tax of 1.2% of the gross income from the business activity of selling tangible 

personal property, including jet fuel, at retail, and Section 14-610(b)(1) imposed a tax of 1.2% of 

the cost of tangible personal property, including jet fuel, acquired from a retailer and stored or 

used in the City. The City began to levy these taxes on the sale and use of jet fuel effective April 

1, 1987. See Ordinance G-2976, Section 7. There is no doubt that these were local taxes on 

aviation fuel "in effect on December 30, 1987" within the meaning of§ 47107(b)(1), Grant 

Assurance 25 and the FAA's Amended Revenue Use Policy. The City used the proceeds of 

these taxes for General Fund purposes, as allowed by federal law. 

If the City were still levying privilege taxes in these forms on the sale and use of jet fuel, there 

would, accordingly, be no doubt that the City could lawfully continue to use the proceeds of 

these taxes for General Fund purposes. In 1991, however, the City amended the form of its taxes 

In 1996, the Congress made the airport revenue-use restrictions applicable to all airpmt proprietors that 

receive federal financial assistance even ifthey are not AlP grant sponsors. See 49 U.S.C. § 47133(a). This 

statutory enactment also grand fathered local taxes on aviation fuel in effect on December 31, 1987 and does not alter 

our analysis. 

2 The City of Phoenix does not tax the sale or use ofavgas or receive any revenue from the State of 

Arizona's taxation of avgas. 
3458, Section 8) and has remained in effect ever since. The City

s conversion of the form of its 

levies raises the question of whether the current taxes were "in effect on December 30, 1987" 

within the meaning of the federal revenue-use rule. 

Congress provided no guidance as to exactly what it meant when it excluded from the revenueuse rule local taxes on aviation fuel "in effect on December 30, 1987," and the FAA does not 

discuss this "grandfathering" rule in any detail in its Amended Revenue Use Policy. The 

Amended Revenue Use Policy does provide, however, that it applies "to a new assessment or 

imposition of a tax on aviation fuel, even if the tax could have been imposed earlier under a 

statute enacted before December 30, 1987." Amended Revenue Use Policy,~ IV.D.4.d, 79 Fed. 

Reg. at 66288 (emphasis added). 

The commercial context and legislative history of the 1991 amendments to the City's jet fuel 

taxes show that they were not a "new assessment or imposition" of a tax within the meaning of 

the Amended Policy because the change in the form of the tax was not intended to increase the 

amount of the assessment. 

The 1991 amendments were prompted by the airline industry, which consumes the lion's share of 

jet fuel and bears the heaviest burden of the jet fuel tax. Airlines have a strong desire for 

predictability in their costs. Because the quantity of jet fuel to be consumed is stable and 

predictable, but the price of jet fuel is not (as events of the past year have dramatically 

illustrated), the airline industry sought to have jet fuel taxes based upon gallons purchased, rather 

than upon dollars paid, throughout Arizona. This can be seen from various contemporaneous 

documents that were found in the City's archives. 

An August 12, 1991 memorandum from the Tax & License Administrator to the Deputy City 

Manager (a true and correct copy of which is attached at Tab C) reports that (a) representatives 

of America West Airlines and Southwest Airlines (then the City's two dominant hub carriers) 

supported the tax revision; (b) the amendment "provides the airline industry with the ability to 

more accurately budget taxes on jet fuel because quantities purchased are relatively stable while 

sales prices can vary widely"; and, impmiantly, (c) "[t]he taxation of jet fuel at a rate of0.732 

cents per gallon will return approximately the same $1,400,000 in City taxes received during 

1990 on 1.2 percent of jet fuel sales." 

The August 13, 1991 "Request for Council Action" (a true and correct copy of which is attached 

at Tab D), which led to the new tax provisions in Phoenix, recites that the purpose of the 

amendments was to provide the airlines with better ability to budget their jet fuel tax liability and 

to bring the City's jet fuel tax into alignment with the amended State provision. And an 

August 15, 1991 memorandum to the City's Tax Administrator and Deputy City Clerk from the 

Chief Counsel for the Civil Division (a true and correct copy is attached at Tab E) reiterates that 
but the airlines, to our knowledge, have never claimed that the 1991 changes in the fmm of the 

jet fuel taxes in Phoenix caused the City to lose its "grandfathered" status and required the City 

to use jet fuel tax revenues only for airpmi or aviation purposes. 

Given the purpose and effect of the 1991 amendment - to improve the ability of the airlines to 

budget for the payment of jet fuel taxes without increasing the amounts to be paid to the Citythe FAA should find that the 1991 amendment was not "a new assessment or imposition of a 

tax" within the meaning of~ IV.D.4.d of the Amended Policy.3 

We hope that the FAA will agree that the City's current taxes on jet fuel sales and use in Phoenix 

are "grandfathered" under federal law and that there is no need for the City to take any corrective 

action with respect to its use of jet fuel tax revenues for General Fund purposes. 

The City commits that it will advise the FAA of any future amendments to its tax code that could 

affect its grandfathered status. 

Please let us know ifthe FAA has any questions or concerns about the City's position. 

Thank you. 

es E. Bennett, A.A.E. 

Denise Olson 

Brad Holm 

Jo Ellen McBride 

The City is aware that the Arizona Department of Transportation ("ADOT") has submitted to the FAA an 

Action Plan with respect to the State's own collection and distribution of aviation fuel tax revenues- and that 

ADOT makes no claim that the State's aviation fuel taxes are "grandfathered" under federal law. Under Arizona 

Jaw, ADOT collects transaction privilege use taxes, including aviation fuel taxes, for itself and on behalf of 11 

"program cities." Phoenix is not a "program city"; ADOT does not collect any aviation fuel taxes on behalf of the 

City or distribute any aviation fuel tax revenue to the City; and the City is not bound by ADOT's apparent position that the aviation fuel taxes collected and distributed by the State are subject to the federal airport revenue-use 

constraints.