## CITY OF MERCED "Gatewayto Yosemite"

Merced Regional Airport Telephone (209) 385-6873
December4, 2015

Mr. James T. Brown (Email: James.T.Brown@faa.gov) Finance Management Federal Aviation Administration 800 IndependenceAvenue SW Washington, DC 20591 Fax (209) 388-8994

Subject: Action Plan Submission Pursuant to FAA Policy and Procedures Concerning the Use ofAirport Revenue (79 Fed. Reg. 66282-01, November 7, 2014). Dear Mr. Brown: This letter is in response to the requestfor an action plan forthe City ofMerced to convey its intentto complywith the FAA ruling related to salestax revenues derived from aviation fuel sales to the extent that ruling complies with federal law. This includes the process likely necessaryto amend any non-compliant local ordinancesto achieve compliance and the development of reporting requirements and tracking systems for specific information on aviationfuel tax revenueswhich in California means "jetfuel" as othertypes ofaviation fuels are exempt from sales tax in this state. It is our understanding that the State of California will be submitting an Action Plan pertaining onlytothe state's portion ofthetax. California's state and local governments already provide extensive services to airports including infrastructure maintenance, fire protection, public safety, environmental protection, and noise abatement. These services and improvements are funded with general sales taxes, and other taxes and the City of Merced believes these local expenditures exceed the sales tax revenues derived from the sale ofaviation fuel. Applicable Lawthat May Require Amendments for Compliance The City of Merced owns and operates the Merced Regional Airport (MCE). The Jet A fuel sold at the airport is subject to the 8.0o/o sales tax and a state excise tax $0.02 per gallon. The City ofMerced receives revenues derived from the state sales tax rate which support many critical and essential city services which include health and human services, criminal justice, transportation, and others. These statewide voter-approved tax rates have been designated for specific purposes and it is our understanding thatthe state willMr. Brown Page 2 December4, 2015 provide an action plan response as it relates to necessary steps for assuring compliance related to these revenues. Reporting Requirement and Tracking System The City ofMerced in conjunction with its advisors has begun to identifythe required data and steps necessary to comply. The internal process to undertake this effort, including developing a tracking system for discrete information on aviation fuel tax revenues, is complex and extensive. For example, the State Board of Equalization, the tax collection agency with which the City of Merced has a contract for sales tax collections, does not requirejetfuel sellersto segregate salestax revenue derived from the sale ofjetfuel from other types of taxable sales made by the same vendor. Therefore, it is presently impossibleforthe City ofMerced to determinethe exact amount ofsales taxderived from sales ofjetfuel. Local agencieswould need the stateto change itstax reporting standards to require fuel sellers to quantify the amount oftax derived from the sale ofaviation fuel to achieve compliance. Segregating and reporting the correct amount oftax revenue will further complicate California's already complex sales tax system and increase administrative costs. Transition Period If, contrary to current expectations, the City of Merced determines that its expenditures on airport capital and operating costs do not exceed sales tax revenues derived from aviation fuel, it will consider legislative solutions. It is the intent ofthe City of Merced to attempt to comply with the requirements set forth by the FAA ruling, to the extent it complieswith federal law. The City ofMercedwill notifythe FAA ofspecificactions, ifany, to be completed during thetransition period and workwith the stateto ensure compliance before the December 8, 2017, deadline. Sincerely,



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John M. Bramble City Manager

cc: Bradley Grant, Finance Officer Ken Elwin, City Engineer, Interim Director of Public Works Janet E. Young, Airport Manager Jay Chamberlain, Department of Finance (Jay.Chamberlain@dof.ca.gov)