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UNITED STATES DEPARTMENT OF TRANSPORTATION 

FEDERAL AVIATION ADMINISTRATION 

WASHINGTON, D.C. 

CHANDLER AIR SERVICE 

 Complainant, 

v. 

CITY OF CHANDLER, ARIZONA 

 Respondent. 

FAA Docket No. 16-13-05 

DECLARATION OF LEE GRAFSTROM IN SUPPORT OF THE 

ANSWER OF THE CITY OF CHANDLER, ARIZONA TO COMPLAINANT’S 

14 C.F.R. PART 16 COMPLAINT 

 

1. My name is Lee Grafstrom. I am an employee of the City of Chandler, Arizona 

(“City”), and serve as the Tax Audit Supervisor of the Management Services Department. My 

responsibilities include the collection of taxes on the sale of aviation fuels in the City. I have 

worked for the City’s Revenue Department in a variety of positions since August 3, 1999. 

2. In the course of my responsibilities, I have become familiar with the history of the 

City’s tax on aviation fuels, and the application and collection of that tax. I am specifically 

familiar with the applicability of that tax to the aviation fuel sales by the City and Chandler Air 

Service (“CAS”) and other sellers of aviation fuel in the City. 

History of the City of Chandler’s Privilege and Use Tax 

3. The City first imposed privilege and use taxes on the sale of aviation fuels on 

January 1, 1960 pursuant to Chandler City Ordinance No. 273, approved December 7, 1959, a 

true and accurate copy of which is attached as Exhibit 1. Ordinance 273 imposed a general 

transaction privilege (sales) tax on the sale of all tangible personal property, except as expressly 

excluded, at a rate of 0.5% of the gross sales price. Aviation fuels are tangible personal property, 

are not excluded from the tax, and have been subject to the City's privilege and use tax since 

1960. 

4. In the years since the transaction privilege tax was first adopted, the City’s tax 

code has been amended and recodified a number of times, but none of those amendments or 

recodifications suspended or affected the applicability of the tax to the sale of aviation fuels. 

Attached as Exhibit 2 is a true and correct copy of the City’s tax code as it existed on December 

30, 1987. 
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5. In 1991, Arizona amended its tax laws to require that any tax applicable to the 

sale of jet fuel be based on the number of gallons sold instead of the gross sales price. Ariz. Rev. 

Stat. § 42-5352. My predecessor followed the Legislature’s consideration of that measure and I 

am familiar with the legislative history. The impetus for the law was the concern of airlines (in 

particular America West) that rapidly fluctuating jet fuel prices made it difficult to calculate the 

applicable tax. The intent was to keep the effective tax rate the same as before, but change the 

method of measuring the tax to avoid the accounting complexities caused by fluctuating prices. 

6. As part of the legislative process, local governments agreed to make similar 

changes in their transaction privilege and use taxes in order to avoid being expressly included in 

the state legislation. The Arizona Department of Revenue provided local governments with a 

detailed formula to use in order to assure that the change in methodology did not result in an 

increase in the actual amount of taxes paid on the sale of jet fuel. 

7. On January 23, 1992, the City adopted Ordinance 2258, which amended the 

City’s Tax Code to extract jet fuel from the general retail classification, subject to a 1% tax rate 

on gross sales, to a new jet fuel classification subject to a $0.018/gallon tax rate. Applying this 

new tax rate did not increase the effective tax rate or impose a new tax; it simply changed the 

way the tax on jet fuel sales was measured. A true and correct copy of Ordinance 2258 is 

attached as Exhibit 4. 

8. In the years since 1992, the City made a number of amendments to the Tax Code 

but none of those amendments changed the applicability of the use tax to the sale of aviation 

fuels. In 1999, the City recodified the tax code by moving the existing code language out of 

Appendix C and into Chapter 62. The recodification did not make any substantive changes 

regarding the applicability of the City’s use tax to the use and sale of aviation fuels. A true and 

correct copy of Ordinance 3046 is attached as Exhibit 5. 

City of Chandler’s Collection of the Transaction Privilege and Use Tax on the Sale of Aviation 

Fuels 

9. Applying the plain terms of the tax code, the City has always treated the sale of 

aviation fuels, both Avgas and jet fuel, as subject to the City’s tax. Due to changes in the 

computer systems used to track tax payments and receipts, it is not possible to retrieve 

information prior to 1989 without undue expense. I have reviewed the records dated 1989 and 

after to determine how the City applied the tax to the sale and use of aviation fuel. 

10. Those records show that, from 1989 through February, 1996, the Airport paid 

taxes to the City for the sale of Avgas. Those records also show that the City collected taxes 

from the sale of aviation fuels from an FBO at Stellar Airpark, a private airport located in the 

City. Until approximately early 1994, the City’s management services department took direct 

responsibility for assessing and collecting the tax from the sale of Avgas at the Airport, after 

which time Airport staff took over those functions directly. For reasons that are not clear, but 

which appear to be due to administrative oversight, the Airport did not pay taxes on the sale of 

Avgas from March 1996 through October, 2006. 

11. Those records also show that beginning in approximately February, 2003, CAS 

reported its aviation fuel sales as taxable, but claimed an off-setting deduction based on the 

flowage fee assessed by the Airport. In July 2005, CAS paid tax on its sale of jet fuel for several 

months, but, again, stopped in February, 2006.