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### COMMONWEALTH OF THE NORTHERN MARIANA ISLANDS

Ralph DLG. Torres Governor 

### Victor B. Hocog Lieutenant Governor

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# ... January 27, 2016 Byron K. Huffman, Acting Director Office ofAirport Compliance and Management Analysis Federal Aviation Administration 800 Independence Ave. SW Washington, DC 20591

Dear Director Huffman: This is in response to your letter ofNovember 24, 2015 requesting information and an "action plan" regarding the use ofthe Commonwealth' s tax on aviation fuel. Formally, the Commonwealth believes no action is necessary because the CNMI's aviation fuel tax was in effect on December 30, 1987 and because our non-aviation related uses ofthe proceeds from this tax should be exempt (granqfathered) from the new FAA Policy. The CNMJ respectfullyrequests your concurrence with our conclusion. As background, the Trust Territory ofthe Pacific Islands enacted the first fuel tax in the Northern Mariana Islands in 1 966. This lawtaxed the use, distribution, or sale ofall fuel at the rate offive cents per gallon. This can be found at 77 TTC § 1 02(2). This tax did not distinguish between aviation fuel and non-aviation fuel. •' This tax remained in effect when the Commonwealth was formed and became a member ofthe Americanfamily ofstates. See Covenant to Establish a Commonwealth ofthe Northern Mariana Islands in Political Union with the United States ofAmerica, 48 U.S.C. § 1801 note, §505 (Trust Territory laws to remain in effect until amended). In 1982, Public Law 3-11 entitled the Commonwealth's Revenue and Taxation Act 

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# ....**~~,. ~1**  repealed Title 77 ofthe Trust Territory Code and enacted a newtax code. Section 403(b) 't ofthis Act created a separate tax for aviationfuel. This Act explicitly provides that for

Caller Box l0007 Saipan, MP 96950 Telephone: (670) 237-2200 Facsimile: (670) 664-2211 /2311 

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..the privilege offirst selling, using or distributing aviation gas or other aviation fuel imported into the Commonwealth, "there is hereby imposed an excise tax at the rate of threepercent (3%) ad valorem." The Secretary ofFinance mayreduce or waive by regulation the aviation fuel tax upon an airline upon finding that the airline will increase its flight schedule into and within the Commonwealth to a level resulting in benefits to the Commonwealth 

### in excess ofthe loss ofrevenue under this section. This three percent aviation fuel tax has remained in effect continuously since 1982. The only changes have been to the procedural details allowing for a waiver orreduction ofthis tax andto the account into which the tax is deposited. For example, 1995 amendments to the Commonwealth's tax code retained the original waiveror exception given to the Secretary ofFinance to reduce or waive the aviation fuel tax, but modified it to apply when the price ofaviation fuel without the aviation fuel tax would be more competitive than the price ofaviation fuel elsewhere and the airline would purchase the aviation fuel inthe Commonwealth. 

### See PL 9-22 § 1(1404(a)). These sections remain in effect at this time and are codified in the CNMI Commonwealth Code as 4 CMC §§ 1403(b) and 1404(a). Today, the proceeds and use ofthe aviation fuel tax is critically important source of revenue for the CNMI's General Fund. In 2002, the Commonwealth issued took a revenue bond to help pay for eminent domainjudgments and private land acquisitions. The revenue bond was funded from a new Land Compensation Fund and the proceeds of the aviation fuel tax have been used and deposited into the Commonwealth's General Fund for thatpurpose since 2002 to finance this important obligation. In sum, the CNMI believes that because the fuel tax was in effect on December 30, 1987 and has been in continual appropriation since that time -itsapplication is exempt (grandfathered) from the FAA's newpolicy requirement. The 1995 amendment and subsequent use ofthe proceeds ofthis tax did not make substantive changes to the aviation fuel tax. The rate ofthe tax has not changed. Users ofaviation fuel continueto pay a three percent ad valorem tax, exactly as they did before December 30, 1987. Moreover, the revenue collected from the aviation fuel tax continues to be used by the Commonwealth Government to fund its financial obligations and the revenue collected from the aviation fuel tax has never been reserved for the Commonwealth Ports Authority (the Commonwealth Government Agency which operates the airports ofthe Northern Mariana Islands).

Caller Box I0007 Saipan, MP 96950 Telephone: (670) 237-2200 Facsimile: (670) 664-2211 /2311For the foregoing reasons, the Commonwealth requests that the FAA issue a ruling that the Commonwealth's aviation fuel tax is eligible for grandfather status and that the Commonwealth does not need to submit an action plan to bring the tax into compliance with 49 U.S.C. § 47107.

Concurred by: / 

# s onwealth ofthe Northern Mariana Islands

# 4/'7**~/' :JI%~~** **E6~RD** MANIBUSAN Attorney General ofthe Commonwealth ofthe Northern Mariana Islands

Cc: MaryAnn Lizama, Commonwealth Ports Authority Robert Torres, Commonwealth Ports Authority Legal Counsel Larissa Larson, Secretary ofFinance Steve Wong, FAA llonolulu

Caller Box 10007 Saipan, MP 96950 Telephone: (670) 237-2200 Facsimile: (670) 664-2211 /2311