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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 of Airport Compliance and Management Analysis 

Federal Aviation Administration 

800 Independence Ave. SW 

Washington, DC 20591 

Dear Director Huffman: 

This is in response to your letter of November 24, 2015 requesting information and an 

"action plan" regarding the use of the 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 of the 

proceeds from this tax should be exempt (granqfathered) from the new FAA Policy. 

The CNMJ respectfully requests your concurrence with our conclusion. 

As background, the Trust Territory of the Pacific Islands enacted the first fuel tax in the 

Northern Mariana Islands in 1 966. This law taxed the use, distribution, or sale of all fuel 

at the rate of five 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 

of the American family of states. See Covenant to Establish a Commonwealth of the 

Northern Mariana Islands in Political Union with the United States of America, 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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repealed Title 77 of the Trust Territory Code and enacted a new tax code. Section 403(b) 't 

of this Act created a separate tax for aviation fuel. This Act explicitly provides that for 

Caller Box l 0007 Saipan, MP 96950 Telephone: (670) 237-2200 Facsimile: (670) 664-2211 /2311 } .. .. 
the privilege of first 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 

three percent (3%) ad valorem." The Secretary of Finance may reduce 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 of the loss of revenue 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 or reduction of this 

tax and to the account into which the tax is deposited. 

For example, 1995 amendments to the Commonwealth's tax code retained the original 

waiver or exception given to the Secretary of Finance to reduce or waive the aviation fuel 

tax, but modified it to apply when the price of aviation fuel without the aviation fuel tax 

would be more competitive than the price of aviation fuel elsewhere and the airline would 

purchase the aviation fuel in the 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 of the 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 domain judgments 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 that purpose 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 -its application is exempt 

(grandfathered) from the FAA's new policy requirement. The 1995 amendment and 

subsequent use of the proceeds of this tax did not make substantive changes to the 

aviation fuel tax. The rate of the tax has not changed. Users of aviation fuel continue to 

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 of the Northern 

Mariana Islands). 

Caller Box I 0007 Saipan, MP 96950 Telephone: (670) 237-2200 Facsimile: (670) 664-2211 /2311 
For 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: / 

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onwealth of the Northern Mariana Islands 

4/'7~/' :JI%~~ E6~RD MANIBUSAN 

Attorney General of the Commonwealth of the Northern Mariana Islands 

Cc: MaryAnn Lizama, Commonwealth Ports Authority 

Robert Torres, Commonwealth Ports Authority Legal Counsel 

Larissa Larson, Secretary of Finance 

Steve Wong, FAA llonolulu 

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