ADOT 

Director's Office Douglas A. Ducey, Governor 

John S. Halikowski, Director 

Scott Omer, Deputy Director for Operations 

Kevin Biesty, Deputy Director for Policy 

Dallas Hammit, Deputy Director for Transportation 

February 1, 2016 

Federal Aviation Administration 

Byron K. Huffman, Acting Director 

Office of Airport Compliance and Management Analysis 

800 Independence Avenue, SW 

Washington, DC 20591 

Re: FAA New Policy on Use of Aviation Fuel Tax Revenue 

Dear Mr. Huffman: 

Thank you for your letter, dated November 7, 2014, outlining the Federal Aviation Administration's 

(FAA) Policy Clarification for the Use of Aviation Fuel Tax Revenue. The Arizona Department of 

Transportation (ADOT) has communicated with each of the 17 taxing jurisdictions identified as 

collecting these aviation fuel taxes to assist them in the development and submittal of their 

respective Action Plans. 

Enclosed is Arizona's Action Plan that has been reviewed and approved by Arizona Governor 

Douglas A. Ducey. This Plan will bring our state into compliance with the new FAA Policy (79 

Federal Regulations 6628) by December 8, 2017. 

If you have any further needs or questions, please contact Michael Klein, ADOT Aeronautics Group 

Manager at (602) 712-7647or by email at maklein@azdot.gov. 

Sincerely, 

1") 

pm S. Halikowski 

ADOT Director 

cc: Governor Douglas A. Ducey 

Rene Guillen, Policy Advisor, Governor's Office 

Mike N. Williams, FAA Phoenix Dist. Manager 

David Briant, AZDOR Director 

Kevin Biesty, ADOT Deputy Director for Policy 

ARIZONA DEPARTMENT OF TRANSPORTATION 

206 S. 17th Ave. I Phoenix, AZ 85007 I azdot.gov 
ADOT 

ACTION PLAN TO COMPLY WITH 

Federal Aviation Administration's Policy on the 

Collection and Distribution of Aviation Fuel Taxes 

Background 

On Nov. 7, 2014, the Federal Aviation Administration (FAA) published a "Final Policy 

Amendment," effective Dec. 8, 2014, that further clarified eligible expenses in its Revenue Use 

Policy for any revenues collected on aviation fuel taxes. This includes both aviation gasoline and 

jet fuel. According to FAA, the Airport and Airway Improvement Act of 1982 was intended to 

ensure that aviation fuel taxes are spent only on State Aviation Programs or on other airportrelated purposes. 

In 1987, FAA published additional clarifications designed to prevent State and local 

governments from utilizing aviation fuel tax revenues for non-aviation purposes. However, 

there was enough flexibility in FAA's clarification that still indirectly permitted aviation fuel 

taxes to be used for other purposes. Accordingly, FAA's newest amendment only applies to 

State/local aviation fuel taxes in effect after Dec. 30, 1987. Arizona imposed a sales tax on jet 

fuel in 1991, so Arizona is not eligible for these grandfather rights. 

According to Arizona Revised Statutes (A.R.S.) §42-5352, Arizona imposes a tax of $3.05 centsper-gallon (CPG) on jet fuel, up to 10 million gallons, and distributes those monies for 

State/local General Fund purposes. Each year this generates between 4 to 5 million dollars. This 

does not comply with FAA's new rule. The following is data from the Arizona Department of 

Revenue regarding the amount of tax revenue collected on jet fuel and jet fuel use from FY 

2012 through FY 2015: 

FY12 FY13 FY14 FY15 

Jet Fuel 

Distribution Base $1,523,951 $1,505,337 $1,276,165 $1,579,239 

Non-shared $2,285,926 $2,258,006 $1,914,247 $2,368,859 

Jet Fuel Use $731,896 $561,935 $382,061 $671,606 

Total Revenue Collected $4,541,773 $4,325,278 $3,572,473 $4,619,704 

General Fund $3,543,433 $3,339,132 $2,736,457 $3,585,145 

Shared $998,340 $986,146 $836,016 $1,034,559 

_Total Revenue Distributed $4,541,773 $4,325,278 $3,572,473 $4,619,704 

Additionally, A.R.S. § 28-8344 imposes a 5 cent/gallon tax on aviation gasoline, In FY 2015 a 

total of $449,710.90 was collected and deposited into the State Aviation Fund. The distribution 

of these aviation fuel revenues to the State Aviation Fund is in compliance with the new FAA 

rule. 

Some Facts and Figures 

• In Federal Fiscal Year 2015, FAA awarded approximately $3.2 billion in grants to State and 

local airports. Of this amount, Arizona received nearly $83 million. 
• Failure to comply with FAA's new rule could be a "breach of contract" and consequently 

result in FAA grant monies being withheld from State of Arizona and some Arizona Public 

Airports. 

• Arizona has 58 airports eligible to receive FAA grants. These grants are used to finance up to 

95% of various airport capital projects/improvements. 

• Arizona and each taxing jurisdiction must submit a draft action plan to FAA by February 8, 

2016 and has until December 8, 2017 to fully comply. 

• A.R.S. §42-5353 distributes jet fuel tax revenues to the State General Fund and A.R.S. §42-

5029 (state-shared revenues). 

• FAA's new rule impacts State/local budgeting and requires legislative action to fully comply. 

Several Arizona counties/cities also tax jet fuel. 

Who's involved? 

The State's Transaction Privilege Use Tax (referred to as State Sales Tax) is collected via three methods: 

1. State's collection of the Transaction tax; 2. State's collection of the same Excise Tax on behalf of 7 

communities and 4 Counties (referred to as Program Cities); and, 3. six Non-Program cities collecting 

their own taxes directly. 

In addition to the State of Arizona, these are the 17 affected communities/counties: 

Program Cities 

Bullhead City Lake Havasu City Gila County 

Chino Valley Sierra Vista Maricopa County 

Gila Bend Winslow Pima County 

Goodyear Pinal County 

Non Program Cities 

Chandler Phoenix 

Glendale Prescott 

Mesa Scottsdale 

Each of these communities/counties has their own taxing authority to set tax rates. In this case, the 

2015 rates range from a low of 0.015 cents per gallon to as high as 0.732 cents per gallon. 

Compliance with the FAA policy 

As stated above, failure to comply with FAA's new rule could be a "breach of contract" and 

consequently result in FAA grant monies being withheld from State of Arizona and these other 

communities/counties. If a community owns no airport but still receives jet fuel taxes, FAA has 

specifically stated they would enter civil administration processes. Compliance means the state 

must ensure that monies collected on aviation fuels by any taxing jurisdiction are used directly 

by aviation. 

Generally speaking, there are three avenues which will comply. The first, all monies collected 

will be deposited into the State Aviation Fund. The second would be to deposit the monies into 

the account of each airport from which the taxes were assessed and used for any purpose on 

the airport supporting aviation activities. The third would be to stop collecting any taxes on 

aviation jet fuel if they are not to be used for aviation purposes. 

Actions 

1. ADOT to meet as often as necessary with all 17 of communities, counties and the State 

to discuss their preferences on how to comply with the FAA Policy and ensure complete 

understanding of the consequences of noncompliance. The purpose of this action would 
be to create a consensus of all affected communities. This action could take a year to 

accomplish. 

2. Develop a series of schedules so each community can go through their respective 

processes as well as the legislative process for the state and finish with a complying 

program that can be implemented before December 8, 2017.