U.S. Department of T ransporta1ion Federal Aviation Administration

March 10,2016

Michael Cohen, Director Department ofFinance State ofCalifornia State Capitol, Room 1145 Sacramento, CA 95814-4998 Office ofAirport Compliance and Management Analysis 800 Independence Ave

. SW. Washington, DC 20591

Re: Letter ofQualified Acknowledgement- The State ofCalifornia's Action Plan in Response to FAA Aviation Fuel Tax Policy Amendment
Dear Mr. Cohen:
The Federal Aviation Administration (FAA) has received the State ofCalifornia's (State) Action Plan submitted on November 25 , 2015 in response to FAA Policy and Procedures Concerning the Use ofAirport Revenue; Proceeds From Taxes on Aviation Fuel (Amendment) (Docket Number FAA-2013-0988, 79 Federal Register (Fed. Reg.) 66,282, November 7, 2014). The Amendment provides that a sponsor demonstrates voluntary compliance with Federal obligations by submitting an Action Plan detailing (1) a commitment to undertake the legislative process; and (2) the timeframe for action within the three year period.
We appreciate the State's commitment in the Action Plan to continue to work with taxing authorities, localjurisdictions, and other entities to coordinate the collection of data to refine (1) estimates ofstate genera l sa les tax revenues derived from aviation fuel and (2) estimates ofstate expenditures on and investment in local public use airports, to confirm California complies with Federal law. However, while the Action Plan meets the minimum requirements ofthe Amendment regarding the submission ofan action plan, we are concerned that the State will not be in compliance with the aviation fuel tax revenue use requirements by December 8, 2017. Our concerns relate to the lack ofa plan implementing the reporting requirement and tracking processes and no detail regarding the timing of legislative actions if necessary. In addition, we are concerned about the lack ofdetailed plans for the restructu ring ofgeneral revenues to adapt to the dedication ofaviation fuel tax revenue to airports and state aviation programs within the transition period.The Amendment referenced the FAA's beliefthat state and local officials should prepare an Action Plan to initiate any processes required to amend any non-compliant state Jaws and local ordinances to conform to Federal law on the use ofproceeds f rom taxes on aviation fuel. 

### 2

• The State reports it enacted three general sales tax rates: 0.5%- 1993, 0.5%

- 1991, and 25%- 1991 since December 30, 1987. The State makes no representation that there were taxes on aviation fuel in effect on December 30, 1987. Accordingly, we understand that the State will not submit a request for grandfathered status (49 United States Code § 47107(b)(2)) for taxes on aviation fuel in effect on December 30, 1987.
• The State describes the complexities and challenges ofdetermining the portion ofgeneral
sa

les tax revenues derived from taxes on aviation fuel. The FAA recognizes that there could be some additional work required to track the amount of "general" tax revenue attributable to aviation fuel, and afforded states time to bring themselves into compliance and developing a mechanism for administering taxes in accordance with the Amendment. Further, FAA explained in the Amendment that Action Plans should detail the process necessary to develop reporting requirements and tracking systems for discrete information on aviation fuel tax revenues. (79 Fed. Reg. 66,286). These requirements are consistent with the 

### Policy andProcedures on the Use of AirportRevenues (64 Fed. Reg. 7,696, February 16, 1999) (Revenue Use Policy), which requires tha t budget estimates of revenues and expenditures be adjusted to actual amounts. The FAA requests that the State provide more detail outlining the procedures to be implemented in the reporting and tracking systems the State wilE implement to become compliant with the Amendment.
• The FAA is cognizant ofthe significant resources the State provides in support ofthe aviation programs and capital and operating costs for its airports. The Amendment recognizes this important contribution and permits State governments which provide services directly to the airport to charge for those services and to be reimbursed from airport funds. These expenditures must impact the airport primarily. Capital or operating costs paid by the State that benefit the airport and other entities would have to be prorated based upon the level ofbenefit received bythe airport. Documentary evidence to support allowable direct and indirect charges to the airport or aviation programs for the capital or operating costs will be required.
Thank you for your Action Plan submittal, and we look forward to your response regarding the questions and concerns listed above. IfI can be offurther assistance, please contact me or Kevin Willis, Manager, Office ofAirport Compliance and Management Analysis, at (202) 267

-3085. Sincerely,

# ;i;:~**.** Acting Director, Airport Compliance

and Management Analysis