U.S. Department 

of Transporta1ion 

Federal Aviation 

Administration 

March 10,2016 

Michael Cohen, Director 

Department of Finance 

State of California 

State Capitol, Room 1145 

Sacramento, CA 95814-4998 

Office of Airport Compliance 

and Management Analysis 

800 Independence Ave . SW. 

Washington, DC 20591 

Re: Letter of Qualified Acknowledgement- The State of California's Action Plan in 

Response to FAA Aviation Fuel Tax Policy Amendment 

Dear Mr. Cohen: 

The Federal Aviation Administration (FAA) has received the State of California's (State) 

Action Plan submitted on November 25, 2015 in response to FAA Policy and Procedures 

Concerning the Use of Airport 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, local jurisdictions, and other entities to coordinate the collection of data to refine 

(1) estimates of state general sales tax revenues derived from aviation fuel and (2) estimates 

of state 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 of the Amendment regarding the submission of an 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 of a 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 of detailed 

plans for the restructuring of general revenues to adapt to the dedication of aviation fuel tax 

revenue to airports and state aviation programs within the transition period. 
The Amendment referenced the FAA's belief that 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 of proceeds from 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 of determining the portion of general 

sales 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 and Procedures on the Use of Airport Revenues (64 Fed. Reg. 

7,696, February 16, 1999) (Revenue Use Policy), which requires that 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 of the significant resources the State provides in support of the 

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 of benefit received by the 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. If I can be of further assistance, please contact me 

or Kevin Willis, Manager, Office of Airport Compliance and Management Analysis, at (202) 

267-3085. 

Sincerely, 

;i;:~ . Acting Director, Airport Compliance 

and Management Analysis