December 18, 2015, prepared by the Washington State Department of Revenue Page 1 Washington Action Plan

– FAA Policy Concerning Airport Revenue

Taxes applicable to aircraft fuel

In some circumstances, the sale, use, purchase, or storage of aircraft fuel may be subject to one or more of the following Washington s tate and local taxes :

 Aircraft fuel tax

 State sales/use tax

 Local sales/use tax

 Hazardous substance tax

 Petroleum products tax

State taxes

Several of Washington’s taxes on aircraft fuel are already compliant with

, or have grandfathered

status under

, the FAA’s Policy and Procedu res Concerning the use of Airport Revenue;
Proceeds From Taxes on Aircraft fuel (FAA P olicy)

. Revenue from the aircraft fuel tax is already dedicated to aviation, and therefore compliant with the FAA policy. The current state
sales/use tax rate was imposed before 1987 and is therefore grandfathered from the FAA Policy ’s

revenue use restrictions

. The state also imposes a hazardous substance tax (HST) and petroleum products tax (PPT) on aircraft fuel. Both of these taxes were imposed after 1987. Under the terms of the FAA Policy, they are subject to its revenue use restrictions

.
Local taxes

Local governments in Washington may only impose a tax if authorized by the Legislature. Currently, the only local tax on aircraft fuel is local sales/use tax, which is administered by the

state . Therefore, there is no variation in how local sales/use tax is adm inistered. Hundreds of
local taxing jurisdictions have either imposed or raised the rate on their respective local sales/use

tax es after 1987. Aircraft fuel sales are estimated to occur in approximately 1 07 of these jurisdictions. Under the terms of the FAA Policy, the revenue s from t hese jurisdictions’ local

taxes are subject to its use restrictions

. Because the state administers all local sales/use tax es , affected local governments will not be submitting a separate action plan.

Action plan

Washington p ossesses no data on t he actual am ount of local sales/use tax, HST , and PPT
collected specifically on aircraft fuel

. O btain ing this information would be expensive and administratively burdensome . Therefore, Washington plans to estimate the amount of local

s ales/use tax collected on aircraft fuel by each local jurisdiction subject to the FAA Policy’s

restrictions and the amount of HST and PPT collected on aircraft fuel by the state. T he state will
use this data to determine whether amount s the state spends on aviation programs at least equal
the amount of HST and PPT revenue s collected on aircraft fuel , which are dedicated by Washington law to non

- aviation purposes

.December 18, 2015, prepared by the Washington State Department of Revenue Page 2

The state will inform local jurisdictions of the FAA Policy’s revenue use re quirement s, and advise those jurisdictions to offset their use of tax revenue on aircraft fuel put towards non

aviation purposes with an equal amou nt of spending on aviation. The state will provide information about what types of aviation spending qualify for the offset amount and will respond

to c omplaints from airports. The state will also track state spending on state aviation programs to ensure it is sufficient to offset the HST and PPT collections on aircraft fuel.

Overview of T axes

1. Aircraft Fuel Tax ( chapter 82.42 RCW )

The aircraft fuel tax is levied on each gallon of aircraft fuel sold, d elivered, or used in Washington ( RCW 82.42.020 ) . The tax was established in 1967. On December 30, 1987, the tax rate was $0.05 per gallon. The current tax rate is $0.11 per gallon ( RCW 82.42.020 )

. For more information on the aircraft fuel tax, see the t ax referenc e manual

. Distributors of aircraft fuel are required to collect the tax. The tax is somewhat limited in scope because it does not apply to many uses of aircraft fuel , including fuel used in interstate

commerce. All of the collec ted revenue is deposited in to Washington’s aeronautics account ( RCW 82.42.090 )

, a state aviation program

. Thus, the aircraft fuel tax revenues already comply with the FAA Policy’s use restrictions.

2. State Sales and Use Taxes (chapters 82.08 and 82.12 RCW)

The state portion of the Washington retail sales/u se tax rate has remained at 6.5 percent since
1983. See 1983 Wash. Laws c h. 7 § 6 ( 1983 session law establishing the current tax rate )

. The tax base is the selling price of tangible personal property and certain se rvices purchased at retail, i.e. by consumers. The basic definition of items and transactions subject to sales tax appears in RCW 82.04.050. (NOTE: Use tax applies to taxable items used within the state if retail sales tax was not paid)

Aircraft fuel purch ased in the state is generally subject to sales tax, except for such fuel purchased by a farmer for agricultural purposes (RCW 82.08.865)

. With respect to air carriers engaged in interstate travel, the sales/use tax on aircraft fuel is currently imposed on ly on fuel placed on b oard and consumed in this state ( WAC 458

- 20

- 175 ) . Sellers of aircraft fuel to air carriers are not required to collect the tax. Instead, an air carrie r registered with the state pays the us e tax directly to the state

. State sales/use tax is generally deposited in the state general fund. For more information on state
sales and use tax, see the t ax reference manual

.

3. Local Sales and Use Ta xes (chapter 82.14 RCW)

The revenue sources of cities, counties, and junior taxing districts are strictly controlled by the Legislature and only specifically authorized taxes can be impose d at the local level. There are currently 25 different types of local sales taxes

. The maximum local sales tax rate currentlyDecember 18, 2015, prepared by the Washington State Department of Revenue Page 3

levied totals 3 percent in portions of southwestern Snohomish County and in all of the metropolitan areas of King County. Combined with the state rate of 6.5 percent, Washington's maximum sales tax rate that applies to most taxa ble items is now 9.5 percent

. For more information on local sales and use tax, see the tax reference manual

.

4. Hazardous Subst ance Tax ( Chapter 82.21 RCW )

The hazardous substance tax (HST) i s imposed on the first possession of a hazardous substance in the state. The tax is equal to 0 .7 percent of the wholesale value of the substance and was first imposed in 1989. Aircraft fuel is considered a taxable hazardous substance. The revenue from
the HST is deposit ed into toxic control accounts ( RCW 82.21.030 )

. For more information on the HST, see the t ax reference manual

.

5. Petroleum Products Tax ( chapter 82.23A RCW )

The petroleum products tax (PPT ) is imposed on the first poss ession of a pe troleum product in
the state . The tax is equal to 0.3 percent of the wholesale value of the p etroleum product and was first imposed in 1989

. Aircraft fuel is consider ed a taxable petroleum product. The revenue from the PPT is deposited in the pollution liability insurance program trust account ( RCW
82.23A.020 )

.

The PPT was suspended from April 1, 2010, to June 30, 2015. The tax was re

- imposed effective July 1, 2015. For more information on the PPT , see the tax reference manual and special notice

.

Methodology

When businesses report taxes to the state they are not required to itemize the individual items they sell, but report the gross amount for an entire category of sales (retailing, wholesaling, services, etc.) Therefore, the actual amount of local sales/use tax, HST, and PPT collected on aircraft fuel is unknown. This information would be difficult to obtain and collecting it would place a significant burden on taxpayers and government entities.

Washington proposes the following methodology to estimate the a mount of local sales/use tax, HST, and PPT collected on aircraft fuel:

Local sale tax

To calculate the local sales tax collected on aircraft fuel by distributors, the state will pe rform the following calculation each year (beginning 2018):

 Determine the ai rport operators selling aircraft fuel within the boundaries of a local jurisdiction that imposed or raised its local sales and use tax after 1987.

 Determine the amount of aircraft fuel tax collected in the previous year by each affected airport operator.

 Divide the aircraft fuel tax collections by the aircraft fuel tax rate (11 cents per gallon) to obtain the gallons sold by each affected airport operator. Multiply this amount by the average retail price per gallon of aircraft fuel , which is obtained from the FAA AerospaceDecember 18, 2015, prepared by the Washington State Department of Revenue Page 4

Forecasts

– Table 18

. This provides the dollar value of aircraft fuel sold by each affected airport operator.

 Multiply the appropriate local sales tax rate by t he dollar value of aircraft fuel sold by each affected airport operator. This provides the estimated local sales tax collected by the airport operator for the local jurisdiction.

 Sum the estimated local sales tax collected by airpo rt operators within each affected local jurisdiction. This amount is the local jurisdiction’s local sales tax offset amount for the

year.

Local use tax

To calculate the local use tax paid directly by passenger airlines on aircraft fuel , the state will perform the following calcul ation each year:

 The state will query the local use tax reported by each passenger airline that reports taxes
to the state.

 Based on multiple passenger airline audits, approximately 91 percent of the local use tax reported by passenger airlines is for airc raft fuel

.

 For each passenger airline, the state will multiply the airline’s annual use tax payment s to each local jurisdiction by 91 percent. This amount is the local jurisdiction’s local use tax offset amount for the year.

For each affected local jurisd iction, the local sales tax offset amount and local use tax offset amount will be added together to determine the local jurisdiction’s total offset amount for the

year.
Hazardous substance tax (HST)

– reported by distributors

To calculate the HST on aircra ft fuel reported by distributors, the state will perform the following calculation each year:

 Determine the total aircraft fuel tax collections in the previous year.

 Divide the aircraft fuel tax collections by the aircraft fuel tax rate (11 cents per gallo n) to
obtain the total gallons sold. Obtain average price per barrel from US Energy Information Administration and convert to average price per gallon. Multiply the average price per gallon by the total gallons sold. This p rovides an estimated wholesale do llar value of
aircraft fuel possessed in the state by distributors.

 Multiply the hazardous substance tax rate by the estimated wholesale value to determine the state’s offset amount for HST reported by distributors.

Hazardous substance tax

– reported by a i rlines

To calculate the HST paid directly by passenger airlines on aircraft fuel , the state will perform the following calculation each year:

 Query the total HST reported by all passenger airlines that report taxes to the state.

 Based on multiple commercial airline audits, approximately 91 percent of the HST reported by passenger airlines is for aircraft fuel

.December 18, 2015, prepared by the Washington State Department of Revenue Page 5

 Multiply the total HST reported by all passenger airlines by 91 percent. This provides the
state’s offset amount for HST reported by airlines.

The estimated HST reported by distributors and airlines will be added together to determine the state’s total HST offset amount for the year.

Petroleum p roducts t ax (PPT)

The PPT offset amount will be calculated in the same manner as the HST.

Conclusion

Beginning in 2018, the state will begin calculating the offset amounts as described above. The
state will also notify each local jurisdiction that imposed or raised its local sales and use tax after
1987 of the revenue use requiremen ts detailed in the FAA Policy.

The state will provide guidance about what types of airport spending will satisfy the FAA requirements for the offsets. The state will also track the state spending on aviation to ensure it is
sufficient to offset the HST a nd PPT collections on aircraft fuel.