DAVID Y.IGE GOVERNOR

Federal Aviation Administrat ion EXECUTIVE CHAMBERS HONO LULU

December 8, 2015

Attention: Mr. Byron K. Huffman, Acting Director,

Office of Airport Compliance and Management Analysis 800 Independence Avenue, SW Washington, DC 20591 Dear Mr. Huffman: This letter is submitted by the State of Hawaii in response to your letter dated November 24, 2015 with regard to the adoption by the Federal Avi ation Administration (the "FAA") of its "Policy and Procedures Concerning the Use of Airport Revenue; Proceeds from Taxes on Aviation Fuel" (79 Fed

. Reg. 6628) (the "Revenue Use Policy Amendment"), amending the FAA's "Policy and Procedures Concerning the Use of Airport Revenue" (64 Fed. Reg. 7696, February 16, 1999) (the "Revenue Use Policy") and following a telephone conversation on December 8, 2105 between our counsel at Katten Muchin Rosenman, LLP, and Mr. James Brown of the FAA. It is our conclusion that the State of Hawaii's aviation fuel tax Jaw is exempt from the Revenue Use Policy Amendment, and that certain administrative rules and lease and other arrangements with airlines providing for rebates or credits in respect of aviation fuel taxes paid to the airports by such airlines are in compliance with the Revenue Use Policy. We explain the credit and rebate program more fully below to permit the FAA to determine whether the State of Hawaii's position is correct. If the FAA determines that the rebate and credit program is not a permissible use of non-exempt aviation fuel tax revenues, upon such determination by the FAA, the State will promptly develop and submit an "action plan" to remedy any impermissible use. 

### Aviation Fuel Tax Law in Hawaii The State of Hawaii's aviation fuel tax laws are codified in Section 243 of the Hawaii Revised Statutes ("Haw. Rev. Stat."). Haw. Rev. Stat. Section 243-4(a)(2), in effect on December 30, 1987, provided for a licensing tax "[f]or each gallon of gasoline or other aviation fuel sold for use in or used for airplanes" in the amount of" 1 cent." Haw. Rev. Stat. Section 243-4(a)(2) (1985). Haw. Rev
. Stat. Section 243-4(a)(2), presently in effect, provides fo r the same licensing tax, but in the amount of "2 cents" for each such gallon. Haw. Rev. Stat. Section 243-4(a)(2) (2014).Mr. Byron K. Huffman December 8, 2015 Page Two

The Revenue Use Policy Amendment states that "[s]tate or local taxes on aviation fuel (except taxes in effect on December 30, 1987) are considered subject to the revenue-use requirements in 49 U.S.C. 47107)." Because the State of Hawaii's aviation fuel tax was in effect on December 30, 1987 , it i s our understand ing that the State of Hawaii 's aviation fuel tax is exempted from the provisions of the Revenue Use Policy as amended by the Revenue Use Policy Amendment. It is our understanding, however, that only the tax in effect as of December 30, 1987 (1 cent per gallon) is exempted from the provi sions of the Revenue Use Policy as amended by the Revenue Use Policy Amendment. Accordingly, if the FAA determines that the program described herein providing for credits and rebates of aviation fuel taxes to airlines is not a permi ssible "ai rport
related " use, the Stat e of Hawaii believes it would only need to reduce, by the l cent per gallon difference, the current amount of the Stat e of Hawaii aviation fuel tax coJJected and not used for airport-related purposes to the exempt level in effect as of December 30, 1987. 

### Rebate and Credit Mechanics in Hawaii Haw. Rev . Stat. Section 261-5, in effect on December 30, 1987 and presently in effect, states that the Director (the "Director") of the Department of Transportation " may, in the Director's discretion , grant a rebate of the aviation fuel taxes
. .. [up to] one-half cent per gallon" in the ensuing f iscal year to any person who has paid airport use charges or landing fees. Haw. Rev. Stat. Section 261

-5 (1969 and 2014). The provision for the repayment of aviation fuel taxes differs between ( 1) airlines subject to lease agreements (the "Lease Agreements") with the Department of Transportation ("Signatory Airlines ") and (2) airlines not subject to the Lease Agreements with the Department of Transportation ("Non-signatory A ir

lines"). Aviation fuel tax payments for Non-signatory Airlines are subject to Hawaii Administrative Rules ("Haw. Admin. Rules")
. Haw. Admin. Rules Chpt. 19-16. 1-5 states that, subject to certain limitations, Non-signatory Airlines can receive a credit against landing fees and airport system support charges equa l to the amount of aviation fuel taxes paid by the respective Non-signatory Airline. Aviation fuel tax payments for Signatory Airlines are governed by the terms of the Lease Agreements. Similar to the rules that govern Non-signatory Airlines, the Lease Agreements provide that credits shal l be provided related to certain aviation fuel tax payments. The practice of both Signatory Airlines and Non-signatory Airlines is to apply for a credit rather than applying for the rebate. The proces s is as follows: (1) Airlines purchase fuel from a distributor permitted by the Department of Taxation and pay two cents per gallon for aviation fuel taxes; (2) Airlines submit a claim to the Department of Transportation within six months of the payment of aviation fuel taxes and (3) Airlines receive a credit for the landing fee and airport system s upport charges owed for a part icular month, equal to the amount of aviation fuel taxes paid during the same month

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