U.S. Department of Transportation Federal Aviation Administration 

### FEB 1 6 2010 The HonorableMike Gabbard Hawaii State Senate, 19'h District State Capitol Honolulu, Hawaii 96813 Office ofthe Chief Counsel 800 Independence Ave., S.W. Washington, D.C. 20591

By Overnight and Electronic Mail

Re: Proposed State Tax onAviation Fuel

Dear Senator Gabbard:

Thank you for yourJanuary 8, 2010 letter, addressed to RobertS. Rivkin, General Counsel ofthe United States Department ofTransportation, and myself, requesting an advisory opinion concerning a proposed state tax on petroleum products. This letterresponds onbehalfofboth 

### Mr. Rivkin and myself. You advise that the Hawaii Legislature is considering proposed amendment H.B. 1271, CDI, to Hawaii Revised Statute (HRS) 

### § 243-3.5, which would increase and broaden the purposes ofan existing tax. The proposed bill would increase the currenttax, and make the proceeds available for energy and food security efforts as well as environmental response. Specifically, yourequest an opinion concerningwhether the proposedlegislation would violate 49 U.S.C. 

### §47133, the statutory restriction on use ofairport revenue. You askthat ifwe find the proposedbill does violate the revenue use provision, that we include ourreasons for such a determination.

Theproposedbill would bepart ofHRS, Chapter 243, entitled, "Fuel TaxLaw." Thebill would impose an additional tax on a barrel of"petroleumproduct." Although H.B. 1271, CD!, does not specificallyuse the term "aviation fuel," based upon the statutory structure ofHRS chapter 243, pertainingto fuel taxes, it is reasonable to interpret the term "petroleumproducts" to include such fuels (e.g., Avgas, Jet A-1, Jet B, etc.). "Petroleumproduct" as defined in HRS § 243-1 means "any liquid hydrocarbon at standard temperature andpressure that is the product ofthe fractionalization, distillation, or other refining orprocessing ofcrude oil." Section 243-1 further defines "aviation fuel" as being "all liquid substances ofwhatever chemical composition usable for the propulsion ofairplanes." The definitions further describe "Liquid fuel" or "fuel" as being "all liquids ordinarily, practically, and commerciallyusable ininternal combustion engines for the generation ofpower

.... All aviation fuel that is sold for use in orused for airplanes is deemed to be 'liquid fuel' or 'fuel' whether ornot coming within the definition contained in the foregoing sentence." Moreover, the term "petroleumproduct" is defined inrelated provisions elsewhere in the HRS to include "aviation fuels." HRS § 486-50.

Forthese reasons, we respectfully disagree with the inference made in the Hawaii Attorney General's letter dated August 24, 2009, thatthe absence ofthe specific term "aviation fuel" in the proposed legislation means "aviation fuel" is not included in "petroleum products." Were aviationfuel to be exempted, then the proposed amendment would be consistent with Hawaii's statutory airport grant obligations.

The Anti-Head Tax Act, 49 U.S.C. § 40116, permits a state to levy and collect sales oruse taxes
on the sale ofgoods or services which could include aviation fuel. However, in accordance with 49 U.S.C. §§ 47107(b) and 47133, 1for those airports that have accepted Federal Aviation Administration (FAA) airport development grants or are the subject offederal assistance, state or local taxes on aviation fuel are considered to be "airportrevenue" and using such tax revenue for non-airport purposes is prohibited. According to the FAA's

### Policy andProcedures Concerning the Use of AirportRevenue, 64

### Fed Reg. 7696,7716 (Feb. 16, 1999),

State or local taxes on aviation fuel (except taxes in effect onDecember 30, 1987) are considered to be airport revenue subject to the revenue-use requirement. However, revenues from state taxes on aviation fuel may be used to support state aviation programs or for noise mitigation purposes, on or offthe airport. 2

Since the passage ofthe Airport and Airway Improvement Act (AAIA) on September 3, 1982, Congress has required that all revenue accruing to grant-obligated airports be used for the airport's capital or operating costs. The State ofHawaii owns and operates IS airports and is an obligated sponsor on a number ofgrants issued underthe AAIA's Airport Improvement Program (AlP). On December 30, 1987, the Airport and Airway Safety and Capacity Expansion Act amended this
revenue use requirement to include local taxes on aviation fuel, suchthat the provision then read, "

... all revenues generated bythe airport, ifit is a public airport, and any local taxes on aviation fuel (otherthan taxes in effect on December 30, 1987) will be expended

..." for airportpurposes. This provision is currently codified at 49 U.S.C. §§ 47107(b)(l) and 47133(a). Congress also addedthatthe revenue use requirement "does not prevent the use ofa State tax on aviation fuel to support a State aviation program orthe use ofairport revenue on or offthe airport for a noise mitigation purpose." 49 U.S.C. § 47107(b)(3).

In short, while a tax on aviation fuel is permitted in accordance with§ 40116, theproceeds derived from such a tax are subjectto the revenue use requirements of49 U.S.C. §§ 47107(b)(l) and 47133(a). Any action by the State Legislature to impose a tax on aviation fuel sold on an airport andto use the proceeds derived from the taxto support non-aviation activities would be inconsistent with federal law. Monies from such a tax would have to be spent to support either (I) the capital or operating costs ofthe airport, the local airport system, or other local facilities owned
or operated bythe airport owner or operator and directly and substantiallyrelated to the air transportation ofpassengers orproperty, or (2) a state aviation program or for a noise mitigation purpose. Accordingly, enactment ofthe legislation to permit a use ofthe proceeds from the petroleum tax on aviation fuel other than that described in (1) and/or (2) above could subjectthe State, as airport sponsor, to an administrative action to enforce the revenue diversion prohibition.

1Sections 47107(b) and 47133 are essentially parallel provisions in Title 49. Section 47107(b) represents the original 1982 version ofthe revenue use statute, as amended and recodified. Title VIII ofthe FAA Reauthorization Act of 1996, § 804, codified the preexisting grant-assurance based revenue-use requirement
as 49 U.S.C. § 47133, but expanded the application ofthe revenue-use restriction to any airport "that is the subject ofFederal assistance."3

This letter is based uponthe information in your January 8 letter and its attachments, and provides only the present views ofthe FAA Counsel's Office, asjoinedbythe DOT General Counsel, regarding relevant federal requirements. Itneither precludes nor constrains the enforcement discretion ofeither the Office ofthe Secretary orthe FAA, nor does it preclude any changes in our legal views. This letter also does not constitute a final order ofthe Administrator orbind the Office ofthe Secretary orthe FAA to any particular resolution in the event that a complaint is filed concerning the issues addressed herein.

I hope that this response will be helpful to you. Ifyou have any questions, please do not hesitate to contact me at (202) 267-3222, or Daphne A. Fuller, Manager, Airports & Environmental Law Division, at (202) 267-3199. Sincerely,

# A_L~-­ Iames W

# ~;;:-**~--"** Acting ChiefCounsel

cc: RobertS. Rivkin, Esq., General Counsel Leila Sullivan, Esq., by e-mail to: l.sullivan@capitol.hawaii.gov