Mr. James T. Brown 

Airport Compliance and Management Analysis 

Federal Aviation Administration 

800 Independence Avenue, SW 

Washington, D.C. 20591 

Dear Mr. Brown: 

Subject: Action Plan for the Use of Certain State Sales and Use Tax Revenue from Aviation Fuel 

In accordance with the Final Policy Amendment issued by the Federal Aviation Administration 

(FAA) on November 7, 2014 (FAA Final Policy), the State of Michigan presents this "action 

plan" with regard to the use of certain state sales and use tax proceeds from the sale and use of 

aviation fuel. The key component of this action plan is the implementation of a tax· revenue 

"offset" approach consistent with the FAA's July 17, 2015 guidance responding to questions 

posed to the FAA by the State of Michigan. To establish this aspect of its action plan, legislation 

has been introduced and is actively moving through the legislative process to redirect a portion 

of state sales and use tax revenue from the State General Fund into designated funds within the 

State Aeronautics Code to be used solely for aviation purposes. This action plan also explains 

the history of Michigan's sales and use taxes, describes Michigan's privilege tax on aviation fuel, 

provides a brief summary of the cunent funding challenges for the state's aviation program, and 

includes supporting documentation. 

Historical Background on Michigan's Sales and Use Taxes 

Under the Michigan Constitution of 1908, Michigan was authorized to levy a sales tax of up to 

4 percent. It was not until the enactment of Public Act 167 of 1933, however, that Michigan 

levied its first sales tax on retail sales of tangible personal property. The initial sales tax levy 

was at a rate of 3 percent. Several years later, Michigan began levying a use tax on the use, 

storage, or consumption of tangible personal property in the state by enacting Public Act 94 of 

1937. The initial use tax levy was at a rate of 3 percent. In 1954, a constitutional amendment 

was adopted that reduced the maximum sales tax rate from 4 to 3 percent. The sales and use 

taxes continued to be levied at the 3 percent rate until a 1960 constitutional amendment, effective 

January 1, 1961, permitted the imposition of sales and use taxes at the rate of 4 percent. Under 

this constitutional authority, Michigan immediately began imposing and collecting sales tax 

(Public Act 1 of 1960) and use tax (Public Act 219 of 1962) under the new 4 percent rate. 

Consistent with these impositions, Michigan ratified its current Constitution in 1963, which 

(until 1994) authorized a maximum sales tax rate of 4 percent. Michigan has been imposing and 

collecting sales and use taxes at the 4 percent rate ever since. Effective May 1, 1994, Michigan 

voters approved a constitutional amendment (i.e., SJR S of 1993 ratified as "Proposal A") that 

required the imposition of both a sales tax and use tax at the "additional rate of 2%" and 

LH-LAN-0 (01/03) 

AERONAUTICS BUILDING • 2700 PORT LANSING ROAD • LANSING, MICHIGAN 48906 

www.mlchigan.gov • (517) 335-9263 
While originally adopted as exclusively a state tax, the 6 percent use tax was recently divided 

into the "state share tax" and the "local community stabilization share tax" by Public Act 80 of 

20 14 (Public Act 80), which became effective October 1, 2015. 1 The key purpose of 

Public Act 80 was to reimburse local units of government (through the local community 

stabilization share tax) for the amount of estimated revenue lost due to previously enacted 

personal property tax exemptions. Dividing the 6 percent state use tax into a state portion and a 

local p011ion (levied by a state-wide local authority) was necessary to avoid having these 

reimbursement payments go through the annual state appropriations process. Thus, a new local 

use tax is levied by that authority beginning October 1, 2015, and the rate of that tax (which will 

fluctuate year-to-year in order to generate a certain specified amount of revenue for the local 

units of government) reduces the rate component of the state share tax by an equivalent amount. 

Because the use tax base and 6 percent rate were not altered when the tax was split into these two 

components, consumers will not notice the change. They will continue to pay a 6 percent rate on 

all transactions that were subject to the single state use tax, but part of the proceeds will now be 

considered local tax receipts and not be subject to state appropriation. For more information, see 

attached constitutional and statutory provisions (both cul1'ent and historical) and Michigan 

Attorney General Opinion No 4694 (issued June 18, 1970). (Attachments 1-5) 

Constitutional and Statutory Dedication of Sales and Use Tax Revenue 

State sales and use tax revenue in Michigan is constitutionally and statutorily emmarked to 

several funds. Of the revenue generated by the state sales tax levied at the 4 percent rate, 

36.3 percent is earmarked to revenue sharing for local governments and 60 percent is earmarked 

to the School Aid Fund (SAP). The remaining 3. 7 percent of state sales tax revenue raised by the 

4 percent rate is deposited into the State General Fund, except that 27.9 percent of one percent 

generated from automotive-related sales is deposited into the Comprehensive Transportation 

Fund. Of the revenue generated by the use tax levied at the 4 percent rate that is state funds (i.e., 

the state share), a p011ion is required by statute to be deposited into the SAF in an amount equal 

to the revenue loss from the State Education Tax and certain school operating millages 

attributable to property tax exemptions for certain commercial and industrial personal property as 

a result of the enactment of Public Act 80 of 2014. The remainder is deposited in the State 

General Fund. One hundred percent of the sales and use tax revenue collected at the additional 

2 percent rate enacted in 1994 is constitutionally dedicated to the SAF. The revenue generated 

by the use tax that constitutes the local community stabilization share tax is not credited to the 

state treasury, but is deposited in the treasury of the state-wide local authority established under 

1 Public Act 80 relates exclusively to the use tax, so it has no impact on sales taxes levied on aviation fuel. Further, 

it is important to note that any revenue from use taxes on aviation fuel (both from the state share and the local 

community stabilization share) is estimated to be negligible, and we are not aware of any other local taxes being imposed and/or collected on aviation fuel. 
The federal airport revenue use requirements [49 USC 47107(b) and 49 USC 47133], as 

interpreted by the FAA Final Policy, establish that the tax proceeds a state receives from a tax on 

aviation fuel not in effect on December 30, 1987, are not eligible for "grandfathered" status. To 

the extent that the tax proceeds the State of Michigan receives from its state sales and use taxes 

might be subject to the federal airport revenue use requirements, the State of Michigan believes 

that the state tax proceeds received from the sales and use taxes imposed at the rate of 4 percent 

qualify for this "grandfathered" status, because they were imposed (and revenue was collected 

under them) prior to December 31, 1987. On the other hand, to the extent that the proceeds from 

such taxes may be subject to the federal airpmt revenue use requirements, the state's revenue 

received from the sales and use taxes imposed and collected on aviation fuel at the additional rate 

of 2 percent will not qualify for "grandfathered" status, because these taxes were not imposed 

and collected until 1994. As noted above, however, the revenue from the sales and 

use taxes 

imposed at the additional rate of 2 percent enacted in 1994 is constitutionally dedicated to the 

SAF rather than for airport purposes. 

Importantly, the State of Michigan does 

not believe that the enactment of Public Act 80 affects 

the grandfathered status of any portion of the 

use tax. Prior to the enactment of Public Act 80, 

the use tax rate that could be imposed on aviation fuel under Michigan law was capped at 

6 percent. After the enactment of Public Act 80, there is no change in the maximum use tax rate 

that can be imposed on aviation fuel; it is still capped at 6 percent. Because the full 6 percent 

rate was levied prior to the enactment of Public Act 80, taxpayers will not 

n

otice any difference 

in the effective tax rate.2 As previously noted, the effect of Public Act 80 was to annually divide 

the 6 percent state use tax rate (beginning October 1, 20 15) into both a "state share tax" and a 

"local community stabilization share tax" each fiscal year while maintaining the total 6 percent 

rate. The local community stabilization share tax is levied by a local authority whose jurisdiction 

encompasses the entire State of Michigan (individual municipalities cannot levy the tax), and 

that state-wide authority will levy the tax at the same rate throughout the entire state. To 

illustrate the computation and methodology under Public Act 80 for the fiscal year 2015-2016, 

the 6 percent use tax rate will be comprised of both the local community stabilization share tax 

rate "calculated by [Treasury] .. . sufficient to generate $96,100,000.00 in revenue" for the 

statewide local authority to use to compensate individu

al local governments for lost revenue 

resulting from tax exemptions of personal property and the state share tax rate, which will be 

equal to 6 percent minus the rate calculated for the local community stabilization share tax.3 

This action plan is based on the characterizations explained above concerning the 

"grandfathered" status of the various components ofthe sales and use taxes. 

2 See MCL 205.93(7) ("The total combined rate ... shall not exceed the constitutional limit of 6% under section 8 of 

article IX of the state constitution of 1963"). 

3 See e.g., MCL 205.93(5) (a). 
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the legislative proposal implements what the FAA has characterized in the document entitled 

"State of Michigan Aviation Fuel Tax Questions and Answers" posted by the FAA on 

July 17, 2015, as an "offset" approach. 

Specifically, the State of Michigan will require retailers and others using aviation fuel that have a 

sales and/or use tax liability to file an "informational return" with the Michigan Depatiment of 

Treasury on a quarterly basis that will provide the data necessary to determine how much sales 

and use tax revenue the State of Michigan has collected from the retail sale or taxable use of 

aviation fuel. Compliance with this filing requirement will follow established practices of tax 

collection and enforcement including, but not limited to, penalties for failing or refusing to file 

the informational retmn, audits, and discovery projects. 

With the data repmied by taxpayers in their informational returns, the Michigan Department of 

Treasury will determine the amount that equals the sales and use tax collections derived from 

aviation fuel retail sales, purchases, and uses from the sales and use taxes imposed at the 

additional 2 percent rate imposed since 1994 and dedicate and redirect that amount every 

calendar quarter from the State General Fund (from unallocated sales and use tax revenue 

collected from such taxes imposed at the 4 percent rate) to separate statutorily-created funds that 

exclusively serve state aviation programs. Annual reconciliations will be performed by the 

Michigan Department of Treasury to ensure that the proper amount of tax revenue is directed 

toward the aviation programs. Accordingly, under the legislative proposal, the state sales and 

use tax revenue redirected from the State General Fund will be dedicated and redirected to the 

state aviation program in the following manner: 

• 35 percent to the cunently established State Aeronautics Fund. 

• 65 percent to a newly created fund named the "Qualified Airport Fund. "4 

In general, the funds deposited every calendar quarter in the "Qualified Airport Fund" will be 

disbursed to the operator of each "Qualified Airpoti" to be used in the following order of 

priority: (1) To pay the next scheduled payments on revenue bonds issued by the operator of the 

"Qualified Airport" to finance capital improvements to landing areas of the "Qualified Airpol1,"5 

and (2) To defray costs of capital improvements to landing areas of the "Qualified Airpoti." A 

"Qualified Airpoti" is defined in the legislative proposal as an airport located in Michigan, other 

than a military airpmi that has 10,000,000 or more enplanements in any 12-month period. This 

arrangement allows for assistance in proportion to need and is justified from a state policy 

4 The new "Qualified Airport Fund" is created under the proposed legislation. 

5 Under the proposed legislation, capital improvements to "landing areas" include, but are not limited to, runway and 

taxiway design, construction, repair or rehabilitation, lighting, drainage systems, land acquisition, airfield roadways, 

noise mitigation systems, deicing pads, and surveillance systems at the "Qualified Airport." 
that there is more than one "Qualified Airport" in the state, then the disbursements will be made 

to each in proportion to the number of gallons of fuel sold at the respective airports. Because the 

proceeds are derived from state taxes and fund the state's aviation program, the State of 

Michigan has discretion as to how to allocate those proceeds for aviation purposes.6 The State of 

Michigan has determined that the 35/65 percent allocation fairly balances the need to provide 

long-term funding for the state's aviation programs overall, while providing a significant benefit 

to Detroit Metro Airport (given that it is the predominant source from which the sales taxes are 

derived, and it is also by far the state's largest airpot1).7 

It is estimated that the sales tax imposed on retail sales of aviation fuel at the additional 2 percent 

rate in effect since 1994, cunently generates between $12 and $15 million in sales tax revenue 

annually. Use tax revenue derived from uses of aviation fuel taxed at the additional rate of 

2 percent rate imposed since 1994, is estimated to be negligible. The State of Michigan believes 

that the approach described above satisfies the requirement in the FAA Final Policy "to develop 

reporting requirements and tracking systems for discrete information on aviation fuel tax 

revenues." Furthermore, there will be no administrative costs charged for the collection and 

allocation of the applicable proceeds that will be deducted. 

The implementation period contemplated by the legislative proposal is as follows: sales and. use 

tax data received from taxpayers from informational returns (due July 2016) based on the 

April-June 2016 tax periods, with the first quarterly disbursements into the State Aviation Fund 

and "Qualified Airpoti Fund" beginning October 1, 2016. This implementation period reflects 

the state's current inability to measure actual sales and use tax revenue from aviation fuel and the time frame necessary to .develop, distribute, receive, and process the informational returns 

authorized under the proposed legislation. Accordingly, as permitted under the FAA Final 

Policy, the State of Michigan requests a transition period of approximately one (1) year from the 

date of this letter in order to implement this action plan and the associated legislation. 8 The 

proposed legislative approach will require action by the Michigan Legislature to amend the 

State Aeronautics Code, MCL 259.1 et seq., the General Sales Tax Act, MCL 205.51 et seq., and 

the Use Tax Act, MCL 205.91 et seq., and that legislative action is already underway. See 

6 "Proceeds from a State tax may also be used for a State aviation program." 79 FR 66287 (Nov. 7, 20 14). 

7 As noted above, the use tax proceeds are expected to be negligible, so the relevant proceeds are those entirely from 

state sales taxes. As such, the State of Michigan believes that the particular percentages to be allocated between the 

various funds under the legislative proposal do not conflict with the FAA guidance issued on July 9, 2015, because 

the sales tax imposed in Michigan is imposed exclusively by the State of Michigan and not by any local jurisdiction. 

This distinguishes the circumstances in Michigan with the facts presented by the State of Georgia (which dealt with 

taxes "imposed by a local jurisdiction [e.g., a county or municipality"]) to which that guidance was based. 

8 The one year transition period is based on the assumption that the legislative proposal will be enacted within the 

upcoming weeks or months. If the enactment is delayed, the State of Michigan may amend this action plan to 

request additional time for its transition period; subject to the limits prescribed in the FAA Final Policy. 
aircraft using the aeronautical facilities on Michigan lands and waters.10 Airline operators who 

show proof (within 6 months of purchase) that they are operating interstate on scheduled 

operations are entitled to claim a refund of 1 Yz cents per gallon. 11 Because this tax 

has been 

imposed at the same rate since at least 19 57, the State of Michigan believes that it should be 

considered "grandfathered" under the FAA Final Policy.12 

Notwithstanding such grandfathered status, the framework established by Michigan law ensures 

that 100 percent of the proceeds from this tax are credited to the State Aeronautics Fund in 

furtherance of the State of Michigan's aviation program. For example, the Michigan Constitution 

provides, in relevant part, that "all specific taxes .. . imposed directly or indirectly on fuels sold 

or used ... to propel aircraft ... shall, after the payment of necessary collection expenses, be used 

exclusively for transportation pwposes as set forth in this section .... 100 percent of the specific 

taxes ... imposed directly or indirectly on fuels sold or used to propel aircraft .. . , after the 

payment of necessary collection expenses .. . shall be used exclusively for the transportation 

pwposes of comprehensive transportation pwposes as defined by law. 13 

More specifically and regarding the State Aeronautics Fund, the Michigan Aeronautics Code 

expressly declares that " [a]ll money received from aviation fuel taxes .. . shall be paid into the 

state treaswy and credited to this fund." 14 Concerning funds credited to the State Aeronautics 

Fund, the Michigan Aeronautics Code states that "all money in and currently credited to the state 

aeronautics fund ... [is to be 

used] for carrying out the purposes and provisions of this act, and to 

meet the expenses of the department... However, funds appropriated under this section or 

subsequently made available sh

all not be expended upon any aviation project that is not carried 

out under the supervision and direction of the department." 15 In addition, Michigan law: 

(i) prohibits a person from purchasing fuel for resale that has been identified on a shipping paper 

or invoice as aviation fuel unless the person is registered with the Michigan Department of 

Treasury; (ii) establishes that fuel upon which the privilege tax has been imposed shall be 

identified on the shipping paper or invoice as aviation fuel and sold only for aviation purposes; 

9 Because the legislation must still be passed by the Michigan House of Representatives, and may be amended 

furt

her, the State of Michigan will supplement this action plan in the future once the final legislation is passed and 

signed into law by the Governor. 10 MCL 259.203( I). This is a state (not local) tax. 

II fd. 

12 See 1957 PA 123 attached hereto as Attachment 10. Although this tax has been in place since the enactment of 

1945 PA 327, historical text could not be retrieved, so the 1957 language was provided. Furthermore, the 

amendments to MCL 259.203 by 2000 PA 404 and 2008 PA 25 were either non-substantive or added subsection (2) 

relating to the exemption for leaded racing fuel. These public acts are attached hereto as Attachments 11 and 12. 

13 Const.l963, art 9, §9. 

14 MCL 259.34; It is well-established under Michigan law that the use of the term "shall" in a statute or constitution 

generally indicates mandatory action. People v. 

Bell, 276 Mich App 342, 347 (2007). 

15 MCL 259.35. 
Code fully complies with the federal airport revenue use requirements under 49 USC 4 71 07b and 

49 USC 47133 and is consistent with the FAA Final Policy. Nothing in the legislative proposal would affect the imposition of, or dedication of revenue from, this privilege tax on aviation fuel. 

Michigan's Aviation Program (Scope and Current Revenue Challenges) 

Michigan is a block grant state operating under agreement with the FAA to support a system of 235 public use airpo11s, as identified in the Michigan Airport System Plan, including 1 large hub, 

17 commercial service airports (of which 9 are essential air service), 10 large general aviation 

airports, and over 200 smaller facilities. 

Given the scope of Michigan's aviation system, the State of Michigan, airp011s and users have 

worked cooperatively toward enhancing revenues over the past several years, but have been 

unable to find support for a long-term solution. For example, the Michigan Legislature enacted 

Public Act 226 of 2012 to address cettain critical needs of the aviation system. However, 

Act 226 contained a $10 million cap and was only applicable for the fiscal year ending 

September 30, 2013. The Michigan Legislature has not enacted similar legislation to fund state 

aviation programs following the sunset of Act 226. The proposed legislative approach is not 

only a means to ensure compliance with the federal airport revenue use requirements, but also a 

long-term solution to address the needs of existing aviation programs and to assist the state's 

largest airp011, Detroit Metro Airport. 

We believe that the action plan presented in this letter is consistent with the federal airport 

revenue use requirements (including the FAA Final Policy) and will benefit all of the airports in 

the Michigan Airport System Plan. Please contact me at 517-335-9568, ifyou have questions or need additional information. 

Attachments 

16 MCL 207 .I 094(1 )-(2). 

17 MCL 207 .I 094(5). 

Sincerely, 

Michael G. Trout 

Executive Administrator 

Office of Aeronautics