8/6/2015

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### State of **California Aviation Fuel Tax**  **Questions and Responses** The following questions were submitted b y the State of California Senator Mike McGuire specificall y related to state and local sales tax on aviation fuel. The answers were prepared by Randy Fiertz, Director

– FAA Airport Compliance and Management Analysis. **Question #1** Prior to 1990, all fuels sold to common carriers, including air carriers, were exempt from paying sales taxes on fuel sold after the first out
- of
- state destination. After 1990, the above exemption wa s removed and was not restored. With removal of the partial sales tax exemption, would all fuel sales be subject to the FAA’s revenue use requirements or only the portion of fuel used after the first out
- of

- state destination due to grandfathering of all taxes in place prior to 1987? **FAA Response**  **to Question #1** State or local taxes on aviation fuel (except taxes in effect on December 30, 1987) are considered to be airport revenue subject to the revenue
- use requirement. With removal of the partial sales tax exemption in 1991, all taxes on aviation fuel sales collected and levied within the taxing jurisdiction would be subject to the revenue
- use requirements. The FAA will need further information to substantiate the terms of the aviation fuel tax in effect as of December 30, 1987 to determine eligibility

for grandfathered status. Please see response to Question #4 which directs you to guidance on eligibility for grandfathering of aviation fuel taxes
. **Question #2** Since December 30, 1987, California has increased its general sales tax rate by one and a half percent. According the docket, this policy applies to a new assessment or imposition of a tax on aviati on fuel, even if the tax could have been imposed earlier under a statute en acted before December 30, 1987. Would only the 1.5 percent increase be subject to the FAA’s revenue use requirements or would the entire 7.5 percent statewide sales tax be obligate d to airports? **FAA Response**  **to Question #2** California will need to provide documents substantiating that the original 6 percent tax qualifies for grandfathered status, including proof that the tax law was in effect on December 30, 1987. If substantiated, the 6 percent tax rate could be used for the purposes established by the grandfathering documentation. The 1.5 percent implemented after December 30, 1987 would be subject to the Revenue Use Policy Amendment.8/6/2015

2 **Question #3** The 1.5 pe rcent increase since 1987 is used as follows: a half percent for local public safety services; a half percent for mental health realignment purposes, a quarter percent for education, and a quarter percent for the stat e ’s General Fund. As these are voter approved taxes are they still subject to the FAA mandate? **FAA Response**  **to Question #3** Yes, federal statutory

requirements , as clarified in the Revenue Use Policy Amendment , would subject these state taxes on aviation fuel to the revenue use requirements required under 49 U
. S
. C
. 47133 . State taxes (except those taxes in effect on December 30, 1987) on aviation fuel (imposed by

either an airport sponsor or a non
- sponsor) are subject to use either for a state aviation program o r for airport
- related purposes. **Question #4** Will guidelines for the action plan be released in the near future? (Action plan requirements, submission location, penalties for failure to submit an action plan, etc.) **FAA Response**  **to Question #4** Yes, guidance has been issued. The guidance, “Final Aviation Fuel Tax Grandfathering Action Plans Final 2015 07 10,” is located on the regulations.gov website at http://www.regulations.gov/#!documentDetail;D=FAA
- 2013
- 0988
- 0041. The guidance outlin es several scenarios to assist airport sponsors and non
- sponsors to determine an appropriate course of action and/or development of an action plan for aviation fuel taxes that may or may not qualify

for grandfathered status. The Revenue Use Amendment states, “ The FAA believes that State and local officials should prepare an action plan to initiate the process to amend any non - compliant State laws and local ordinances as necessary

to conform to federal law on use of aviation fuel tax revenues. The acti on plan should detail the process necessary to develop reporting requirements and tracking sy stems for discrete information on aviation fuel tax revenues. The plan may include a reasonable transition period, not to exceed three years, during which the FAA would agree, in an exercise of its prosecutorial discretion, not to enforce the revenue use requirement against a non
sponsor State or local government. State and local governments should submit an action plan to the FAA within a ye ar of the effective date of this notice.” (79 F ed. R eg. 66286, November 7, 2014) State and local taxing legislation, collection and allocation methodologies, reporting, and accounting s ys tems are complex and may vary widely
. T he FAA left the action plan requirements flexible f

or each state or local government to account for variances among jurisdictions
. Moreover , the FAA believes that standard guidelines could be constraining and/or restrictive to state and local governments as they work to become compliant with the Amendment
.