STATE OF TENNESSEE DEPARTMENT
OF TRANSPORTATION AERONAUTICS DIVISION

. P.O. BOX

1 7326

. . . NAS HVIL L E, T E NNESSEE 37217 PH (615) 74 1 -3208 JOH N C. SC HRO E R CO MMI SSIO N ER March

1 7, 2016 Byro n Huffman Federal Aviation Administrat

i on Director, O(fice of Airport Compliance And Managemen

t Analy

s i s 800 Independence Avenue

, SW Was hington

, D C 20591 Dear Mr. H uffman:

FX (6 1 5) 741-4959

BILL H ASLAM GOVER

N OR In reference
to our phon
e conversation earli er t o d ay
; the attached

i s the inf ormat ion we m ai l e d last December
in reference
to t h e FAA Poli cy and Procedures Concerning

th e Use of A irport Reve nue

; Proceeds from Taxes on Aviation Fue l. W' e are sorry that this information

d id not reach yo u at tha t time. Nothing

. h as

. changed
re g arding mir comp lian ce s tatus from that da t e to thi s .

· :

· ·

· ·

:.

· Si n ce rely, **~~~** William
B. Orellana, Dir ector Cc: fi l e Attachment
(1) WBO/bojmlbJOHN C. SCHROER COMMISSIONER

" December

8, 2015 STATE OF TENNESSEE DEPARTMENT
OF TRANSPORTATION AERONAUTICS DIVISION P.O. BOX 17326

· NASHVILLE, TENNESSEE 37217 PH (615) 741-3208 FX {615) 741-4959 Federal Aviation Administration Attention: Director Office of Airport Compliance And Management Analysis 800 Independence Avenue, SW Washington,
DC 20591 Dear Sirs:

BILL HASLAM GOVERNOR Reference the FAA Policy and Procedures **Conce~ning** the Use of Airport Revenue; Proceeds from Taxes on Aviation Fuel. The Tennessee Department

of Transportation

is in compliance with the subject FAA policy.· lfhe'attached document outlines the specifics of our aviation fuel related taxes and their use for aviation and airport related programs and improvements.

. **~"**· Sincerely, William
B. Orellana, Director Cc: file Attachment
(1) WBO/bofmlb

# Background 

# Federal Aviation Administration Aviation Fuel Tax Revenue Use Details of Compliance On November

7, 2014, the Federal Aviation Administration (FAA) published

a final amendment to its policy on Federal requirements for the use of proceeds from taxes on aviation fuel. (78 FR 

# 69789, November 21, 2013), {79 FR 5318, January 31, 2014). The action adopted an amendment to FAA's Policy and Procedures Concerning the Use of Airport Revenue published

in the Federal Register at 64 FR 7696 on February 16, 1999 ("Revenue Use Policy"), The action confirmed FAA's 

# long-standing policy on Federal requirements
for the use of proceeds from taxes on aviation fuel. Under Federal law, airport operators that have accepted Federal assistance may use airport revenues only for airport-related purposes. State and local taxes on aviation fuel are subject to the FAA airport revenue use requirements. The statutory revenue use requirements apply to certain State and local government taxes on aviation fuel, as well as to revenues received directly by an airport operator. The amendment
to the Revenue Use Policy formally adopted FAA's interpretation

of the Federal requirements for use of revenue derived from taxes on aviation fuel. As a requirement

of the policy amendment,

an airport sponsor or state government submitting an application under the Airport Improvement Program must provide assurance that revenues from State and local government taxes on aviation fuel will be used for aviation/airport-related purposes. These purposes include airport capital and operating costs, and State aviation programs. The policy amendment applies prospectively

to use of proceeds from both new taxes and to existing taxes that do not qualify for grandfathering from revenue use requirements. Taxes on the sale of aviation fuels that are grandfather are defined as those enacted and in use on or prior to December 30, 1987. For existing taxes that do not qualify for grandfathering,
the FAA will allow up to three years to transition
to full compliance but not later than December

8, 

# 2017. 

# Tennessee's Compliance Perspective The Tennessee Department
of Transportation (TOOT} (Department) has interest

in complying with the policy amendment

as it directly receives federal funding for aviation system planning purposes and also is a Federal Block Grant State. The Block Grant Program contracts the FAA's responsibility
for the Airport Improvement Program (AlP) for general aviation airports directly to the Department, charging

it with compliance efforts related to federal requirements. The Department, through its Aeronautics Division, distributes federal funds to airports and enforces federal requirements

as required by contract obligations. The policy amendment has significant implications for the Department

to ensure the State's Airports maintain eligibility to receive the maximum federal funding but also are in compliance with the policy amendment

as required by contract. The Department has coordinated with the Tennessee Department
of Revenue. Information provided below by the Department
of Revenue contains

a listing of all State taxes on aviation fuels and the date they were enacted to determine applicability for inclusion
in this action plan. Generally the following types of taxes can be levied on aviation fuels in Tennessee:Jet A Fuel (for turbine engines) and Avgas (for piston engines) State Taxes Sales Tax on the Retail Price; 1947 and amended

in 1986 4.5% Specific rate of 4.5% adopted pursuant
to 1986 Tenn. Pub. Ch. No. 931 and codified at Tenn. Code Ann.
§ 67-6-217. (Not Subject to FAA Aviation Fuel Tax Revenue Policy; enacted prior to 1987} Special privilege tax/motor fuels tax. Established 1978 $0.01/gallon Enacted by 1978 Tenn. Pub. Ch. No. 761 § 106 and codified at Tenn. Code Ann. §67-3-904 (1983}. Subsequently re-codified
at Tenn. Code Ann.
§ 67-3-203. (Not subject to FAA Aviation Fuel Tax Revenue Policy; enacted prior to 1987} Tennessee Business Tax on gross receipts; 1971 classification and activity Codified at Tenn. Code Ann.
§ 67-4-701 et seq Rate varies by seller Export tax.

One twentieth
of $.01/gallon Enacted by 1978 Tenn. Pub. Ch. No. 761 § 110-113 and codified at Tenn. Code Ann.
§ 67-3-910 (1983), now codified at Tenn. Code Ann.
§ 67-3-205 (Not subject to FAA Aviation Fuel Tax Revenue Policy; enacted
in 1978} Additional Fee Environmental Assurance Fee $0.004/gallon Codified at Tenn. Code Ann.
§ 67-3-204. As mentioned above, the FAA Policy Clarification for Aviation Fuel Tax Revenues provides taxes may be grand fathered

if enacted prior to December 30, 1987. Aviation fuel has been subject to sales tax since the adoption ofthe general sales tax in 1947. In 1986
a specific state sales tax rate on aviation fuel of 4.5% was adopted
as noted above.
In 1986, the Transportation Equity Fund (TEF} was created by Tenn. Pub. Ch. NO 931 §2 and codified at Tenn. Code Ann. §67-6- 103(b}(Supp. 1987). Under this action, the 4.5% State sales tax on aviation fuels is dedicated
to State aviation and airports programs. While the tax could technically
be "grandfathered"

it provides the cornerstone for the Tennessee Aeronautics programs that support aviation and airport improvement activities across the State The Tennessee Business Tax mentioned above
is not deemed applicable to the revenue use issue at hand.
It is not a tax on the sale, use, purchase or storage of aviation fuel, but is a tax on the privilege of doing business
in Tennessee measured
by the business's gross receipts. The Environmental Assurance Fee cited above
is a fee rather than
a tax. This fee goes to the Underground Storage Tank fund to regulate and maintain storage tanks, some of which are located at airports. Tennessee does not consider

it applicable
to the Federal guidance on the application
of aviation fuel taxes.Therearenolocaltaxesimposedonaviationfuel.localjurisdictionscanonlyimposeataxonaviationfuelifsuchwasauthorizedbytheTennesseelegislature.Todate,nosuchauthorizationhasbeenenacted.