State of Illinois Aviation Fuel Tax 

Revenue Action Plan 

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The State of Illinois submits this action plan pursuant to 79 FR 66282 (Policies and 

Procedures Concerning the Use of Airport Revenue; Proceeds from Taxes on Aviation Fuel, 

November 7, 2014). This action plan identifies all taxes administered by the Illinois Department 

of Revenue which are either imposed on aviation fuel or general merchandise. In Appendix A, 

you will find the following information regarding the grandfathered taxes; copies of legislation 

for each tax reflecting that the tax was in effect on December 30, 1987 as well as any subsequent 

amendments to the rate of tax, and a summary detailing the legislative history for each tax. 

These documents are included in the action plan to demonstrate that such taxes are grandfathered 

and not subject to the revenue use requirements. In Appendix B, you will find the following 

information regarding the non-grandfathered taxes: copies of legislation of each such tax Act and 

a summary detailing the legislative history for each tax. In Appendix C, you will find a detailed 

flow chart of the distribution scheme for the four Illinois Sales Tax Acts; the Retailers' 

Occupation Tax Act, the Use Tax Act, the Service Occupation Tax Act, and the Service Use Tax 

Act. Appendix D includes examples of the returns which will need to be amended in order to 

discretely account for aviation fuel tax. 

This action plan will also set out a transition timeline to comply with the rule and explain 

the legal and procedural issues the State must address in order to do so. The action plan will 

detail the process that the State must undertake to develop reporting requirements and tracking 

systems for discrete information on aviation fuel tax revenues. This action plan will describe 

how the State has acted and intends to act in order to address the revenue use of nongrandfathered taxes through legislative initiatives in the future. Please note that this plan covers 

all taxes on aviation fuel, including local taxes, which the Department of Revenue administers. 

Additional taxes on aviation fuel may be imposed by local governments which are not 

administered by the Department and are therefore not addressed in this plan. 
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Illinois has identified the following taxes which are at least in some part grandfathered as 

they were in effect on December 30, 1987 (See Appendix A): 

The Retailers' Occupation Tax 

The Use Tax 

The Service Occupation Tax 

The Service Use Tax 

The Regional Transportation Authority Retailers' Occupation Tax 

The Regional Transportation Authority Service Occupation Tax 

The Metro-East Mass Transit District Retailers' Occupation Tax 

The Metro-East Mass Transit District Service Occupation Tax 

The County Water Commission Retailers' Occupation Tax 

The County Water Commission Service Occupation Tax 

Illinois has identified the following taxes which were not in effect on December 30, 1987, 

and are therefore subject to the revenue use requirements (See Appendix B): 

The Home Rule Municipal Retailers' Occupation Tax 

The Home Rule Municipal Service Occupation Tax 

The Non-Home Rule Municipal Retailers' Occupation Tax 

The Non-Home Rule Municipal Service Occupation Tax 

The Non-Home Rule Municipal Retailers' Occupation Tax; 

municipalities between 20,000 and 25,000 

The Non-Home Rule Municipal Service Occupation Tax; 

municipalities between 20,000 and 25,000 

The Home Rule County Retailers' Occupation Tax 

The Home Rule County Service Occupation Tax 

The Metro-East Park and Recreation District Retailers' 

Occupation Tax 

The Metro-East Park and Recreation District Service Occupation 

Tax 

The Special County Retailers' Occupation Tax for Public Safety 

or Transportation 

The Special County Service Occupation Tax for Public Safety or 

Transportation 

The Environmental Impact Fee 

The Leaking Underground Storage Tank 

The Rock Island County Retailers' Occupation Tax 

The Rock Island County Service Occupation Tax 

The County Flood Prevention Retailers' Occupation Tax 

The County Flood Prevention Service Occupation Tax 

The County School Facility Retailers' Occupation Tax 

The County School Facility Service Occupation Tax 

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The Salem Civic Center Retailers' Occupation Tax 

The Salem Civic Center Service Occupation Tax 

The STAR Bond Retailers' Occupation Tax 

The ST AR Bond Service Occupation Tax 

The Business District Retailers' Occupation Tax 

The Business District Service Occupation Tax 

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The Illinois General Assembly is typically scheduled to be in session each year from 

January through May. Any legislation to address these issues will need to be introduced and 

passed during this timeframe. The Governor then has 60 days to act on a bill before it becomes 

law. As evidence that the Illinois General Assembly has already begun making a good faith 

effort to comply with the rule, a bill was introduced last year in the Illinois Senate, which 

outlines one approach to the issues surrounding compliance with the revenue use requirements. 

The bill exempts aviation fuel from tax and creates an aviation fuel excise tax, the revenue from 

which is deposited into an aviation fuel tax fund. The bill was not passed during the 2015 

legislative session. Though we continue to consider the possible legislative solutions, the 

administration has not endorsed this particular bill, and the final legislation on this topic may 

differ from the version introduced last year. 

/J : Timt!_fi'£11n e for action 

The State of Illinois intends to comply with this rule by the deadline established by the 

FAA of December 8, 2017. The State of Illinois will require the next two years to address many 

legislative, legal, procedural, and administrative issues that will accompany this implementation. 

During the next two years, the State of Illinois will attempt to pass legislation to bring its tax 

code into compliance with 49 U.S.C. §47133. Because Illinois currently taxes aviation fuel as 

general merchandise, the State will also need to amend each form and tax return associated with 

the affected taxes in order to create a line for aviation fuel tax to begin accounting for aviation 

fuel tax revenue by isolating sales of aviation fuel from other general merchandise on tax returns. 

Substantial education efforts must also be undertaken with both the retail community and local 

governments in order to begin accounting for such revenue. 

J: Out,ta11di11K legal is.,11e., 

The State of Illinois must address several legal issues in our attempt to comply with the 

FAA's rule on aviation fuel tax revenue use. Many of these issues stem from the structure of 

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Illinois state government, and local government in particular. Some limitations are constitutional 

in nature. We will face substantial underfunding of cmrent statutorily obligated areas such as 

education and environmental funds. 

Any legislation that is introduced on this topic \vill substantially affect local 

governments as many of the municipalities in Illinois impose individual local taxes on general 

merchandise in addition to the State rate of tax that is imposed. The Illinois State Constitution 

provides "home rule municipalities" with wide latitude in their taxing power. By the same 

token, it is not a simple task for the legislature to restrict or limit a home rule municipality's 

ability to tax. Because a legislative proposal on this topic will include a limitation of many home 

rule units' power to tax aviation fuel unless it is used for aviation purposes, any such legislation 

must be passed by a three-fifths supermaj01ity vote of the Illinois General Assembly. The 

Illinois Constitution states that "[t]he General Assembly by a law approved by the vote of threefifths of the members elected to each house may deny or limit the power to tax and any other 

power or function of a home rule m1it not exercised or performed by the State other than a 

power or function specified in subsection (I) of this section." 1 Assuming the measure receives a 

three-fifths majority vote, we anticipate numerous legal challenges from local governments 

across the State of Illinois as a result. 

The State of Illinois faces additional funding challenges as the Leaking Underground 

Storage Tank Tax and Environmental Impact Fee are imposed on aviation fuel.2 The 

Underground Storage Tank Fund is a statutolily mandated fund which is eannarked to assist tank 

owners and operators with cleanup costs associated with petroleum leaks from underground 

storage tanks. The Fund also serves to satisfy the Federal financial assurance requirements for 

Illinois tank owners and operators. The Environmental Impact Fee and the Underground Storage 

Tank fee are imposed on the receiver of ce11ain petroleum products in Illinois, including aviation 

fuel. The fees are treated as one tax for a combined rate of 1.1 cents per gallon (Underground 

Storage Tank rate of $.003 per gallon of fuel and EIF rate of $.008 per gallon of fuel sold). 

Aviation fuel sold to qualified air carriers is currently exempt from the tax. In order to continue 

operations of the Underground Storage Tank program and maintain important environmental 

standards and to continue compliance with Federal assurance requirements, we will need to 

create a new funding source for the program. 

Many of the Illinois tax Acts contain a provision that allows a retailer or serviceman to 

take a discount on his/her return of 1. 75% to cover the cost of collection. Many retailers rely on 

this discount, which has existed for decades. As you will see in our later analysis of 

grandfathered taxes, the discount is grandfathered in many cases, but only on the portion of the 

tax that is grandfathered. If we discontinue a portion of the discount that retailers are currently 

accustomed to receiving for their collection costs, we expect numerous legal challenges from the 

retail community. 

An additional issue that will prove challenging for the State of Illinois is that some tax 

revenues have been dedicated or secured through the sale of bonds. The County School Facility 

Retailers' Occupation Tax and the County School Facility Service Occupation Tax are 

1 Ill. Const. 1970, Art. 7, Sec. 6(g). 2 35 ILCS 505/2a; 415 ILCS 125/301 

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particularly affected in this way. The purpose of this tax is to establish an alternative funding 

mechanism for school districts in Illinois to the traditional property tax revenue stream. The 

funding is distributed proportionate to the student population of each district in a county. The 

revenue can be used to pay off existing debt which was incurred in the past. The revenue can 

also fund projects and any school facility related capital expense such as building and repairing 

facilities, energy efficiency improvements, safety and security measures, and land acquisitions. 

Not only is the revenue statutorily dedicated to be used exclusively for "school facility 

purposes" in the county, but the districts have bonds in place which were secured by the 

proceeds from the tax. Removing their revenue stream to repay the school districts' debt will be 

an incredible burden on school districts and will likely have a substantial impact on the reliance 

on property tax revenues in communities across the State of Illinois. 

This issue may also exist generally in local governments throughout the State of Illinois. 

Because the State does not maintain any authority over how local governments spend the 

revenue that is disbursed to them, any local tax revenue could also be previously dedicated by 

bonds. This could also be the case for the 1.25% of the State rate which is distributed to local 

governments. 

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The State of Illinois will require the next two years (until December 8, 2017) to address 

many legislative, legal, procedural, and administrative issues that will accompany this 

implementation. During the next two years, the State of Illinois will attempt to pass legislation 

to bring its tax code into compliance with 49 U.S.C. §47133. Because Illinois currently taxes 

aviation fuel as general merchandise, the Illinois Department of Revenue will first need to adjust 

its systems to enable the Department to separately account for sales of aviation fuel. The 

Department also needs to amend each form and tax return associated with the affected taxes in 

order to create a line for aviation fuel tax to begin accounting for aviation fuel tax revenue by 

isolating sales of aviation fuel from other general merchandise on tax returns. This includes 

several returns and publications and will require a great deal of time, manpower, and resources. 

Substantial education efforts must also be undertaken with both the retail community and local 

governments in order to begin accounting for such revenue. 

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