Effective January 1, 2006, the Defense Energy Support Center (DESC) will be modifying contracts with FBOs to address recent tax changes. Prior to Jan. 1, U.S. and foreign military aircraft, as well as State and local government aircraft, had been categorized as noncommercial aviation fuel sales. DESC had advised FBOs to charge military and government operators $.219 FET.

Recent IRS guidance (Notice 2005-80) confirms that only the FBO is entitled to refunds of noncommercial aviation fuel sales. The most recent DESC interpretation of the IRS guidance explains that FBOs may only charge the Leaking Underground Storage Tank (LUST) tax of $.001/gallon when delivering fuel into U.S. or foreign military and State and local government aircraft. Therefore, the FBO should apply for ultimate vendor status, and apply for the federal excise tax (FET) refund of $.243/gallon for these aircraft. The FBO will be guaranteed the $.001/gallon LUST tax by DESC contracts.

Federal civilian agency aircraft should be charged $.218/gallon. The FBO will be guaranteed the $.001/gallon LUST tax by DESC contracts, and may apply for a $.025 refund as a sale to noncommercial aviation.

FBOs selling fuel to these types of aircraft must use Certificate of Ultimate Purchaser of Kerosene for Use in Foreign Trade or Use (Other than By State or Local Government) in Noncommercial Aviation for military and federal civilian agency aviation. Certificate of Farming Use or State Use must be used for refund filing for National Guard and state and local government aircraft. The certificates are effective from Jan. 1, 2006, to December 31, 2006.  The DESC will provide vendors with the required certificates, or you may click the link below.

The DESC empathized with the aviation industry regarding the additional burden of these tax changes. It also recognized the persistent actions from industry groups, including NATA, to seek relief from Congress. NATA continues to seek guidance from the IRS and assistance with this burdensome refund process from Congress.

FMI: NATA Letter, IRS Notice 2005-80