The Transportation Equity Act: a Legacy for Users (TEA-LU, P.L. 109-59), passed by Congress and signed into law last summer, contained a provision altering procedures for the collection of aviation fuel taxes. Under the change, all aviation fuel taxes are initially collected at the rate of highway diesel, 24.4 cents per gallon. While the tax on aviation jet fuel remains at 21.9 cents per gallon, the law stipulates that the final seller of the fuel, or “ultimate registered vendor,” apply for the 2.5 cents per gallon difference in the amount of taxes paid and the amount owed. The new provision also directs all taxes on the sale of aviation fuel to be initially deposited in the Highway Trust Fund. Only when the ultimate registered vendor applies for the 2.5 cents per gallon refund does the remaining 21.9 cents transfer from the Highway Trust Fund to the Airport and Airway Trust Fund. If no refund is applied for, all funds remain in the Highway Trust Fund.

The provision was included to guard against alleged fuel fraud from highway truck operators purchasing aviation fuel for highway use to avoid paying the higher taxes levied on highway diesel fuel. The aviation industry disputes that fuel fraud is a widespread problem, citing lack of statistical evidence of highway trucks operating with aviation fuel.

Since the provision went into effect last October, many aviation businesses have encountered significant difficulty in complying with the new changes. Confusion stemming from limited Internal Revenue Service guidance, combined with burdensome requirements and lengthy delays in IRS approval of ultimate registered vendor applications have led many fuel providers to pass the additional 2.5 cents per gallon tax on to aircraft operators. Passing the additional tax on to the final purchaser of the fuel constitutes a de facto tax increase on the aviation industry, with all tax revenues deposited in the wrong trust fund.

The Aviation Fuel Tax Simplification Act would temporarily suspend these new procedures and would revert to the system in place prior to passage of SAFETEA-LU. The suspension would last until October 1, 2007, when all aviation taxes expire and must be reauthorized. Such a suspension would allow officials from Congress, the White House and the aviation industry an extended period of time to discuss the fuel fraud problem and determine what reasonable actions can be taken to guard against fuel fraud without placing an undue burden on the aviation industry.

“We are extremely pleased that Senator Burns has recognized the unintended consequences of this fuel fraud provision included in last summer’s Highway Bill,” NATA President James K. Coyne (pictured, above) said. “Since October 1 of last year, aviation businesses across the country have had to deal with confusing guidance from the IRS and have been left largely in the dark as to how best to comply with these new changes. After almost seven months, many fuel providers are still awaiting IRS approval as ultimate registered vendors. This legislation, if passed, would give everyone involved more time to investigate the fuel fraud issue while making sure that both the Highway and Airport and Airway Trust Funds receive the appropriate deposits from highway diesel and aviation jet fuel revenues.

“NATA is eager to work with officials in both Congress and the Administration to further discuss the fuel fraud issue and what reasonable methods can help guard against this alleged fraud. Passage of this legislation is a first step in that direction. I encourage the Senate Committee on Finance to take action on this bill as soon as possible. The longer Congress waits, the more aviation businesses suffer while more money drains from the Airport and Airway Trust Fund.”

S. 2666 has been referred to the Senate Committee on Finance, where it awaits consideration.

FMI: www.nata.aero