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