NBAA welcomed a recent announcement from the FAA, amending the agency’s airport revenue usage policy to emphasize that tax revenue from aviation fuel-tax sales must go back into the aviation system. The change, published as a “Final Policy Amendment” and effective Dec. 8, reconfirmed a nearly three-decade-old policy that nevertheless had faced periodic challenges due to perceived ambiguity in the regulations.
General policy mandating that airport revenue be returned into the aviation system was established in a 1987 update to airport grant approval requirements. In 1999, FAA released its “Policy and Procedure Concerning the Use of Airport Revenue,” further codifying how airport-generated funds must be used.
Both the initial policy and the 1997 clarification aimed to keep municipalities from placing so-called “hidden taxes” on air transportation. However, efforts by several state governments looking to use aviation fuel tax revenue for non-aviation purposes convinced the FAA that still more clarity was needed.
For example, in 2009, Nebraska considered adding aviation fuel to a list of products that carry a statewide sales tax linked to a general fund. Hawaii sought in 2010 to have aviation fuel included in a statewide tax on petroleum products, arguing that because its tax language did not mention aviation fuel specifically, it was not in violation of federal law.
In these cases and others, the FAA issued legal opinions clarifying that revenue from a tax on aviation fuel, regardless of how the tax language is worded or how the levy is applied, must be put back into the aviation system.
While acknowledging in the amended policy guidance that state governments and local municipalities – and not airports – have ultimate control over the disbursement of taxes they receive, the FAA also noted “the plain language of the statute at issue, [and] the detailed legislative history, reflect strong Congressional intent that aviation fuel taxes be used for airport purposes and State aviation programs.”
Attorney Jol Silversmith, a partner with Washington, D.C.-based Zuckert, Scoutt & Rasenberger LLP who advises NBAA, said the FAA’s determination also clarifies that the agency will not hold airports accountable for any non-aviation-related uses of those revenues outside their control.
“There previously was some uncertainty about the FAA’s ability to regulate taxes not levied directly by the airport or its owner,” he added. “In this ruling, the FAA is asserting broad jurisdiction to take actions against state or local governments which collect fuel taxes but use those funds for purposes not related to the airport or in support of aviation.”
The latest amendment updates FAA’s 1999 policy to incorporate the agency’s interpretations and underscore that the policy and related law apply to local governments, such as cities and counties, as well as states. It also codifies the long-practiced policy of permitting revenue from state-imposed taxes to fund state-level aviation initiatives.
“When states, counties, cities and other local jurisdictions tax aviation fuel, it is critical that the proceeds are used for the capital or operating costs of an airport, a local airport system or any other airport facility,” said Scott O’Brien, NBAA’s senior manager, finance and tax policy. “The amended Revenue Use Policy is helpful in clarifying the prohibition on taxes of any kind on aviation fuel, unless the revenues are used in a manner that is consistent with federal law and policy.”
NBAA joined about two-dozen other groups in voicing general support for FAA’s effort.