Aviation Fuel Taxes – Fight with Feds Leads to Reporting Requirement
February 20, 2020
Two new bills would require aviation fuel retailers to provide sales data to the state, information that is needed for California to comply with federal rules dictating how tax revenue from those sales is used. The efforts come from both the Governor’s Administration (budget trailer bill language) and from Senator Mike McGuire (SB 988), who chairs the Senate Governance and Finance Committee. These efforts matter to counties because the federal government’s new interpretation of a decades-old rule could disrupt funding for both local general fund taxes as well as funding received from the state for a wide variety of health, human service, transportation, and public safety programs.
The bills are similar, but Senator McGuire’s bill includes a requirement that the Department of Tax and Fee Administration calculate the amount of tax revenue attributable to the various pieces of the sales tax (e.g. 1991 realignment, 2011 realignment, and the local Bradley-Burns) and report that information to counties, cities, and others that would be affected.
In 2014, the Federal Aviation Administration (FAA) ruled that state and local governments must spend the proceeds of any aviation-related tax – those derived from excise taxes and local sales taxes – on airport uses only. The state has repeatedly argued that California spends at least the appropriate amount on airports, but that much of it comes from other sources, while much of the funding received from the sales and use tax on aviation fuels are dedicated to other purposes, including Prop. 172 for local public safety, the various realignments, and a variety of local add-on taxes for special purposes. That structure has reportedly been accepted from other states, but so far the FAA has insisted that the color of the money matters, and the proceeds of taxes on aviation fuels must be spent directly for airport purposes.
CSAC has been working with the California Department of Finance and, through our federal lobbyists at Paragon Government Relations, with Congress to either get this rule interpretation reversed or minimize the effect on county revenues.