GA supporters in Congress seek repeal of fuel fraud provision

April 26, 2012

Aviation funding loses $50 million a year, and some jet fuel vendors must cope with costly recordkeeping chores as consequences of government efforts to curb fuel-tax avoidance by nonaviation users of diesel fuel, say members of the House General Aviation Caucus.

In a letter to Rep. Dave Camp (R-Mich.), chairman of the House Ways and Means Committee, 32 of GA’s allies in Congress are urging repeal of a tax fraud provision contained in the 2005 highway authorization bill. That law requires vendors of business and general aviation jet fuel to collect the 24.4 cents per gallon federal tax imposed on highway diesel fuel, instead of the 21.9-cent-per-gallon tax on noncommercial jet fuel—and then apply to the Internal Revenue Service for a refund of the 2.5-cent-per-gallon difference. The requirement was enacted to stop truckers from buying less-taxed aviation fuel and including it in a fuel mixture for their vehicles, purportedly to avoid paying part of the 24.4-cent-per-gallon tax on diesel fuel.

“However, there is no documented evidence of widespread fuel fraud of this nature,” said the letter.

Meanwhile, the effort to clamp down has had unintended consequences for the aviation community because since October 2005, “nearly all taxes collected for non-commercial jet fuel used in general aviation have been deposited in the Highway Trust Fund instead of the Airport and Airway Trust Fund, where the funds are desperately needed.”

That diversion of funds to highway programs has cost the Airport and Airway Trust Fund an estimated $50 million per year and is anticipated to cost an addition $500 million over the next 10 years, the GA Caucus members wrote.

In another complication from the provision, fuel vendors “must go through an arduous registration process and then deal with a substantial administrative burden to maintain records for the IRS that were not previously required” in order to have the funds deposited in the aviation trust fund. Some vendors have opted to simply pass the additional tax along to end users and not seek the refunds, they wrote.

Given the lack of evidence of widespread fuel-tax fraud, the provision “is a solution in search of a problem,” they wrote.

“We appreciate the effort of our friends in Congress to ensure that fuel taxes paid by general aviation users for non-commercial jet fuel are deposited into the Aviation Trust Fund and used to enhance the safety of our national airspace system. We are hopeful that this letter sends a strong message that this flawed provision should be repealed once and for all,” said Lorraine Howerton, AOPA vice president of legislative affairs.

Earlier this year, AOPA signed onto an industry letters to the House Ways and Means Committee and the Transportation and Infrastructure Committee to repeal this onerous provision during consideration of the current highway authorization bill.