Associations Request IRS Delay Implementation of Fuel Tax Changes


A recent legislative change to the taxation of jet fuel is creating significant concerns for commercial and private aircraft operators as well as fuel vendors. The National Air Transportation Association (NATA) and National Business Aviation Association (NBAA), along with tax experts, FBOs, air charter operators and private aircraft owner-operators are now working on developing industry guidance to aid in the transition to this new process for taxes and refunds related to jet fuel. The group is also working on strategies to mitigate the effects of this change.

The working group was working to have guidance available in sufficient time for operators to review and implement any new procedures prior to the October 1, 2005 change. Recently, the group learned that officials from the Internal Revenue Service (IRS) and the U.S. Treasury Department were meeting to discuss the taxation process and identify where in the fuel delivery chain special IRS registration would be available or required and which parties in the transaction would be eligible to apply for a refund of excess taxes. However, because the process and guidance have yet to be clearly explained by the IRS, NATA and NBAA, joined by the General Aviation Manufacturers Association, are formally requesting that the IRS delay implementing the tax changes.

The change is part of the recently enacted Highway Bill and requires aviation jet fuel (commonly known as Jet A or aviation-grade kerosene) to be taxed at a new, higher rate of 24.4 cents/gallon except under very controlled circumstances. Application can be made to the IRS for a refund of the difference between the 24.4 cents/gallon paid and the amount actually owed when the fuel is used as an aircraft fuel, although it is not yet clear whether fuel wholesalers, FBOs or end users will be eligible to apply for that refund.

The higher rate of 24.4 cents/gallon is applied to highway diesel fuel. The authors of this provision believed that a significant amount of aviation fuel is being fraudulently diverted to highway truck use. Although there is little evidence of such diversion, this change to how aviation jet fuel is taxed is intended to cut down on the alleged fraud by taxing all kerosene fuels at the same tax rate, the highway rate.

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