JCT Reports on Financing for Airport and Airway Trust Fund

The Airport and Airway Trust Fund provides funding for capital improvements to the U.S. airport and airway system and funding for the Federal Aviation Administration ("FAA"), among other purposes. The excise taxes imposed to finance the Airport and Airway Trust Fund are:²

• ticket taxes imposed on commercial passenger transportation by air;

• a cargo tax imposed on freight transportation by air;

• fuels taxes imposed on gasoline used in commercial aviation and noncommercial aviation; and

• fuels taxes imposed on jet fuel (kerosene) and other aviation fuels used in commercial aviation and noncommercial aviation.

The Code generally provides that the interest on qualified private activity bonds for airports is tax-exempt. However, the interest on such bonds is a preference item for purposes of the alternative minimum tax.

In fiscal year 2006, the excise taxes combined to provide approximately $10.6 billion for the Airport and Airway Trust Fund. The taxes are scheduled to expire after September 30, 2007. Under the budget rules excise taxes dedicated to a trust fund are assumed for baseline purposes to be imposed at their current rates permanently (even if statutorily they are scheduled to expire). Therefore, the extension of a dedicated excise tax without modification before its expiration date will not result in a change in revenues over the baseline.

The FAA has recommended restructuring of the funding sources for the Airport and Airway Trust Fund. One factor that policymakers examine when contemplating imposing excise taxes on the transportation industry is cost allocation or recovery of costs. Analysts generally judge a tax more broadly in terms of efficiency, equity (horizontal and vertical), and administrability.

Authorizing committees may impose, or may authorize executive agencies to impose, nontax, or true, user fees that agencies may charge for specific services they provide. There are often disagreements as to whether certain charges constitute "fees" or "taxes." In general, a true fee is a charge levied on a class that directly avails itself of a governmental program, and is used solely to finance that program rather than to finance the costs of government generally. The amount of the fee charged to any payor generally may not exceed the costs of providing the services with respect to which the fee is charged. Fees are not imposed on the general public; there must be a reasonable connection between the payors of the fee and the agency or function receiving the fee. Those paying a fee have the choice of not utilizing the governmental service or avoiding the regulated activity and thereby avoiding the charge.

The Code imposes an excise tax on both domestic and certain international transportation of passengers by air. These taxes are scheduled to expire after September 30, 2007.⁴

The flight segment component of the tax does not apply to segments to or from qualified "rural airports." For any calendar year, a rural airport is defined as an airport that in the second preceding calendar year had fewer than 100,000 commercial passenger departures, and (1) is not located within 75 miles of another airport that had more than 100,000 such departures in that year, (2) is receiving for payments under the Federal "essential air service" program, or (3) is not connected by paved roads to another airport.⁶

The domestic air passenger excise tax applies to "taxable transportation." Taxable transportation means transportation by air that begins in the United States or in the portion of Canada or Mexico that is not more than 225 miles from the nearest point in the continental United States and ends in the United States or in such 225-mile zone. If the domestic transportation is paid for outside of the United States, it is taxable only if it begins and ends in the United States.

Examples of taxable transportation include interchange agreements, which allow two or more unrelated corporations that own aircraft to use the others' aircraft on an as-needed basis; and time-sharing agreements whereby a person leases his or her airplane with a flight crew to another person.⁷ Fractional ownership arrangements with a management company also can result in taxable transportation.⁸

For this purpose, "taxable transportation" does not include "uninterrupted international air transportation." Uninterrupted international air transportation is any transportation that does not both begin and end in the United States or in the 225-mile zone and does not have a layover time of more than 12 hours. The tax on international air passenger transportation is discussed below.

In the case of a domestic segment beginning or ending in Alaska or Hawaii, the tax applies to departures only and is $7.50 for calendar year 2007.

Tax on air cargo transportation

Domestic air cargo transportation is subject to a 6.25 percent ad valorem excise tax on the amount paid for the transportation.¹¹ The tax applies only to transportation that both begins and ends in the United States.¹² Unlike the air passenger taxes, only shippers (the persons paying for the transportation) are liable for payment of the air cargo tax.¹³ There is no disclosure requirement for the air cargo tax. This tax expires after September 30, 2007.¹⁴

Exemptions

Under section 4081, an excise tax is imposed upon (1) the removal of any taxable fuel from a refinery or terminal,²² (2) the entry of any taxable fuel into the United States, or (3) the sale of any taxable fuel to any person who is not registered with the IRS to receive untaxed fuel, unless there was a prior taxable removal or entry.²³ The tax does not apply to any removal or entry of taxable fuel transferred in bulk by pipeline or vessel to a terminal or refinery if the person removing or entering the taxable fuel, the operator of such pipeline or vessel (excluding deep draft vessels), and the operator of such terminal or refinery are registered with the Secretary.²⁴ If the bulk transfer exception applies, tax is not imposed until the fuel "breaks bulk," i.e., when it is removed from the terminal, typically by rail car or truck, for delivery to a smaller wholesale facility or retail outlet, or removed directly from the terminal into the fuel tank of an aircraft.²⁵

The term "taxable fuel" means gasoline, diesel fuel (including any liquid, other than gasoline, that is suitable for use as a fuel in a diesel-powered highway vehicle or train), and kerosene.²⁶ The term includes kerosene used in aviation (jet fuel) as well as aviation gasoline.

Section 4041(c) provides a back-up tax for liquids (other than aviation gasoline) that are sold for use as a fuel in aircraft and that have not been previously taxed under section 4081.

Kerosene for use in aviation

"Commercial aviation" generally means any use of an aircraft in the business of transporting persons or property for compensation or hire by air.²⁹ Commercial aviation does not include transportation exempt from the ticket taxes and air cargo taxes by reason of sections 4281 or 4282 or by reason of section 4261(h) or 4261(i). Thus, small aircraft operation on nonestablished lines (sec. 4281), air transportation for affiliated group members (sec. 4282), air transportation for skydiving (sec. 4261(h)), and certain air transportation by seaplane (sec. 4261(i)) are excluded from the definition of commercial aviation (taxed as noncommercial aviation).

It is possible for specific aircraft to be used in both commercial aviation and noncommercial aviation. For example, a private corporate aircraft is treated as engaged in commercial air transportation when it transports persons for compensation. When the same aircraft transports only employees of the owner corporation, it is treated as engaged in noncommercial aviation. Thus, the determination of whether an aircraft is engaged in commercial or noncommercial aviation is made on a flight-by-flight basis. As discussed above, a flight-by-flight determination regarding taxation also is made with respect to aircraft owned by affiliated groups of corporations.

• Use on a farm for farming purposes;³⁰

• Use in foreign trade or trade between the United States and any of its possessions;³¹

• Use as a fuel in vessels and aircraft owned by the United States or any foreign nation and constituting equipment of the armed forces thereof;³²

• Exclusive use of a State or local government;³³

• Export or shipment to a possession of the United States;³⁴

• Exclusive use of a nonprofit educational organization;³⁵

• Exclusive use of a qualified blood collector organization for such organization for the collection, storage, or transportation of blood;³⁶

• Use as a fuel in an aircraft owned by an aircraft museum and used exclusively for the procurement, care, or exhibition of aircraft of the type used for combat or transport in World War II;³⁷

• Use as a fuel in (a) helicopters engaged in the exploration for or the development or removal of hard minerals, oil, or gas and in timber (including logging) operations if the helicopters neither take off from nor land at a facility eligible for Airport Trust Fund assistance or otherwise use federal aviation services during flights or (b) any air transportation for the purpose of providing emergency medical services (1) by helicopter or (2) by a fixed-wing aircraft equipped for and exclusively dedicated on that flight to acute care emergency medical services;³⁸ and

• Use other than as fuel in an aircraft.

• Refunds and credits to obtain the appropriate aviation tax rate

For noncommercial aviation, other than for exempt use, only the registered ultimate vendor may make the claim for the 2.5-cent-per-gallon difference between the general kerosene rate (24.4 cents per gallon) and the noncommercial aviation rate (21.9 cents per gallon).⁴⁰ For commercial aviation and exempt use (other than State and local government use), the ultimate purchaser may make a claim for the difference in tax rates (i.e., 17.5 cents per gallon or 24.3 cents per gallon, respectively), or the ultimate purchaser may waive the right to make the claim for payment to the ultimate vendor.⁴¹ For State and local government use, the registered ultimate vendor is the proper claimant.⁴²

Commercial aviation claimants are permitted to credit their fuel tax claims against their ticket tax liability, thereby reducing the amount of excise tax to be paid by persons using fuel in commercial aviation.

Aviation gasoline

The tax on aviation gasoline is 19.4 cents per gallon. If aviation gasoline is used in commercial aviation, the ultimate purchaser may obtain a credit or refund in the amount of 15 cents per gallon, such that the tax rate on such gasoline is 4.4 cents per gallon.⁴³ If aviation gasoline is sold for an exempt use, a credit or refund is allowable for all but the Leaking Underground Storage Tank Trust Fund tax (0.1 cent per gallon).⁴⁴

Table 1 below summarizes the taxes on fuel used in aviation:

 Table 1. -- Taxes on Fuel Used in Aviation

 Table 2. -- Taxes on Commercial Aviation (other than fuel taxes)

Two additional excise taxes previously were imposed on air transportation. First, an annual civil aircraft use tax was imposed from 1971 to 1980. The tax rate was $25 plus 3.5 cents per pound of the maximum certificated takeoff weight for turbine aircraft or 2 cents per pound of maximum certificated takeoff weight in excess of 2,500 pounds for other aircraft.⁴⁵

Second, before 1984, aircraft tires and tubes were subject to tax as part of a general tire and tube excise tax that also applied to highway vehicles. Revenues from the annual aircraft use tax and the tax on aircraft tires and tubes (after 1970) were dedicated to the Airport Trust Fund.

Interest on bonds issued by State and local governments generally is excluded from gross income for Federal income tax purposes. Bonds issued by State and local governments may be classified as either governmental bonds or private activity bonds. Governmental bonds are bonds the proceeds of which are primarily used to finance governmental functions or which are repaid with governmental funds. Private activity bonds are bonds in which the State or local government serves as a conduit providing financing to nongovernmental persons (e.g., private businesses or individuals). The exclusion from income for State and local bonds does not apply to private activity bonds unless the bonds are issued for certain permitted purposes ("qualified private activity bonds") and other Code requirements are met. Depending on the manner in which an airport is used, airports may be financed with either governmental bonds or qualified private activity bonds.

Tax-exempt bonds for airports

The second standard for determining whether a State or local bond is a private activity bond (the private loan test) is whether an amount exceeding the lesser of (1) five percent of the bond proceeds or (2) $5 million is used (directly or indirectly) to finance loans to private persons. The use of bond proceeds to make a loan to a private air carrier is an example of an arrangement that may violate the private loan test.

Issuance of most qualified private activity bonds is subject (in whole or in part) to annual State volume limitations ("State volume cap").⁵⁰ For calendar year 2007, the State volume cap, which is indexed for inflation, equals $85 per resident of the State, or $256.24 million, if greater. Exceptions from the State volume cap are provided for bonds issued for certain governmentally-owned facilities, including qualified private activity bonds for airports.

Alternative minimum tax and interest on airport bonds

The Code imposes an alternative minimum tax ("AMT") in an amount by which the tentative minimum tax exceeds the regular income tax for the taxable year. For noncorporate taxpayers, the tentative minimum tax is the sum of (1) 26 percent of so much of the taxable excess as does not exceed $175,000 ($87,500 in the case of a married individual filing a separate return) and (2) 28 percent of the remaining taxable excess. The taxable excess is so much of the alternative minimum taxable income ("AMTI") as exceeds the exemption amount. In the case of a corporation, the tentative minimum tax is 20 percent of so much of the AMTI for the taxable year as exceeds the exemption amount, reduced by the alternative minimum tax foreign tax credit for the taxable year.

AMTI is regular taxable income increased by certain adjustments and preference items. Tax-exempt interest income on qualified private activity bonds (other than qualified 501(c)(3) bonds) issued after August 7, 1986, is a preference item included in AMTI. This includes interest on qualified private activity bonds issued for airports. As a result, investors may require a higher interest rate for bonds subject to the AMT than for governmental bonds that are not subject to the AMT.

Limitations on advance refundings of airport bonds

A refunding bond is defined as any bond used to pay principal, interest, or redemption price on a prior bond issue (the refunded bond). The Code contains different rules for "current" as opposed to "advance" refunding bonds. A current refunding occurs when the refunded bond is redeemed within 90 days of issuance of the refunding bonds. Conversely, a bond is classified as an advance refunding bond if it is issued more than 90 days before the redemption of the refunded bond. Proceeds of advance refunding bonds are generally invested in an escrow account and held until a future date when the refunded bond may be redeemed. Thus, after issuance of an advance refunding bond, there is a period of time when both the refunding bonds and the refunded bonds remain outstanding.

Typically, the issuer of a tax-exempt bond uses an advance refunding (or current refunding) to take advantage of market interest rates that are lower than the interest rate prevailing when the refunded bond was issued. An advance refunding allows the issuer to lock-in lower interest expense during a period when the refunded bond cannot be redeemed prior to maturity.

There is no statutory limitation on the number of times that tax-exempt bonds may be currently refunded. However, the Code limits the number of advance refundings with tax-exempt bonds. Generally, governmental bonds and qualified 501(c)(3) bonds may be advance refunded one time. Generally, private activity bonds, other than qualified 501(c)(3) bonds, may not be advance refunded.⁵¹ Thus, whether bonds used to finance an airport may be advance refunded depends on whether such bonds are issued as governmental bonds or qualified private activity bonds.

The budget rules provide for an assumption that excise taxes dedicated to a Trust Fund are imposed permanently (even if statutorily they are scheduled to expire).⁵² The effect of this rule is that if Trust Fund excise taxes are extended without change before expiration of the taxes, there is no revenue score from the legislation. If a dedicated excise tax is reimposed after the tax has expired (and has been removed from the CBO revenue baseline), the resulting revenue increases may be scored under the budget rules to offset the revenue loss from the enactment of other tax provisions.

Table 3 below shows the Congressional Budget Office's projection of baseline tax receipts for the Airport and Airway Trust Fund for fiscal years 2007 through 2017.

 Table 3.-- Airport and Airway Trust Fund for Fiscal Years

Authorizing committees may impose, or may authorize executive agencies to impose, non-tax, or true, user fees that agencies may charge for specific services they provide. There are often disagreements as to whether certain charges constitute "fees" or "taxes." These disagreements generally arise in one of three contexts: (1) determining whether there has been an unconstitutional delegation of the taxing power;⁵³ (2) determining whether legislation constitutes a revenue measure that must originate in the House of Representatives;⁵⁴ or (3) determining the committee assignment (including sequential committee referral) for a particular bill.⁵⁵

In general, a true fee is a charge levied on a class that directly avails itself of a governmental program, and is used solely to finance that program rather than to finance the costs of government generally. The amount of the fee charged to any payor generally may not exceed the costs of providing the services with respect to which the fee is charged. Fees are not imposed on the general public; there must be a reasonable connection between the payors of the fee and the agency or function receiving the fee.⁵⁶ Those paying a fee have the choice of not utilizing the governmental service or avoiding the regulated activity and thereby avoiding the charge. In other words, the fee can be viewed as a payment for a special privilege, as opposed to a mandatory charge (or tax) imposed on the public at large for general or specified (e.g., Trust Fund) governmental purposes.

Efficiency and transportation excise taxes

Economists generally conclude that private market outcomes constitute efficient outcomes-that is, private market outcomes create the greatest amount of benefit compared to the resources used. This conclusion may be described briefly as follows. In a free market, individuals will seek to purchase those goods that they value most highly. But they will purchase any given good only if they think the benefit the good will produce for them equals or exceeds the price they must pay to obtain the good. Likewise, suppliers of goods will supply goods as long as the price received from the buyer equals or exceeds the cost of supplying an additional unit of the good. Thus, those goods purchased represent the bundle of goods producing the greatest overall benefit relative to the costs expended to produce the goods. Following this line of reasoning, economists argue that efficiency is always increased as long as the price paid (or benefit received) for an additional unit of a good exceeds the incremental, or marginal, resource cost of producing the good. Conversely, efficiency is decreased whenever the price paid (or benefit received) for an additional unit of a good is less than the marginal resource cost of producing the additional unit of the good.⁵⁷

As a practical matter, it would be difficult to design and administer a pure benefit tax. Such a tax theoretically may require a different tax payment by each individual. Determining the correct payment and administering such a system would be costly. Moreover, many would view such taxes as unfair because two seemingly similar taxpayers may be asked to pay different amounts of tax. On the other hand, simplification may dilute some of the efficiency advantages of a theoretical benefit tax.

The conclusion that efficiency results when users are asked to pay the marginal cost of providing the service is not the same as saying the user should pay the average cost of provision of the service. Thus, setting taxes by average cost generally will not lead to an efficient allocation of resources. Many cost allocation studies emphasize the average cost of services and make little attempt to measure the marginal cost of services.

The conclusion that marginal cost pricing produces an efficient outcome may appear contradictory to the previous discussion that benefit taxation could produce an efficient outcome. The previous discussion suggested that an outcome could be efficient if each user were charged his or her marginal benefit so long as that benefit exceeded the incremental, or marginal, cost of providing the service. The difference between that standard and the standard currently under discussion involves whether consumers of the service pay the full value of the benefit they receive or whether they pay the marginal cost of producing that benefit. When consumers pay only for the marginal cost of producing that benefit, there generally is value to the consumer beyond the value of the resources used to produce the benefit. When consumers pay the full value of the incremental benefit they receive, the provider receives as incremental profit that value of the benefit that exceeds the marginal cost of producing the service. Thus, the difference between the two efficient outcomes involves whether consumers retain the value of benefit in excess of cost or whether consumers pay that value of benefit in excess of cost over to the producer of the service.⁶⁰

If the transportation excise taxes were imposed at levels that represented the incremental resource cost incurred for providing transportation services to each taxpayer, then the taxes could be called "economically efficient." However, in choosing a tax rate that equals a user's marginal cost, a question arises as to whether policymakers should look at short-run marginal costs or long-run marginal costs. Generally, short-run marginal costs would reflect resource costs when investment is fixed and long-run marginal costs would reflect resource costs assuming the level of capital investment can vary. That is, in the case of airports and airways, short-run marginal costs would involve the costs of maintenance and operation of the existing air traffic control system (e.g., the wages of air traffic controllers), while long-run resource costs would involve costs such as those associated with bringing a new nationwide radar system on line.

Marginal costs often will vary for the provision of services to different taxpayers. For example, certain airports suffer worse weather than others and may require additional costs to maintain operations. Imposing a tax to recoup marginal costs would imply differential taxes for users of different airports. Such a tax may violate the uniformity clause of the Constitution, but, even if it did not, a tax system with different rates of tax for many different users would be more complex and more costly to administer than the current transportation excise taxes. In practice, it may be difficult to discern marginal costs. Moreover, some might argue that such taxes are unfair, in that they impose different burdens on otherwise similarly situated taxpayers. Modifications to address concerns of administrability and fairness may dilute the gains of economic efficiency that economists argue flow from marginal cost pricing. If a modification took the form of charging all air passengers the average cost of providing air traffic control services, some taxpayers might pay a tax greater than their marginal cost (implying inefficient underutilization of resources) and other taxpayers may pay a tax less than their marginal cost (implying inefficient overutilization of resources). Design of air transportation excise taxes to incorporate the efficiency properties of marginal cost pricing involves tradeoffs between the goals of efficiency, equity, and administrability.

On the other hand, advocates of cost allocation would set the price or taxes for transportation services at rates equal to the average cost of services. In the presence of substantial economics of scale, average cost pricing implies that consumers are being charged prices in excess of marginal resource costs and that less than the economically efficient level of air transportation services are provided. Indeed, an expansion of services would lead to a decline in the average cost of the service to each user. If each user could be charged that lower average price, the price paid would still exceed the marginal cost of the provision of the service, all costs would be recovered, and net economic well-being (efficiency) would increase. Charging a lower average price, however, would not permit full cost recovery. Thus, the principle of cost allocation involves a tradeoff between economic efficiency and cost recovery.

Equity and transportation excise taxes

Equity involves an assessment of the "fairness" of a tax. To determine fairness it is necessary to look beyond the statutory incidence of a tax to its economic incidence, or market effect. Generally, two standards are applied: horizontal equity and vertical equity. In addition, some suggest the benefit principle as an equitable basis of taxation and others suggest cost recovery or cost allocation as an equitable basis of taxation.

While it is possible to conceive of a system of transportation taxes in which the tax burden does not decline as income increases, such a system generally would require more information than is needed under the current tax collection system at the point of imposition. Any system that relies on characteristics of individual taxpayers generally will be administratively more complex and prone to evasion than one that treats all purchasers identically regardless of individual characteristics.

² Sec. 9502(b)(1). The Airport and Airway Trust Fund also is credited with interest under sec. 9602(b). Summary tables of the excise taxes and their respective tax rates can be found at page 13 of this document. Unless otherwise stated, all section references are to the Internal Revenue Code of 1986, as amended.

³ As described below, this tax consists of two components: 4.3 cents per gallon dedicated to the Airport and Airway Trust Fund and 0.1 cent per gallon dedicated to the Leaking Underground Storage Tank Trust Fund. The higher fuel tax imposed on noncommercial aviation similarly consists of an Airport and Airway Trust Fund component plus 0.1 cent per gallon for the Leaking Underground Storage Tank Trust Fund.

⁴ Sec. 4261(j)(1)(A)(ii). The person making the payment (generally the passenger) is liable for the tax; airlines and others receiving payments are liable for remitting tax and are primarily liable if they fail to collect the tax. Secs. 4261(d) and 4263(c). A return of tax is made on a quarterly basis with semimonthly deposit requirements. For the domestic air passenger taxes, section 6302(e) provides that with respect to amounts considered collected during any semimonthly period, the deposit is made not later than the third day after the close of the first week of the second semimonthly period following the period to which such amounts relate. Thus, the deposits of tax are made on a deferred basis. Under Treas. Reg sec. 40.6302-3(b)(1), an airline may opt to compute the amount of tax to be deposited on the basis of amounts considered collected ("the alternative method") instead of on the basis of actual collections of tax. Under Treas. Reg. sec. 40.6302(c)-3(b)(3), the tax included in amounts billed or tickets sold during a semimonthly period is considered collected during the first seven days of the second following semimonthly period. The tax included for tickets sold during the first semimonthly period of a calendar month is considered collected during the period of the 1st day through the seventh day of the following month; the tax for tickets sold during the second semimonthly period of a calendar month is considered collected during the period of the 16th day through the 22nd day of the following month. The regulations give the following example: The deposit for the semi-monthly period beginning on January 1, 1993 (relating to amounts billed between December 1st and December 15, 1992) is due by January 12, 1993, three banking days after January 7, the seventh day of the semimonthly period.

⁵ Sec. 4261(b)(1) and 4261(d)(4). The Code provides for a $3.00 tax during 2002 and thereafter, which is indexed annually for inflation, resulting in the current rate of $3.40.

⁶ In the case of an airport qualifying as "rural" because it is not connected by paved roads to another airport, only departures for flight segments of 100 miles or more are considered in calculating whether the airport has fewer than 100,000 commercial passenger departures. The Department of Transportation has published a list of airports that meet the definition of rural airports. See Rev. Proc. 2005-45.

⁷ Rev. Rul. 60-311, 1960-2 C.B. 341 (1960), holds that when the owner of an aircraft leases it to others for air transportation but retains possession, command, and control of the aircraft, the owner is furnishing a taxable transportation service within the meaning of section 4261. Rev. Rul. 76-394, 1976-2 C.B. 355 (1976), describes a situation whereby several related companies agree to share the operating expenses of an aircraft. The ruling holds that amounts paid by companies to the company that actually owns and operates the aircraft are taxable under section 4261.

⁸ See Executive Jet Aviation Inc. vs. United States, 80 AFTR2d 97-5352 (Fed. Cir. 1997). Executive Jet involved a " NetJets" program. The program provided participants with air transportation and aircraft maintenance service and served parties who had the need for exclusive use of a corporate aircraft but who did not need the aircraft on a full-time basis. A party wishing to become a NetJets participant was required to own or lease an interest in an aircraft. Fractional interests ranged from one-eighth to seven-eighths. Pursuant to a management agreement, the management company assumed full responsibility for maintenance and operation of the aircraft. In addition, the management company was required to maintain all records, logs, and other materials required by the FAA to be maintained with respect to the aircraft. The management company further agreed to pay for fuel and to pay the salary and the travel and lodging expenses of the crew, to pay hangar and tie-down costs, landing fees, in-flight food and beverages expenses, and the expenses of flight planning and weather contract services. The management company also was required to provide a pool of professionally qualified pilots who were licensed to operate the aircraft. The rights of the fractional owners were substantially limited. The court found that the arrangement was similar to an air charter service and found it to be taxable transportation.

⁹ Sec. 4261(c) and 4261(d)(4). The international air transportation tax rate of $12.00 is indexed annually for inflation, effective each January 1, resulting in the current rate of $15.10.

¹⁰ Sec. 7275.

¹¹ Sec. 4271.

¹² Pursuant to legislative history accompanying original enactment of this tax, no tax is imposed on certain "accessorial ground services."

¹³ Transportation providers are subject to penalties if they fail to make reasonable efforts to collect the tax. Section 6672 provides that any person required to collect, truthfully account for, an pay over any tax imposed by this title who willfully fails to collect such tax, truthfully account for and pay over such tax, or willfully attempts in any manner to evade or defeat any such tax or the payment thereof, shall, in addition to other penalties provided by law, be liable to a penalty equal to the total amount of the tax evaded, not collected, or not accounted for and paid over.

¹⁴ Sec. 4271(d).

¹⁵ Sec 4261(f).

¹⁶ Sec. 4261(g).

¹⁷ Sec. 4261(h).

¹⁸ Sec. 4261(i).

¹⁹ Sec. 4281.

²⁰ Treas. Reg. sec. 49.4263-5(c).

²¹ Sec. 4282.

²² A "terminal" is a taxable fuel storage and distribution facility that is supplied by pipeline or vessel and for which taxable fuel may be removed at a rack. A "rack" is a mechanism capable of delivering taxable fuel into a means of transport other than a pipeline or vessel. A terminal can be located at an airport, or fuel may be delivered to the airport from a terminal located off the airport grounds.

²³ Sec. 4081(a)(1).

²⁴ Sec. 4081(a)(1)(B).

²⁵ In general, the party liable for payment of the taxes when the fuel breaks bulk at the terminal is the "position holder," the person shown on the records of the terminal facility as holding the inventory position in the fuel. However, when fuel is removed directly into the fuel tank of an aircraft for use in commercial aviation, the person who uses the fuel is liable for the tax. The fuel is treated as used when such fuel is removed into the fuel tank. Sec. 4081(a)(4).

²⁶ Sec. 4083(a).

²⁷ If certain conditions are met, present law permits the removal of kerosene from a refueler truck, tanker, or tank wagon to be treated as a removal from a terminal for purposes of determining whether kerosene is removed directly into the fuel tank of an aircraft. A refueler truck, tanker, or tank wagon is treated as part of a terminal if: (1) the terminal is located within an airport, (2) any kerosene which is loaded in such truck, tanker or wagon at such terminal is for delivery only into aircraft at the airport in which such terminal is located, and (3) no vehicle licensed for highway use is loaded with kerosene at such terminal, except in exigent circumstances identified by the Secretary in regulations. In order to qualify for the special rule, a refueler truck, tanker, or tank wagon must: (1) have storage tanks, hose, and coupling equipment designed and used for the purposes of fueling aircraft; (2) not be registered for highway use; and (3) be operated by the terminal operator (who operates the terminal rack from which the fuel is unloaded) or by a person that makes a daily accounting to such terminal operator of each delivery of fuel from such truck, tanker, or tank wagon. Sec. 4081(a)(3).

²⁸ An airline seeking to buy fuel at the reduced rate for commercial aviation must be registered with the IRS and the terminal must be located within a secured area of an airport. The IRS has published a list of airports with secured areas in which a terminal is located. See Notice 2005-4, 2005-1 C.B. 289, at sec. 4(d)(2)(ii) (2005) (adopting the list from H.R. Conf. Rep. No. 755, 108^th Cong., 2d Sess. 692 n. 718 (2004) with modifications) and Notice 2005-80, 2005-2 C.B. 953, at sec. 3(c)(2) (2005). The airports are: Ted Stevens International Airport, T-91-AK-4520; William B. Hartsfield Atlanta International Airport, T-58-GA-2512; William B. Hartsfield Atlanta International Airport, T-58-GA-2513; William B. Hartsfield Atlanta International Airport, T-58-GA-2536; Bradley International Airport, T-06-CT-1271; Nashville Metropolitan Airport, T-62-TN-2222; Logan International Airport, T-04-MA-1171; Baltimore/Washington International Airport, T-52-MD-1569; Cleveland Hopkins International Airport, T-31-OH-3109; Charlotte/Douglas International Airport, T-56-NC-2032; Colorado Springs Airport, T-84-CO-4108; Cincinnati/Northern Kentucky International Airport, T-61-KY-3277; Dallas Love Field Airport, T-75-TX-2663; Ronald Reagan National Airport, T-54-VA-1686; Denver International Airport, T-84-CO-4111; Dallas Fort Worth International Airport, T-75-TX-2673; Wayne County Metropolitan Airport, T-38-MI-3018; Newark Liberty International Airport, T-22-NJ-1532; Fort Lauderdale/Hollywood International Airport; T-65-FL-2158; Piedmont Triad International Airport, T-56-NC-2038; Honolulu International Airport, T-91-HI-4570; Dulles International Airport, T-54-VA-1676; George Bush Intercontinental Airport, T-76-TX-2818; Mid Continent Airport, T-43-KS-3653; John F. Kennedy International Airport, T-11-NY-1334; McCarren International Airport, T-86-NV-4355; Kansas City International Airport, T-43-MO-3723; Orlando International Airport, T-59-FL-2111; Midway Airport, T-36-IL-3376; Memphis International Airport, T-62-TN-2212; General Mitchell International Airport, T-39-WI-3092; Minneapolis-St. Paul International Airport, T-41-MN-3419; Minneapolis-St. Paul International Airport, T-41-MN-3420; Minneapolis-St. Paul International Airport, T-41-MN-3421; Louis Armstrong New Orleans International Airport, T-72-LA-2356; Oakland International Airport, T-94-CA-4702; Ontario International Airport, T-33-CA-4792; O'Hare International Airport, T-36-IL-3325; Portland International Airport, T-91-OR-4450; Philadelphia International Airport, T-23-PA-1770; Sky Harbor International Airport, T-86-AZ-4302; Pittsburgh International Airport, T-23-PA-1766; Raleigh/Durham International, T-56-NC-2045; Reno Cannon International Airport, T-86-NV-4352; San Diego International Airport, T-33-CA-4788; San Antonio International Airport, pending; Seattle Tacoma International Airport, T-91-WA-4425; San Francisco International Airport, T-94-CA-4701; Salt Lake City International Airport, T-84-UT-4207; Lambert International Airport, T-43-MO-3722; Tampa/St. Petersburg International Airport, T-59-FL-2110; Los Angeles International Airport, T-95-CA-4812; and Federal Express Corporation Memphis Airport, T-62-TN 2220.

²⁹ Sec. 4083(b).

³⁰ Sec. 4041(f).

³¹ Sec. 4041(g)(1).

³² Id.

³³ Sec. 4041(g)(2).

³⁴ Sec. 4041(g)(3).

³⁵ Sec. 4041(g)(4).

³⁶ Sec. 4041(g)(5).

³⁷ Sec. 4041(h).

³⁸ Secs. 4041(l), 4261(f) and 4261(g).

³⁹ Sec. 6427(l)(4).

⁴⁰ Sec. 6427(l)(4)(C)(ii).

⁴¹ Sec. 6427(l)(4)(C)(i).

⁴² See secs. 6427(l)(5). Special rules apply if the kerosene is purchased by credit card issued to a State or local government.

⁴³ Sec. 6421(f)(2).

⁴⁴ Sec. 6416(a), sec. 6420 (farming purposes), sec. 6421(c), and sec. 6430.

⁴⁵ Before being completely repealed for periods after August 31, 1982, the tax was reduced to $6.25 plus 7/8 cent per pound of the maximum certificated takeoff weight for turbine aircraft or 1/2 cent per pound of maximum certificated takeoff weight in excess of 2,500 pounds for other aircraft.

⁴⁶ The 10-percent private business use and payment threshold is reduced to five percent for private business uses that are unrelated to a governmental purpose also being financed with proceeds of the bond issue. In addition, the 10-percent private business use and private payment thresholds are phased-down for larger bond issues for the financing of certain "output" facilities. The term output facility includes electric generation, transmission, and distribution facilities.

⁴⁷ Treas. Reg. sec. 1.141-3(f), example 8.

⁴⁸ Sec. 141(e).

⁴⁹ Exempt facility bonds are bonds issued to finance: (1) airports; (2) docks and wharves; (3) mass commuting facilities; (4) high-speed intercity rail facilities; (5) facilities for the furnishing of water; (6) sewage facilities; (7) solid waste disposal facilities; (8) hazardous waste disposal facilities; (9) qualified residential rental projects; (10) facilities for the local furnishing of electric energy or gas; (11) local district heating or cooling facilities; (12) environmental enhancements of hydroelectric generating facilities; (13) qualified public educational facilities; (14) qualified green building and sustainable design projects; or (15) qualified highway or surface freight transfer facilities. Sec. 142(a).

⁵⁰ Sec. 146.

⁵¹ The Gulf Opportunity Zone Act permits one advance refunding of certain exempt facility bonds for airports, docks, or wharves issued by the State of Alabama, Louisiana, or Mississippi, or any political subdivision thereof, notwithstanding the general prohibition on the advance refunding of such bonds.

⁵² See 2 U.S.C. sec. 907(b)(2)(C). The Balanced Budget and Emergency Deficit Control Act of 1985, which established rules that govern the calculation of the Congressional Budget Office's baseline, expired on September 30, 2006. Nevertheless, the Congressional Budget Office continues to prepare baselines according to the methodology prescribed in that law.

⁵³ Article I, Section 8 of the U.S. Constitution includes among the enumerated powers of Congress the "Power To lay and collect Taxes, Duties, Imposts, and Excises." Congress is limited in its ability to delegate legislative authority to the Executive Branch.

⁵⁴ Article I, Section 7 of the U.S. Constitution (commonly referred to as the "Origination Clause") provides that "[a]ll Bills for raising Revenue [must] originate in the House of Representatives." This prerogative of the House is enforced by a privileged motion available to any Member, commonly referred to as a "blue slip" motion.

⁵⁵ See, e.g., 137 Cong. Rec. H501 (January 15, 1991) (statement of the Speaker of the House providing guidance for the application of House Rule XXI, Clause 5(b), regarding the referral of bills).

⁵⁶ See, e.g., the Statement of Managers on the Federal Aviation Reauthorization Act of 1996, clarifying that certain fees that the FAA is authorized to charge for overflight services provided to aircraft that neither take-off nor land within the United States may "not exceed the aggregate annual direct costs incurred by the FAA in providing air traffic services to such flights." (H. Rept. 104-848, p. 110). Also, see the report of the House Committee on Transportation and Infrastructure on that same legislation, to the effect that these user fees may not be based on "any non-cost based determination of the 'value' of the service provided. For example, assuming similar cost of serving different carrier and aircraft types, the FAA user fees should not vary based on factors such as aircraft seating capacity or revenues derived from passenger fares." (H. Rept. 104-714, Part 1, p. 50).

⁵⁷ For a more detailed discussion of economic efficiency in the provision of transportation services, see Congressional Budget Office, Paying for Highways, Airways, and Waterways: How Can Users Be Charged? (May 1992).

⁵⁸ There are reasons that might lead to the conclusion that the private market would not provide transportation or other services, even if it were possible to exclude certain users and charge individual prices. See the discussion of economies of scale below.

⁵⁹ The benefit principle has long been advanced as a standard of equity and is discussed more in that context below.

⁶⁰ Economists call the benefit a consumer receives in excess of the price the consumer must pay the "consumer surplus." Likewise, economists call the revenue a producer receives in excess of the marginal cost of producing a good or service the "producer surplus." Thus, the difference between the two efficient pricing structures may be described as whether the consumer surplus is transferred to the producer.

⁶¹ Some argue that the presence of economies of scale justify government involvement in certain infrastructure investments. They argue that when the economies of scale are great, the potential for cost recovery and profit from market prices may be insufficient for private providers to undertake the investment, even though provision of the service would create marginal benefits that exceed marginal costs.