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Economy & Business

FAA Clarifies Fuel Tax Rule, Municipalities To Lose Needed Funds


State and local governments could soon be losing tens of millions of dollars that some of them spend on roads, schools and other needs. That's according to a new study by a national labor union which blames that possible loss on a recent change in federal rules on aviation fuel taxes. The Federal Aviation Administration says state and local taxes on jet fuel can only be spent on airports or aviation-related purposes. NPR's David Schaper has more.

DAVID SCHAPER, BYLINE: Many states charge a sales tax on the jet fuel that airlines buy at airports. And some cities and counties add on their own taxes, too, especially those that have major hub airports such as California, Illinois, Georgia and New York. Some of those cities and states then spend that revenue on the airports. But some also spread the money around to help pay for other transportation needs, to better fund education or just to augment the general budget. But the FAA recently clarified its rule governing such aviation fuel taxes, saying that the money raised can only be spent on aviation. So it can no longer go to roads and schools.

ADAM YALOWITZ: It hurts local taxpayers.

SCHAPER: Adam Yalowitz is a tax policy research analyst for the labor group UNITE HERE, which represents airport and airline industry employees. His recent study suggests that state and local governments will lose about $190 million a year under the FAA rule change.

YALOWITZ: Either the local schools are going to take a hit and other local budgets, or taxpayers are going to foot the bill.

SCHAPER: In California, for example, the 1.75 percent sales tax on jet fuel raises $76 million a year. Illinois has a one-and-a-quarter percent sales tax, to which the city of Chicago adds another quarter percent, raising a combined $22 million. Michigan, New York, Clayton County, Georgia and other state and local governments could lose significant amounts of revenue, too. In an era of multibillion-dollar city and state budgets, Yalowitz admits it may not sound like a ton of money, but...

YALOWITZ: This is at a time when state and local governments are still struggling to make ends meet. And the airlines are making record profits.

SCHAPER: Yalowitz says this is part of the recent pattern in which the airlines have been given a billion dollars a year in state and local tax breaks. He accuses them of not paying their fair share. The airlines' response?

JEAN MEDINA: Not at all. We completely disagree with that.

SCHAPER: Jean Medina is a spokesperson for the industry group Airlines for America.

MEDINA: Airlines and airline customers in particular pay far more than their fair share. On a federal tax rate, airline customers pay more in taxes for airfare than they do on alcohol or tobacco or firearms - products that are taxed to discourage their use.

SCHAPER: Medina points to the September 11 security fee, which just went up last summer, the passenger facility charge, which some in Congress would like to raise, among other taxes. Plus, she says, the rule clarification by the FAA doesn't reduce the state and local jet fuel taxes at all.

MEDINA: What this action does is it really stops revenue diversion so that taxes that are being paid can benefit the customers and the flying public and the communities by putting those monies back into the local airports as Congress intended.

SCHAPER: The FAA is giving state and local governments three years to change their own laws to comply with the rule. Critics of the rule hope to use that time to convince Congress to change it. David Schaper, NPR News. Transcript provided by NPR, Copyright NPR.