[Senate Report 112-1]
[From the U.S. Government Publishing Office]
Calendar No. 10
112th Congress Report
SENATE
1st Session 112-1
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AIRPORT AND AIRWAY TRUST FUND REAUTHORIZATION ACT OF 2011
_______
February 14, 2011.--Ordered to be printed
_______
Mr. Baucus, from the Committee on Finance,
submitted the following
R E P O R T
[To accompany S. 340]
The Committee on Finance, having considered an original
bill to amend the Internal Revenue Code of 1986 to extend the
funding and expenditure authority of the Airport and Airway
Trust Fund, and for other purposes, reports favorably thereon
and recommends that the bill do pass.
CONTENTS
Page
I. LEGISLATIVE BACKGROUND............................................2
II. EXPLANATION OF THE BILL...........................................2
A. Extension of Taxes Funding the Airport and Airway
Trust Fund (sec. 2 of the bill and secs. 4081, 4261,
and 4271 of the Code)................................ 2
B. Extension of Airport and Airway Trust Fund Expenditure
Authority (sec. 3 of the bill and sec. 9502 of the
Code)................................................ 3
C. Modification of Excise Tax on Kerosene Used in
Aviation (sec. 4 of the bill and secs. 4081, 4082,
6427, 9502, and 9503 of the Code).................... 5
D. Air Traffic Control System Modernization Account (sec.
5 of the bill, and sec. 9502 of the Code)............ 8
E. Treatment of Fractional Ownership Aircraft Programs
(sec. 6 of the bill and new sec. 4043 of the Code)... 9
F. Termination of Exemption For Small Jet Aircraft on
Nonestablished Lines (sec. 7 of the bill and sec.
4281 of the Code).................................... 10
G. Transparency in Passenger Tax Disclosures (sec. 8 of
the bill and sec. 7275 of the Code).................. 11
H. Tax-Exempt Private Activity Bond Financing for Fixed-
Wing Emergency Medical Aircraft (sec. 9 of the bill
and sec. 147(e) of the Code)......................... 12
I. Protection of Airport and Airway Trust Fund Solvency
(sec. 10 of the bill and sec. 9502 of the Code)...... 13
III.BUDGET EFFECTS OF THE BILL.......................................13
IV. VOTES OF THE COMMITTEE...........................................16
V. REGULATORY IMPACT AND OTHER MATTERS..............................16
VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED............17
I. LEGISLATIVE BACKGROUND
The taxes dedicated to the Airport and Airway Trust Fund
generally do not apply after March 31, 2011. The Airport and
Airway Trust Fund expenditure authority also terminates on
March 31, 2011.
On February 3, 2011, the Committee on Finance held hearings
on the status of the Airport and Airway Trust Fund. The
Committee heard from Gerald Dillingham, Director, Physical
Infrastructure Issues, Government Accountability Office
(``GAO''), regarding the financial condition of the Airport and
Airway Trust Fund.\1\ That testimony indicated that for fiscal
year 2010, FAA expenditures totaled roughly $15.5 billion, with
the Airport and Airway Trust Fund covering approximately $10.2
billion, or 66 percent of those expenditures. The GAO testimony
indicated that the FAA's investment in NextGen, the new
satellite-based air traffic management system is expected to be
between $11 billion to $12 billion through 2018 and that FAA
plans call for building or expanding runways at the nation's 35
busiest airports to handle the additional capacity associated
with NextGen.
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\1\Government Accountability Office, Airport and Airway Trust Fund:
Declining Balance Raises Concerns Over Ability to Meet Future Demands
(February 3, 2011).
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In addition, the GAO testimony indicated that the
uncommitted balance of the Airport and Airway Trust Fund has
declined significantly in recent years, from $7.35 billion in
fiscal year 2001 to just $770 million in fiscal year 2010. The
testimony suggested that, in light of the decline in the
uncommitted balance, better matching of actual revenues to the
appropriation from the Trust Fund would help ensure that Trust
Fund revenues are sufficient to cover the obligations that FAA
has authority to incur. One approach suggested by the GAO
testimony would be to appropriate less than 100 percent of the
forecasted revenues.
The Senate Committee on Finance marked up an original bill,
S. 340 (the ``Airport and Airway Trust Fund Reauthorization Act
of 2011'') on February 8, 2011, and, with a majority and quorum
present, ordered the bill favorably reported on that date. This
report describes the provisions of the bill.
II. EXPLANATION OF THE BILL
A. Extension of Taxes Funding the Airport and Airway Trust Fund
(Sec. 2 of the bill and secs. 4081, 4261, and 4271 of the Code\2\)
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\2\All references to section numbers are to the Internal Revenue
Code of 1986, as amended (the ``Code'') unless otherwise indicated.
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PRESENT LAW
Excise taxes are imposed on amounts paid for commercial air
passenger and freight transportation and on fuels used in
commercial and noncommercial (i.e., transportation that is not
``for hire'') aviation to fund the Airport and Airway Trust
Fund. The present aviation excise taxes are as follows:
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Tax (and Code section) Tax rates
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Domestic air passengers (sec. 4261)... 7.5 percent of fare, plus
$3.70 (2011) per domestic
flight segment
generally.\3\
International travel facilities tax $16.30 (2011) per arrival or
(sec. 4261). departure.\4\
Amounts paid for right to award free 7.5 percent of amount paid.
or reduced rate passenger air
transportation (sec. 4261).
Air cargo (freight) transportation 6.25 percent of amount
(sec. 4271). charged for domestic
transportation; no tax on
international cargo
transportation.
Aviation fuels (sec. 4081):\5\
Commercial aviation................... 4.3 cents per gallon.
Non-commercial (general) aviation:
Aviation gasoline 19.3 cents per gallon.
Jet fuel 21.8 cents per gallon.
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\3\The domestic flight segment portion of the tax is adjusted annually
(effective each January 1) for inflation (adjustments based on the
changes in the consumer price index (the ``CPI'')).
\4\The international travel facilities tax rate is adjusted annually for
inflation (measured by changes in the CPI).
\5\Like most other taxable motor fuels, aviation fuels are subject to an
additional 0.1-cent-per-gallon excise tax to fund the Leaking
Underground Storage Tank (``LUST'') Trust Fund.
All Airport and Airway Trust Fund excise taxes, except for
4.3 cents per gallon of the taxes on aviation fuels, are
scheduled to expire after March 31, 2011. The 4.3-cents-per-
gallon fuels tax rate is permanent.
REASONS FOR CHANGE
To ensure an uninterrupted funding source, the Committee
believes it is appropriate to extend further the taxes that
finance the Airport and Airway Trust Fund.
EXPLANATION OF PROVISION
The provision extends the present-law Airport and Airway
Trust Fund excise taxes through September 30, 2013.
EFFECTIVE DATE
The provision takes effect on April 1, 2011.
B. Extension of Airport and Airway Trust Fund Expenditure Authority
(Sec. 3 of the bill and sec. 9502 of the Code)
PRESENT LAW
In general
The Airport and Airway Trust Fund was created in 1970 to
finance a major portion of Federal expenditures on national
aviation programs. Operation of the Airport and Airway Trust
Fund is governed by the Code and authorizing statutes. The Code
provisions govern deposit of revenues into the trust fund
approve the use of trust fund money (as provided by
appropriation acts) for expenditure purposes in authorizing
statutes as in effect on the date of enactment of the latest
authorizing Act. The authorizing acts provide specific trust
fund expenditure programs and purposes.
Authorized expenditures from the Airport and Airway Trust
Fund include the following principal programs:
1. Airport Improvement Program (``AIP'') (airport planning,
construction, noise compatibility programs, and safety
projects);
2. Facilities and Equipment (``F&E'') program (costs of
acquiring, establishing, and improving the air traffic control
facilities);
3. Research, Engineering, and Development (``RED'') program
(FAA research and development activities);
4. FAA Operations and Maintenance (``O&M'') programs; and
5. Certain other aviation-related programs specified in
authorizing acts.
Part of the O&M programs is financed from General Fund
monies as well. Of the total FAA appropriations, the General
Fund contribution has ranged from 15 to 24 percent in recent
years.\6\
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\6\Congressional Budget Office, Financing Federal Aviation
Programs: Statement of Robert A. Sunshine before the House Committee on
Ways and Means (May 7, 2009) at 3.
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Limits on Airport and Airway Trust Fund expenditures
No expenditures are currently permitted to be made from the
Airport and Airway Trust Fund after March 31, 2011. Because the
purposes for which Airport and Airway Trust Fund monies are
permitted to be expended are fixed as of the date of enactment
of the Airport and Airway Extension Act of 2010, Part IV, the
Code must be amended to authorize new Airport and Airway Trust
Fund expenditure purposes. In addition, the Code contains a
specific enforcement provision to prevent expenditure of
Airport and Airway Trust Fund monies for purposes not
authorized under section 9502. Should such unapproved
expenditures occur, no further aviation excise tax receipts
will be transferred to the Airport and Airway Trust Fund.
Rather, the aviation taxes would continue to be imposed, but
the receipts would be retained in the General Fund.
REASONS FOR CHANGE
The Committee believes that reauthorizing the Airport and
Airway Trust Fund expenditure authority will support jobs
throughout the aviation industry, such as financing airport
construction projects across the country. Reauthorizing the FAA
legislation and making investments to modernize the air traffic
control system is estimated to create 280,000 jobs in airports
throughout the country.
EXPLANATION OF PROVISION
The provision authorizes expenditures from the Airport and
Airway Trust Fund through September 30, 2013. The provision
also amends the list of authorizing statutes to include the
``FAA Air Transportation Modernization and Safety Improvement
Act,'' which sets forth aviation program expenditure purposes
through September 30, 2013.
EFFECTIVE DATE
The provision takes effect on April 1, 2011.
C. Modification of Excise Tax on Kerosene Used in Aviation
(Sec. 4 of the bill and secs. 4081, 4082, 6427, 9502, and 9503 of the
Code)
PRESENT LAW
In general
Under section 4081, an excise tax is imposed upon (1) the
removal of any taxable fuel from a refinery or terminal,\7\ (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.\8\ 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.\9\ 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.\10\
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\7\A ``terminal'' is a taxable fuel storage and distribution
facility that is supplied by pipeline or vessel and from 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.
\8\Sec. 4081(a)(1).
\9\Sec. 4081(a)(1)(B).
\10\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).
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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.\11\ The term includes kerosene used in
aviation (jet fuel) as well as aviation gasoline.
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\11\Sec. 4083(a).
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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
In general
Present law generally imposes a total tax of 24.4 cents per
gallon on kerosene. However, reduced rates apply for kerosene
removed directly from a terminal into the fuel tank of an
aircraft.\12\ For kerosene removed directly from a terminal
into the fuel tank of an aircraft for use in commercial
aviation, the tax rate is 4.4 cents per gallon.\13\ For
kerosene removed directly from a terminal into the fuel tank of
an aircraft for use in noncommercial aviation, the tax rate is
21.9 cents per gallon. All of these tax rates include 0.1 cent
per gallon for the Leaking Underground Storage Tank Trust Fund.
For kerosene removed directly from a terminal into the fuel
tank of an aircraft for an exempt use (such as for the
exclusive use of a State or local government), generally only
the Leaking Underground Storage Tank Trust Fund tax of 0.1 cent
per gallon applies.
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\12\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. 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).
\13\Tax is imposed at this rate if the commercial aircraft operator
is registered with the Internal Revenue Service (``IRS''), and the fuel
terminal is located within a secured area of an airport. The IRS has
identified 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) and
Notice 2005-80, 2005-2 C.B. 953, at sec. 3(c)(2) (2005). If the fuel
terminal is located at an unsecured airport, the fuel is taxed at 21.9
cents per gallon if the fuel is removed directly from the terminal into
the fuel tank of an aircraft.
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``Commercial aviation'' generally means any use of an
aircraft in the business of transporting by air persons or
property for compensation or hire.\14\ 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 operating 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, and accordingly are subject to the tax
regime applicable to noncommercial aviation.
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\14\Sec. 4083(b).
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Refunds and credits to obtain the appropriate aviation tax
rate
If the kerosene is not removed directly into the fuel tank
of an aircraft, the fuel is taxed at 24.4 cents per gallon, the
rate applied to diesel fuel and kerosene used in highway
vehicles. A claim for credit or payment may be made for the
difference between the tax paid and the appropriate aviation
rate (21.9 cents per gallon for noncommercial aviation, 4.4
cents per gallon for commercial aviation, and 0.1 cent per
gallon for an exempt use).\15\
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\15\Sec. 6427(l)(4).
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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 24.4 cents per gallon
rate and the noncommercial aviation rate of 21.9 cents per
gallon.\16\ 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, or the ultimate
purchaser may waive the right to make the claim for payment to
the ultimate vendor.\17\ For State and local government use,
the registered ultimate vendor is the proper claimant.\18\
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\16\Sec. 6427(l)(4)(C)(ii).
\17\Sec. 6427(l)(4)(C)(i).
\18\See sec. 6427(l)(5). Special rules apply if the kerosene is
purchased with a credit card issued to a State or local government.
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Commercial aviation claimants are permitted to credit their
fuel tax claims against their other excise tax liabilities,
thereby reducing the amount of excise tax to be paid with the
excise tax return.
Transfers between the Highway Trust Fund and the Airport
and Airway Trust Fund to account for aviation use
Kerosene that is not removed directly from the terminal
into an airplane (e.g., the jet fuel is transferred from the
terminal by highway vehicle to the airport) is taxed at the
highway fuel rate of 24.4 cents per gallon. The Highway Trust
Fund is credited with 24.3 cents per gallon of the 24.4 cents
per gallon imposed. The remaining 0.1 cent is credited to the
Leaking Underground Storage Tank Trust Fund. If a claim for
payment is later made indicating that the fuel was used in
aviation, the Secretary then transfers to the Airport and
Airway Trust Fund 4.3 cents per gallon for commercial aviation
use and 21.8 cents per gallon for noncommercial aviation use.
These transfers initially are based on estimates, and proper
adjustments are made in amounts subsequently transferred to the
extent prior estimates were in excess of, or less than, the
amounts required to be transferred. Thus, to the extent claims
for credit or payment are not made for the difference between
the highway rate and the aviation rate, the Airport and Airway
Trust Fund will not be credited for fuel used in aviation that
was taxed at the 24.4 cents per gallon rate.
Aviation gasoline
The tax on aviation gasoline is 19.4 cents per gallon
(including a 0.1 cent per gallon Leaking Underground Storage
Tank Trust Fund component). If aviation gasoline is used in
commercial aviation, the ultimate purchaser may obtain a credit
or payment in the amount of 15 cents per gallon, such that the
tax rate on such gasoline is 4.4 cents per gallon.\19\ 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).\20\
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\19\Sec. 6421(f)(2).
\20\Sec. 6416(a); sec. 6420 (farming purposes); sec. 6421(c); and
sec. 6430.
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REASONS FOR CHANGE
The Committee believes that modernization of the air
traffic control system must be adequately funded and that all
aircraft making use of FAA resources should bear an appropriate
share of the cost. The Committee has provided for an increase
in the taxes imposed on aviation-grade kerosene used in
noncommercial aviation to help provide the resources needed to
fund the modernization of the air traffic control system.
EXPLANATION OF PROVISION
The provision creates a separate category of kerosene for
tax purposes: aviation-grade kerosene.\21\ Aviation-grade
kerosene is taxed at 35.9 cents per gallon plus 0.1 cent per
gallon for the Leaking Underground Storage Tank Trust Fund.
Under the provision, aviation-grade kerosene used in
noncommercial aviation will be taxed at the full rate. The rate
of tax for aviation-grade kerosene used in commercial aviation
and exempt use remains unchanged.\22\
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\21\Aviation-grade kerosene means, as defined by the IRS, kerosene-
type jet fuel covered by ASTM specification D1655, or military
specification MIL-DTL-5624 (Grade JP-5), or MIL-DTL-83133E (Grade JP-
8). See section 4(b) of Notice 2005-4.
\22\Accordingly, commercial aviation use will continue to be
subject to a tax of 4.4 cents per gallon and exempt use will be subject
to 0.1 cent per gallon.
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Because the tax on aviation-grade kerosene used in
noncommercial aviation is equal to the full rate of tax
collected, the provision repeals the ultimate vendor refund
provisions for noncommercial aviation. In addition, the
provision eliminates the inter-fund transfers from the Highway
Trust Fund to the Airport and Airway Trust Fund for kerosene
used in aviation. Instead, the taxes imposed on aviation-grade
kerosene will be credited to the Airport and Airway Trust Fund
only.\23\ The provision also provides a refund mechanism for
aviation-grade kerosene used for a taxable purpose other than
in an aircraft.
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\23\The 0.1 per gallon will continue to be transferred to the
Leaking Underground Storage Tank Trust Fund.
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In the case of aviation-grade kerosene held on April 1,
2011, by any person, a floor stocks tax is imposed equal to the
tax that would have been imposed if the increased rates had
been in effect before such date less the tax actually imposed
on such fuel. The tax is to be paid at such time and in such
manner as the Secretary shall prescribe.
The floor stocks tax does not apply to fuel held
exclusively for any use to the extent a refund or credit of tax
is allowable under the Code. The floor stocks tax does not
apply if the amount of fuel held by a person does not exceed
2,000 gallons.
For purposes of the floor stocks tax, a controlled group is
treated as one person. ``Controlled group'' for these purposes
means a parent-subsidiary, brother-sister, or combined
corporate group with more than 50-percent ownership with
respect to either combined voting power or total value. Under
regulations, similar principles may apply to a group of persons
under common control where one or more persons are not a
corporation.
All provisions of law, including penalties, applicable with
respect to the taxes imposed by section 4081 also apply to the
floor stocks taxes to the extent not inconsistent with the
provisions of the provision. For purposes of determining
receipts to the Airport and Airway Trust Fund, the floor stocks
tax is treated as if it were a tax listed in section 9502(b)(1)
(governing transfers of tax receipts to the Airport and Airway
Trust Fund).
EFFECTIVE DATE
The provision is generally effective for fuel removed,
entered, or sold after March 31, 2011. The floor stocks tax is
effective April 1, 2011.
D. Air Traffic Control System Modernization Account
(Sec. 5 of the bill, and sec. 9502 of the Code)
PRESENT LAW
Under present law, there is no special sub-account of the
Airport and Airway Trust Fund to which funds are dedicated for
air traffic control system modernization.
REASONS FOR CHANGE
The Committee is concerned with the congestion at our
airports and in our airways. The Committee believes that action
must be taken to address increasing air travel delays,
passenger frustrations, and safety concerns. Given these
concerns, the Committee believes it is important to set aside
specific funds within the Airport and Airway Trust Fund for air
traffic control system modernization so that this important
work can move forward.
EXPLANATION OF PROVISION
The provision creates an Air Traffic Control System
Modernization Account (``Modernization sub-account'') within
the Airport and Airway Trust Fund to ensure sufficient funding
is provided for modernization of the air traffic control
system. The Modernization sub-account is supported through
annual transfers of $400 million from the Airport and Airway
Trust Fund that are attributable to the taxes on aviation-grade
kerosene. The funds are available, subject to appropriation,
for expenditures relating to the modernization of the air
traffic control system. Use of the funds also may include
facility and equipment account expenditures.
EFFECTIVE DATE
The provision is effective on the date of enactment.
E. Treatment of Fractional Ownership Aircraft Programs
(Sec. 6 of the bill and new sec. 4043 of the Code)
PRESENT LAW
For excise tax purposes, fractional ownership aircraft
flights are treated as commercial aviation. As commercial
aviation, for 2011, such flights are subject to the ad valorem
tax of 7.5 percent of the amount paid for the transportation, a
$3.70 segment tax, and tax of 4.4 cents per gallon on fuel. For
international flights, fractional ownership flights pay the
$16.30 international travel facilities tax.
For purposes of the FAA safety regulations, fractional
ownership aircraft programs are treated as a special category
of general aviation.\24\
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\24\14 C.F.R. Part 91, subpart k.
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REASONS FOR CHANGE
The Committee notes that the IRS and FAA classify flights
on aircraft that are part of a fractional ownership program
differently. Under the FAA safety regulations, such flights are
considered general aviation, while the IRS classifies such
flights as commercial aviation for tax purposes. The Committee
wishes to make clear that fractional flights should be
considered as noncommercial aviation for tax purposes. In
keeping with the Committee's view that the burden of funding a
modernized system should be broadly shared, the Committee
believes it is appropriate to subject such flights to the
increased fuel taxes applicable to noncommercial aviation
provided by the bill (35.9 cents per gallon), as well as an
additional fuel surtax of 14.1 cents per gallon.
EXPLANATION OF PROVISION
Under the provision, transportation as part of a fractional
ownership aircraft program is not classified as commercial
aviation for Federal excise tax purposes. Instead, such flights
would be subject to the increased Airport and Airway Trust Fund
fuel tax rate for noncommercial aviation and an additional fuel
surtax of 14.1 cents per gallon. For this purpose, a
``fractional ownership aircraft program'' is defined as a
program in which:
A single fractional ownership program
manager provides fractional ownership program
management services on behalf of the fractional owners;
Two or more airworthy aircraft are part of
the program;
There are one or more fractional owners per
program aircraft, with at least one program aircraft
having more than one owner;
Each fractional owner possesses at least a
minimum fractional ownership interest in one or more
program aircraft;\25\
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\25\A ``minimum fractional ownership interest'' means: (1) A
fractional ownership interest equal to or greater than one-sixteenth
(1/16) of at least one subsonic, fixed wing or powered lift program
aircraft; or (2) a fractional ownership interest equal to, or greater
than one-thirty-second (1/32) of a least one rotorcraft program
aircraft. A ``fractional ownership interest'' is (1) the ownership
interest in a program aircraft; (2) the holding of a multi-year
leasehold interest in a program aircraft; or (3) the holding of a
multi-year leasehold interest that is convertible into an ownership
interest in a program aircraft.
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There exists a dry-lease aircraft exchange
arrangement among all of the fractional owners;\26\ and
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\26\A ``dry-lease aircraft exchange'' means an arrangement,
documented by the written program agreements, under which the program
aircraft are available, on an as-needed basis without crew, to each
fractional owner.
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There are multi-year program agreements
covering the fractional ownership, fractional ownership
program management services, and dry-lease aircraft
exchange aspects of the program.
The fuel taxes are dedicated to the Airport and Airway
Trust Fund. Consistent with the general extension of the taxes
dedicated to the Airport and Airway Trust Fund, the provision
sunsets September 30, 2013.
EFFECTIVE DATE
The provision is effective for taxable transportation
provided after, and fuel used after, March 31, 2011.
F. Termination of Exemption for Small Jet Aircraft on Nonestablished
Lines
(Sec. 7 of the bill and sec. 4281 of the Code)
PRESENT LAW
Under present law, transportation by aircraft with a
certificated maximum takeoff weight of 6,000 pounds or less is
exempt from the excise taxes imposed on the transportation of
persons by air and the transportation of cargo by air when
operating on a nonestablished line. Similarly, when such
aircraft are operating on a flight for the sole purpose of
sightseeing, the taxes imposed on the transportation or persons
or cargo by air do not apply.
REASONS FOR CHANGE
The present-law tax exemption for small aircraft operating
on nonestablished lines does not reflect the technological
advances allowing for the construction of lightweight jet
aircraft. The Committee believes that such aircraft use FAA
resources and utilize facilities receiving assistance from the
Airport and Airway Trust Fund. Consistent with the intent of
the bill that all aircraft making use of FAA resources bear an
appropriate share of the cost, the Committee finds that it is
proper to remove jet aircraft from this exemption.
EXPLANATION OF PROVISION
The provision repeals the exemption as it applies to
turbine engine powered aircraft (jet aircraft).
EFFECTIVE DATE
The provision is effective for transportation provided
after March 31, 2011.
G. Transparency in Passenger Tax Disclosures
(Sec. 8 of the bill and sec. 7275 of the Code)
PRESENT LAW
Transportation providers are subject to special penalties
relating to the disclosure of the amount of the passenger taxes
on tickets and in advertising. The ticket is required to show
the total amount paid for such transportation and the tax. The
same requirements apply to advertisements. In addition, if the
advertising separately states the amount to be paid for the
transportation or the amount of taxes, the total shall be
stated at lease as prominently as the more prominently stated
of the tax or the amount paid for transportation. Failure to
satisfy these disclosure requirements is a misdemeanor, upon
conviction of which the guilty party is fined not more than
$100 per violation.\27\
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\27\Sec. 7275.
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There is no prohibition against airlines including other
charges in the required passenger taxes disclosure (e.g., fuel
surcharges retained by the commercial airline). In practice,
some but not all airlines include such other charges in the
required passenger taxes disclosure.
REASONS FOR CHANGE
The Committee believes that separating charges payable to a
government entity from those paid to a transportation provider
will reduce confusion on the part of consumers.
EXPLANATION OF PROVISION
The provision prohibits all transportation providers from
including amounts other than the passenger taxes imposed by
section 4261 in the required disclosure of passenger taxes on
tickets and in advertising when the amount of such tax is
separately stated. Disclosure elsewhere on tickets and in
advertising (e.g., as an amount paid for transportation) of
non-tax charges is allowed.
EFFECTIVE DATE
The provision is effective for transportation provided
after March 31, 2011.
H. Tax-Exempt Private Activity Bond Financing for Fixed-Wing Emergency
Medical Aircraft
(Sec. 9 of the bill and sec. 147(e) of the Code)
PRESENT LAW
Interest on bonds issued by State and local governments
generally is excluded from gross income for Federal income tax
purposes.\28\ 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. In general, 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).\29\ 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 bonds'') and other Code
requirements are met.\30\
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\28\Sec. 103(a).
\29\See sec. 141 defining ``private activity bond.''
\30\See sec. 103(b) and sec. 141(e).
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Section 147(e) of the Code provides, in part, that a
private activity bond is not a qualified bond if issued as part
of an issue and any portion of the proceeds of such issue is
used for airplanes.\31\ The Internal Revenue Service has ruled
that a helicopter is not an ``airplane'' for purposes of
section 147(e).\32\
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\31\Other prohibited facilities include any skybox, or other
private luxury box, health club facility, facility primarily used for
gambling, or store the principal business of which is the sale of
alcoholic beverages for consumption off premises. Sec. 147(e).
\32\Rev. Rul. 2003-116, 2003-46 I.R.B. 1083, 2003-2 C.B. 1083
(November 17, 2003) (released: October 29, 2003).
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A fixed-wing aircraft providing air transportation for
emergency medical services and that is equipped for, and
exclusively dedicated on that flight to, acute care emergency
medical services is exempt from the air transportation excise
taxes imposed by sections 4261 and 4271.\33\
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\33\Sec. 4261(g)(2).
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REASONS FOR CHANGE
The Committee believes it is appropriate to correct the
disparity by which tax-exempt bond financing may be used for
helicopters providing emergency medical care but not for
airplanes.
EXPLANATION OF PROVISION
The provision amends section 147(e) so that the prohibition
on the use of proceeds for airplanes does not apply to any
fixed-wing aircraft equipped for, and exclusively dedicated to,
providing acute care emergency medical services (within the
meaning of section 4261(g)(2)).
EFFECTIVE DATE
The provision is effective for obligations issued after the
date of enactment.
I. Protection of Airport and Airway Trust Fund Solvency
(Sec. 10 of the bill and sec. 9502 of the Code)
PRESENT LAW
The uncommitted cash balance in the Airport and Airway
Trust Fund has declined significantly in recent years. At the
end of Fiscal Year 2001, the uncommitted cash balance was $7.3
billion. At the end of Fiscal Year 2010, the balance was
approximately $770 million.\34\
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\34\Government Accountability Office, Airport and Airway Trust
Fund: Declining Balance Raises Concerns Over Ability to Meet Future
Demands (February 3, 2011) at p. 5.
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The current statutory formula requires that estimated
Airport and Airway Trust Fund receipts each year must equal
trust fund expenditures. However, amounts appropriated from the
Airport and Airway Trust Fund are based on revenue receipt
projections and have exceeded the amounts actually deposited
into the Airport and Airway Trust Fund, resulting in declines
in the uncommitted cash balance.
REASONS FOR CHANGE
The FAA's fiscal year appropriation from the Airport and
Airway Trust Fund is based on the forecasted level of trust
fund revenues, including interest on trust fund balances,
projected for the coming fiscal year. Each year's forecast is
based on information available in the first quarter of the
preceding fiscal year. Thus, if the forecast is overly
optimistic and revenues fall short of the forecast for that
fiscal year, the appropriation to spend from the trust fund
will exceed revenues actually deposited. This provision will
provide for the long-term fiscal health of the trust fund by
providing that only 90 percent of the forecasted revenues for a
given fiscal year are made available for appropriation.
EXPLANATION OF PROVISION
The provision amends section 9502 to limit the budgetary
resources initially made available each fiscal year from the
Airport and Airway Trust Fund to 90 percent, rather than 100
percent, of forecasted revenues for that year.
EFFECTIVE DATE
The provision is effective for fiscal years 2012 and 2013.
III. BUDGET EFFECTS OF THE BILL
A. Committee Estimates
In compliance with paragraph 11(a) of Rule XXVI of the
Standing Rules of the Senate, the following statement is made
concerning the estimated budget effects of the revenue
provisions of the ``Airport and Airway Trust Fund
Reauthorization Act of 2011,'' as reported.
ESTIMATED REVENUE EFFECTS OF THE ``AIRPORT AND AIRWAY TRUST FUND REAUTHORIZATION ACT OF 2011,'' AS REPORTED BY THE SENATE COMMITTEE ON FINANCE
[Fiscal Years 2011-2021, in millions of dollars]
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Provision Effective 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2011-15 2011-16 2011-20 2011-21
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1. Extension of taxes funding Airport 4/1/11 No revenue effect
and Airway Trust Fund (sunset 9/30/13)
2. Extension of Airport and Airway 4/1/11 No revenue effect
Trust Fund expenditure authority
(sunset 9/30/13)......................
3. Modification of excise tax on freosa 3/31/11 25 56 58 2 ...... ...... ...... ...... ...... ...... ...... 141 141 141 141
kerosene used in aviation (sunset 9/30/
13) (35.9 cpg for noncommercial
aviation).............................
4. Air Traffic Control System DOE Estimate to be provided by Congressional Budget Office
Modernization Account.................
5. Treatment of fractional ownership fua 3/31/11 & 2 31 22 -4 ...... ...... ...... ...... ...... ...... ...... 51 51 51 51
aircraft program (treated as ttpa 3/31/11
noncommercial aviation: 35.9 cpg fuel
tax, plus 14.1 cpg fuel surtax,
exemption from taxes on commercial
aviation) (sunset 9/30/13)............
6. Termination of exemption for small ttpa 3/31/11 (\1\) 1 1 1 1 1 1 1 1 2 2 4 6 10 13
jet aircraft operated on
nonestablished lines or for
sightseeing...........................
7. Transparency in passenger tax ttpa 3/31/11 Negligible revenue effect
disclosures...........................
8. Tax-exempt bond financing for fixed- oia DOE (\2\) (\2\) -1 -1 -2 -2 -3 -3 -4 -5 -5 -4 -6 -21 -26
wing emergency medical aircraft.......
9. Protection of Airport and Airway fyba 9/30/11 No revenue effect
Trust Fund Solvency...................
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NET TOTAL.......................... ....................... 27 88 80 -2 -1 -1 -2 -2 -3 -3 -3 192 192 181 179
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NOTE: Details may not add to totals due to rounding. Date of enactment is assumed to be March I, 2011.
Source: Joint Committee on Taxation.
(\1\) Gain of less than $500,000.
(\2\) Loss of less than $500,000.
Legend for ``Effective'' column: DOE = date of enactment; freosa = fuels removed, entered, or sold after; fua = fuel used after; fyba = fiscal years beginning after; oia = obligations issued
after; ttpa = taxable transportation provided after.
B. Budget Authority and Tax Expenditures
Budget authority
In compliance with section 308(a)(1) of the Budget Act, the
Committee states that the provisions of the bill as reported do
not involve new or increased budget authority.
Tax expenditures
In compliance with section 308(a)(2) of the Budget Act, the
Committee states that the revenue-reducing provisions of the
bill involve increased tax expenditures (see revenue table in
Part A., above). The revenue-increasing provisions of the bill
involve reduced tax expenditures (see revenue table in part A,
above).
C. Consultation With Congressional Budget Office
In accordance with section 403 of the Budget Act, the
Committee advises that the Congressional Budget Office has not
submitted a statement on the bill. The letter from the
Congressional Budget Office has not been received, and
therefore will be provided separately.
IV. VOTES OF THE COMMITTEE
In compliance with paragraph 7(b) of Rule XXVI of the
standing rules of the Senate, the Committee states that, with a
majority and quorum present, the ``Airport and Airway Trust
Fund Reauthorization Act of 2011,'' was ordered favorably
reported by voice vote on February 8, 2011.
V. REGULATORY IMPACT AND OTHER MATTERS
A. Regulatory Impact
Pursuant to paragraph 11(b) of Rule XXVI of the Standing
Rules of the Senate, the Committee makes the following
statement concerning the regulatory impact that might be
incurred in carrying out the provisions of the bill as amended.
Impact on individuals and businesses, personal privacy and paperwork
The bill increases the tax on aviation-grade kerosene for
noncommercial aviation, and removes flights by jet aircraft
from the exemption for small aircraft operating on
nonestablished lines, which may cause such flights to be
subject to the air passenger and air cargo excise taxes. For
individuals and businesses engaged in activities subject to
these taxes, the provisions should not result in additional
recordkeeping responsibilities beyond that required for present
law. The provisions increasing revenues to the Airport and
Airway Trust Fund will fund improvements to the air traffic
control system from which individuals and businesses using such
system will benefit. The bill does not have any impact on
personal privacy.
B. Unfunded Mandates Statement
This information is provided in accordance with section 423
of the Unfunded Mandates Reform Act of 1995 (Pub. L. No. 104-
4).
The Committee has determined that the bill contains no
unfunded mandates. The tax provisions of the reported bill do
not impose a Federal intergovernmental mandate on State, local,
or tribal governments within the meaning of Public Law 104-4,
the Unfunded Mandates Reform Act of 1995.
C. Tax Complexity Analysis
Section 4022(b) of the Internal Revenue Service
Restructuring and Reform Act of 1998 (the ``IRS Reform Act'')
requires the Joint Committee on Taxation (in consultation with
the Internal Revenue Service and the Department of the
Treasury) to provide a tax complexity analysis. The complexity
analysis is required for all legislation reported by the Senate
Committee on Finance, the House Committee on Ways and Means, or
any committee of conference if the legislation includes a
provision that directly or indirectly amends the Internal
Revenue Code (the ``Code'') and has widespread applicability to
individuals or small businesses.
The staff of the Joint Committee on Taxation has determined
that a complexity analysis is not required under section
4022(b) of the IRS Reform Act because the bill contains no
provisions that have ``widespread applicability'' to
individuals or small businesses.
VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED
In the opinion of the Committee, it is necessary in order
to expedite the business of the Senate, to dispense with the
requirements of paragraph 12 of Rule XXVI of the Standing Rules
of the Senate (relating to the showing of changes in existing
law made by the bill as reported by the Committee).