Tift Over Use of Tax on Aviation Fuel

A press release from Governor Bruce Rauner:

IDOR urges legislation to avert $129 million in potential FAA sanctions

CHICAGO (Dec. 8, 2017) — The Illinois Department of Revenue (IDOR) said today that the General Assembly must enact legislation to ensure compliance with Federal Aviation Administration (FAA) regulations requiring that all revenue from State and local taxes on aviation fuel be spent on airports or airport systems.

The FAA’s spending restrictions apply to the 20-percent portion of the State sales tax — or 1.25 percentage points — that the State collects on aviation fuel sales and apportions to local governments, in addition to any local add-on sales taxes.

The General Assembly has been unable to agree on legislation that would either exempt aviation fuel from the affected taxes, or create a system to track tax revenue generated from aviation fuel sales for spending on airports.

Failure to comply could cost the state as much as $129 million in federal sanctions in 2018 alone, and make the state ineligible for more than $67 million in federal assistance block grants under the Airport Improvement Program (AIP).

Today marks the deadline for compliance, but State revenue officials hope Illinois can avoid sanctions if the legislature passes legislation to bring the State into compliance as soon as possible.

In the meantime, IDOR has created a new tax form specifically for aviation fuel sales so that the State can begin tracking this revenue.

IDOR estimates that the State’s taxes subject to the FAA’s spending restrictions produce $43 million in annual revenue.

Without legislative action to address the federal requirement, the FAA may impose sanctions amounting to three times the total amount of diverted revenue, i.e. aviation fuel sales tax revenue that is not spent on airports or airport systems.

If the General Assembly votes to exempt aviation fuel from taxes subject to the FAA spending restrictions, Illinois averts the risk of sanctions because there will be no tax revenue to divert.

If the legislature votes to continue collecting these taxes, then the FAA requires the revenue be spent exclusively on airports or airport systems.

The State has no mechanism to enforce how local governments spend State-administered, locally imposed tax revenue.

“The FAA issued this regulation in 2014 with today’s deadline for compliance,” said Hans Zigmund, director of economic policy for Gov. Bruce Rauner. “HB 1129 was introduced this year to address the issue and the framework of the bill is largely workable. The General Assembly should come together as soon as possible to finalize the details. It would be a violation of our public trust to risk spending taxpayer dollars on avoidable penalties.”

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