The New Fuel Fraud Tax

1. The New Fuel Fraud Tax Why is it Here, How to Comply, and What You Can Do to Help

2. Why is it Here? • Allegations of aviation fuel sold to highway trucks for highway use • Senate Finance Committee included provision in the Highway Bill • Bill signed into law, provision took effect October 1, 2005

3. How Does it Work? • All fuel taxes are initially collected at the rate of highway diesel, 24.4 cents per gallon (CPG) • Aviation fuel (Jet A) taxes remain at 21.9 CPG • Ultimate Registered Vendor must apply for refund from IRS for 2.5 CPG difference

4. Trust Fund Impact • All funds are initially deposited into Highway Trust Fund • Only when Ultimate Registered Vendor applies for refund does 21.9 CPG transfer from Highway to Aviation Trust Fund • No refund application, no transfer: Aviation Trust Fund receives nothing!

5. How Much Will This Cost? • Congressional Budget Office estimates $500 million over 10 years will flow from Aviation Trust Fund to Highway Trust Fund • Industry feels Aviation Trust Fund loss will be much higher due to fewer refund applications

6. Who is Eligible for Refund? • Fixed base operator (FBO) should register as Ultimate Registered Vendor • FBO would buy fuel from wholesalers at tax rate of 24.4 CPG, sell it at 21.9 CPG tax rate, and apply for refund of difference on all fuel sold • Charter/commercial operators are only eligible for refund of 2.5 CPG used for commercial purposes

7. Conditions for Refund • FBO must register as ultimate registered vendor • FBO must sell jet A at 21.9 CPG tax rate • FBO must collect waiver from each purchaser • Ultimate registered vendors are the only entity permitted to claim the refund on non-commercial aviation uses

8. Obtaining Ultimate Registered Vendor Status • Submit IRS Form 637 • Prepare for IRS “visit,” requests include: • Corporate tax returns • Financial statements • Personal IRS Form 1040 of owner(s) of FBO • IRS gives ultimate registered vendor registration number

9. Refund Process • Assumption: FBO is ultimate registered vendor • FBO taxes the purchaser at 21.9 CPG • FBO collects a signed waiver from each purchaser

10. Refund Process (continued) • FBO files IRS Form 8849 (Request for Refund) • Schedule 2 (Sales by ultimate registered vendors) • May file weekly if refund exceeds $100

11. Problems with Implementation • IRS Confusion: different agents, different answers • Registration process burdensome: equivalent to an audit • IRS requires all final fuel purchasers to sign waivers: not feasible

12. What is the End Result? • Many FBOs have opted to not participate in the refund process, passing the 2.5 CPG tax along to the final purchasers • Highway Trust Fund receives everything, Aviation Trust Fund receives nothing!

13. Capitol Hill Efforts • NATA, NBAA working to get provision rescinded, delayed • Congressional letters of support • Your help is needed in contacting Congress!!

14. What Should I Do? • FBOs: apply for ultimate registered vendor status ASAP! • Pilots: know what you are being charged • Contact NATA, NBAA with any questions • www.nata.aero