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Missing taxes that support airports fuel suspicion
By Dan McCue
Staff Writer
The tax proceeds on jet fuel sold at general aviation facilities such as Charleston Executive Airport—a tax intended to support their upkeep and spur economic development—may instead be getting lost in the bureaucratic shuffle, according to a member of the S.C. Aeronautics Commission.
Loss of the money to federal, state and county agencies keeps South Carolina’s 60 general aviation airports from doing repairs, enhancing public areas and even putting up security fences, Commissioner Mike Marlowe said.
The commission believed it had resolved the issue months ago, only to discover during its recent board meeting at Charleston International Airport that the critical issue still had to be addressed.
“The bottom line is we’re woefully short of our funding, funding that’s used to provide an important match to federal and local funds on necessary projects,” said Jim Hamilton, vice chairman of the commission. “This issue of tax revenues is something we have to get a handle on once and for all.”
Taxes not always paid
The state’s Aeronautics Division, which the commission oversees, is a branch of the S.C. Department of Commerce and has an annual budget of about $3 million. Just under half of that money is supplied to the division by Commerce, with the rest of the money coming directly from the state is aviation fuel tax.
Its primary responsibility is to fund maintenance and capital projects at general aviation airports throughout South Carolina and to supplement state and local funding of other projects undertaken at those facilities.
Two years ago, the state Legislature passed a bill that included “Jet A” fuel in the sales tax, essentially requiring those who fly corporate or private jets into the state to contribute to the upkeep of the airports they use.
Airlines were exempted from paying the tax on their fuel, presumably as an incentive to lure more airlines to serve the state, Marlowe said.
All seemed well and good until Marlowe noticed a discrepancy between the amount of Jet A fuel he knew was sold at Myrtle Beach Aviation and the amount of tax those sales were generating for the state aviation fund.
“Essentially, there’s 24 cents tax charged on every gallon of Jet A fuel sold, and five cents of that tax is supposed to go to the aviation fund, but my investigation uncovered two problems,” he said. “First, it became apparent that not all Jet A fuel being sold in the state was being taxed appropriately.
“Secondly, it’s not at all clear that the taxes that are being charged appropriately are being directed into the aviation fund as opposed to the general fund. That’s an issue we have to clarify and get straight.”
Marlowe, who keeps a close tab on invoices and other financial documents generated at Myrtle Beach Aviation, said he believes as much as $70,000 in Jet A tax revenues that should have gone into the aviation fund has vanished.
“If you multiply that fact by all the general aviation airports that sell Jet A fuel in the state, the money lost to us could be between $750,000 and $1 million,” he said.
Adrienne Fairwell, a spokeswoman for the state Department of Revenue, said in fiscal year 2006, the agency collected $944,000 in total taxes on aviation gasoline sales, up from $683,000 in fiscal year 2005.
Upon collection, the DOR remits to the State Treasury and earmarks the portion intended for the State Aviation Fund, a process outlined in South Carolina Code 55-5-280. Monies from the State Aviation Fund are to be used, according to the code, for the necessary expenses of the Aeronautics Division of the Department of Commerce.
But even in light of such a straightforward collection and remitting process, getting to the bottom of the problem wasn’t easy, Marlowe said.
If a fixed-base operation such as Myrtle Beach Aviation or Corporate Wings, which oversees the sale of fuel at Charleston Executive Airport, sells directly to a customer, it generates an invoice on which the payment of the tax is noted.
Things become less clear when the customer’s volume of Jet A fuel purchases is such that they opt into one of the dealer programs offered directly by companies such as Chevron Texaco and Exxon Mobil.
In those cases, the airport is paid an into-plane delivery fee for pumping the fuel, but the customer doesn’t pay for the fuel on the spot and the invoice for the sale is generated in Houston.
During his investigation, Marlowe contacted Chevron Texaco and was told that they do indeed pay the South Carolina aviation fund tax. Even with Chevron Texaco’s assurances, the disparity between the amount of Jet A fuel sold at Myrtle Beach and the taxes it generated didn’t disappear.
That’s when he learned that the oil companies often rely on a fuel middleman or fuel jobber to serve their jet fuel clients. Instead of selling directly to the customer, Chevron Texaco will sell the fuel to a wholesaler, who then sells the fuel to the customer.
When Marlowe contacted these companies, they told him they weren’t charging the tax.
Why? “Because they said Form ST-403, the State Sales, Use and Aviation Gasoline Tax Returns fund available on the state Department of Revenue Web site says the tax must be paid on aviation gasoline, making no mention of jet fuel,” Marlowe said.
He also said one jobber went so far as to visit the DOR Web site and print the form for him while he waited. It turned out what the Jobber said was true.
Fairwell said the commission approached the DOR several months ago about revising the forms, and changes were made at that time. However, in light of the commission’s current concerns, and “in an effort to further clarify the forms, we are in the process of another revision.”
Education just as important
As the commissioners discussed the issue in a conference room overlooking the passenger lobby in the Charleston International Airport terminal, they decided that even a perfect DOR form would resolve only part of their funding problems.
They agreed that what’s needed is a public education program aimed at making sure South Carolina’s airports get every dollar to which they are entitled.
“What I found, as I looked at this issue, was that the reporting of the tax and getting it into the aviation fund as only the tip of the iceberg,” Marlowe said. “Just as critical is to make sure that the proceeds from federal tax on aviation fuel also gets where it is supposed to go.”
On Oct. 1, 2005, the federal government imposed an additional 21⁄2-cent tax on Jet A fuel after a member of congress complained that truckers were using jet fuel in their rigs rather than diesel in order to avoid paying the higher tax on the latter. At the time, the per gallon tax on jet fuel was 21 cents and 24 cents on diesel.
The legislation provided that the difference in the tax would be refunded to airport operators who could show the gas was actually pumped into an aircraft, but put the burden on them to apply for the refund.
“What we’re finding is that the process for receiving a refund is so onerous that 50 percent of our airports aren’t even applying for it,” Marlowe said. “People might not think that these issues related to jet fuel are a major thing, but losing these dollars impacts everyone in terms of the revenue that needs to be generated from other sources to keep these airports viable.”
Fostering economic development
But why does it matter whether general aviation airports remain viable?
An answer was recently provided by Georgia Gov. Sonny Purdue, who said he wants to make sure there’s at least one 5,000-foot long runway within 30 minutes of every person in his state.
Georgia has committed $15 million to improve 49 airports across the state. Improvements include runway extensions, new navigational aids and the latest equipment for weather reporting stations.
Underscoring the commissioners’ belief in how important general aviation is to economic development, the aeronautics commission capped its visit to Charleston with a tour of the new Vought Aircraft Industries manufacturing plant in North Charleston.
The 342,000-square-foot building, which opened June 8, is part of a $560 million industrial complex that will build major fuselage sections for the Boeing Co.’s new 787 Dreamliner aircraft.
“Our general aviation airports are a cornerstone for economic development here and across the state,” Hamilton said. “CEOs don’t come to town on a Greyhound bus.”
“Nor do they fly coach on Delta,” added Commission Chairman H. Neel Hipp Jr. “They fly in on private jets and don’t come through Charleston International.”
Said Hamilton: “I think one thing people fail to realize is that general aviation airports are the gateways into the Lowcountry for executives visiting Kiawah, Pawley’s Island and other points in the region. I believe the access to these airports lay the ground work for companies expanding or relocating here.”
Dan McCue is a staff writer for the Business Journal. E-mail him at dmccue@charlestonbusiness.com.
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