Airport and Airway Trust Fund:

Less Than Half of Noncommercial Jet Fuel Tax Receipts Are Transferred

GAO-16-746R: Published: Aug 8, 2016. Publicly Released: Aug 8, 2016.

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Gerald Dillingham, Ph.D.
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What GAO Found

The total number of potentially registerable vendors of jet fuel used in noncommercial aviation is unclear, but is likely greater than the number that have registered with the Internal Revenue Service (IRS) based on industry information. While registered vendors—called “ultimate vendors”—are eligible to receive credits or refunds for sales of such jet fuel, some ultimate vendors are not claiming credits or refunds. For example, in fiscal year 2015, GAO found that only a quarter of ultimate vendors filed a credit or refund claim for jet fuel used in noncommercial aviation, and that over half of ultimate vendors did not file any claim for jet fuel sales. Stakeholders noted that, among other things, the small size of the credit or refund ($0.025 per gallon) may limit the incentive to file a claim.

GAO estimates that, since fiscal year 2006, between $1 billion and $2 billion, or more than half of tax receipts for sales of noncommercial jet fuel, have not been transferred into the Airport and Airway Trust Fund from the Highway Trust Fund, based on analysis of Federal Aviation Administration (FAA) and IRS data. While noncommercial jet fuel consumption has been relatively constant from fiscal years 2000 through 2015, the number of jet fuel gallons taxed at the effective rate of $0.219 per gallon (the noncommercial rate) decreased significantly following the implementation of the tax changes in 2006. These trends suggest that more than half of jet fuel used in noncommercial aviation was taxed at an effective rate of $0.244 per gallon and that as a result, between $1 billion and $2 billion in noncommercial jet fuel tax receipts have not been transferred to the Airport and Airway Trust Fund because no credit or refund, which would trigger a transfer, has been claimed by vendors for these sales. In addition, because many vendors were paying the $0.244 tax without claiming a credit or refund, GAO further estimates that the total amount of unclaimed credits or refunds may range from $120 million to $230 million since fiscal year 2006, representing what vendors have effectively overpaid in fuel taxes. However, while vendor registration is required to obtain a credit or refund, filing a claim is voluntary.

Reported instances of jet fuel diversion for nonaviation purposes are rare following the tax changes in 2006, and economic and technological disincentives may further discourage such activity. IRS officials stated that some instances of jet fuel diversion and fraud occurred prior to 2006, but IRS does not retain tax records for more than 7 years, and thus officials could not provide documentation of such occurrences. Since 2006, IRS officials stated that jet fuel diversion virtually ceased. Department of Transportation officials stated they were unaware of any occurrences of jet fuel diversion, and a majority of the industry stakeholders we interviewed stated that such diversion is either rare or nonexistent. Several factors limit incentives for jet fuel diversion: between 2002 and 2015, the average retail price of jet fuel was $2.00 per gallon higher than the average retail price of highway diesel. Also, efforts to avoid paying the federal tax on motor fuel or jet fuel can result in financial penalties or jail. Finally, engine technology improvements and fuel composition changes since 2007 discourage jet fuel diversion.

Why GAO Did This Study

In the early 2000s, federal officials raised concerns about excise tax evasion through the diversion of jet fuel to diesel truck use. To address these concerns, Congress equalized tax rates to $0.244 per gallon for certain sales of diesel fuel and jet fuel beginning in fiscal year 2006. Congress also established a process that maintained the pre-2006 effective tax rate of $0.219 per gallon on jet fuel used in noncommercial aviation, whereby companies selling this fuel could register with the IRS as “ultimate vendors” of jet fuel, and claim a $0.025 per gallon credit or refund for each sale. Once a credit or refund is provided to the ultimate vendor, the Department of Treasury is required to transfer the remainder of the tax receipts from the sale from the Highway Trust Fund to the Airport and Airway Trust Fund.

The Fixing America’s Surface Transportation Act includes a provision for GAO to study and submit a report on the tax system for jet fuel used in noncommercial aviation. This report discusses (1) what is known about ultimate vendors of jet fuel used in noncommercial aviation, (2) the extent to which the Airport and Airway Trust Fund has been credited for sales of jet fuel used for noncommercial aviation, and (3) the extent to which jet fuel has been diverted for nonaviation purposes. GAO reviewed statutes, regulations and prior reports, and analyzed IRS data on trust fund transfers from fiscal years 2000–2015; the most recent IRS data on fuel taxes and vendors from fiscal years 2006–2015; FAA data on jet fuel consumption from fiscal years 2006–2015, and industry data on fuel prices from 2002–2015. GAO also interviewed officials from the Departments of Treasury and Transportation, and IRS, and a nongeneralizable sample of 17 industry stakeholders, including national aviation organizations and jet fuel vendors, selected based on size, registration with the IRS, and claims for credits and refunds.

What GAO Recommends

GAO is not making any recommendations.

For more information, contact Gerald Dillingham, Ph.D. at 202-512-2834 or

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