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

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Presentation transcript:

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

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

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

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!

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

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

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

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

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

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

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

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!

Capitol Hill Efforts NATA, NBAA working to get provision rescinded, delayed Congressional letters of support Your help is needed in contacting Congress!!

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 –