Aviation Fuel Tax

Table of Contents

Background

The excise tax on aviation fuel was enacted in 1988.¹  The tax is due and collected at the wholesale level when fuel is imported to the state or purchased at an airport terminal.  Two types of aviation fuel are taxed, including: (1) aviation gas, which is used to operate smaller propeller-driven aircraft, and; (2) jet fuel, which is used to operate turbo propeller or jet engine aircraft. In addition to the aviation fuel tax, the retail sale of jet fuel is also subject to the 2.9 percent state sales tax.²  The Colorado Constitution requires that any taxes imposed on aviation fuel be used exclusively for aviation-related purposes.³  Aviation fuel tax revenue is subject to the spending and revenue limitations of TABOR.

Tax Rate

The excise tax on aviation gas is 6¢ per gallon.  The excise tax on jet fuel is 4¢ per gallon.  Commercial airlines are exempt from paying aviation fuel excise taxes.  The 2.9 percent state sales tax is not collected on the sale of aviation gas but is collected on the retail cost of jet fuel.  This tax is paid by both commercial airlines and private or business aircraft owners for the purchase of jet fuel.

Tax Exemptions

Commercial airlines are exempt from paying aviation fuel excise taxes.  Additionally, a refund of up to 50 percent may be claimed for excise taxes paid on aviation fuels purchased in Colorado and used to operate a state licensed agricultural applicator aircraft.  The aircraft must use a private landing facility committed exclusively to agricultural applications.⁴

Distribution

The Division of Aeronautics and the Colorado Aeronautical Board were created in 1989 within the Colorado Department of Transportation to support, develop, and maintain the Colorado aviation system using tax revenue from the sale of aviation fuel.  The Colorado Department of Revenue compiles monthly reports on the amount of aviation gas and jet fuel sold at public-use airports and reports this information to the Division of Aeronautics.  The division uses this information to reimburse airports each month based on fuel tax collections at these airports.  Reimbursements are equal to revenue from the first 4¢ per gallon tax collected on aviation gas and jet fuel, and 65 percent of the amount collected from the 2.9 percent jet fuel sales tax.  The remaining revenue, including revenue from the remaining 2¢ per gallon excise tax on the sale of aviation gas and 35 percent of the 2.9 percent sales tax, are used to fund the Division of Aeronautics and a grant program administered by the Colorado Aeronautical Board.  In FY 2015-16, about $10.2 million was reimbursed to Colorado airports and $2.7 million was allocated in discretionary grants.

Federal Taxes

For noncommercial operations, the federal excise tax is 19.4¢ per gallon on aviation gasoline and 21.9¢ per gallon on jet fuel.  For commercial operations, the federal excise tax rate for jet fuel is 4.4¢ per gallon.

The following uses are exempt from the federal excise tax on aviation fuel: 

• foreign trade operations, or flying a person for hire between the U.S. and another country;
• nonprofit educational organization operations;
• aircraft museum operations;
• U.S. military operations; and
• state or local government operations.

State Comparisons

States vary in how aviation fuel is taxed. Some states include jet fuel in their sales tax base.  Others assess an excise tax separately, and for some states both apply.  Delaware, Ohio and Texas are the only states without a tax on commercial jet fuel.  California has the highest jet fuel tax rate (7.5 percent), with an 11.5 cent prepayment tax per gallon and a 2 cent excise tax per gallon. California also levies an 18¢ excise tax per gallon on aviation gasoline.