Aviation Fuel Tax 

Table of Contents

Background

There are two types of aviation fuel that are taxed under state law, aviation gas and jet fuel.¹ Aviation gas is used to operate smaller propeller-driven aircraft while jet fuel is used to operate turbo propeller or jet engine aircraft. Both types of aviation fuel are subject to excise taxes unless they are purchased by a commercial airline. However, the 2.9 percent sales tax only applies to jet fuel sold to direct air carriers, scheduled air carriers, and commuter and on-demand.²

The excise tax on aviation fuel was enacted in 1988. The tax is due and collected at the wholesale level when fuel is imported to the state or purchased at an airport terminal. 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.⁴ 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. Sales 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.⁵

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.

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. Forty states impose an excise tax on aviation fuels. Massachusetts imposes the highest excise tax on aviation fuel at a rate of 38¢ per gallon, and the District of Columbia imposes the highest excise tax on jet fuel at a rate of 23.5¢ per gallon.⁶