aviation fuel
Richard Locker
12:16 PM, Apr 8, 2015
5:59 PM, Apr 8, 2015
local news | local | business | fedex | state
Copyright 2014 Memphis Commercial Appeal. All rights reserved.
October 10, 2012 - FedEx workers unload planes at the Memphis International hub. (Jim Weber/The Commercial Appeal)
JIM WEBER
NASHVILLE — FedEx Corp. and Gov. Bill Haslam’s administration are asking lawmakers to cap the company’s aviation-fuel tax liability to the state at $10.5 million a year — about one third of the $32 million it paid last year.
Memphis-based FedEx pays on average between 66 and 75 percent of the total $41 million to $48 million a year that the state’s aviation-fuel tax generates, because of its huge fuel purchases in Memphis, according to legislative testimony.
The tax is 4.5 percent per gallon and is in lieu of other fuel taxes. The revenue flows into a fund created in 1988 that helps pay for airport improvements across the state. The revenue fluctuates from year to year with the price of fuel.
A bill suddenly moving through the legislature would cap the annual tax liability for any single payor at $21.375 million during the tax year starting July 1, and reduce the cap incrementally to $10.5 million over four years, where it would remain. The state currently has no cap on the tax, and although it would apply to any large purchaser of aviation fuel, no other taxpayer is close to that cap, according to testimony in a committee that indicated Southwest Airlines pays about $6 million per year.
But large and small airports that use revenue from the tax to pay for airport improvements are questioning the tax cap — mostly because there’s no plan to replace the lost revenue and partly because it surfaced late last week in the form of an amendment to an innocuous “caption” bill.
The legislature uses caption bills as placeholders for later-filed amendments often only marginally related to the original bill’s stated purpose. In this case, the original House Bill 1147 only required additional information in reports on how aviation-tax revenue is spent and had no reference to a tax break.
The plan won approval in the House Transportation Committee Tuesday and in the Senate Transportation Committee Wednesday. Officials of the state departments of transportation, revenue, and economic and community development advocated for its passage with vague suggestions that FedEx could shift more of its flights from Memphis to its hubs in Indianapolis and Greensboro, North Carolina, to avoid the Tennessee tax, costing Tennessee jobs and revenue.
Indiana has no such tax and North Carolina caps its tax at $2.5 million per taxpayer. The officials are promoting the tax cut for “economic competitiveness” with other states.
“Currently we have one payor in our state paying 66 percent of the state’s entire aviation fuel tax, or in fiscal year 2014, $32 million of the entire $48 million,” Rep. Mark White, R-Memphis, the bill’s House sponsor, told the committee. “FedEx states that it is unsustainable for their company to justify keeping on paying this level of tax when they have capacity at their Indianapolis and Greensboro hubs with little or no aviation fuel tax.”
White also cited state estimates that “losing one third of 36,000 jobs, mainly in West Tennessee, will result in a $1.4 billion loss in direct and indirect revenue and reduced wages and earnings across our state. So my contention is, do we want to look someday at a $1.4 billion loss or put a cap on this?”
White said the “amendment came from them” (FedEx).
Under questioning by committee members, Alice Rolli, an assistant commissioner at the Department of Economic and Community Development (ECD), said there’s no written agreement that the company will keep flights in the state if the tax break becomes law.
“There is not a written agreement from FedEx. It’s my understanding that securities law does not allow the company to make such a forward-looking statement without first registering a plan and going through a board (of directors) process to say that they intend to grow within the state,” she said.
“It’s our understanding from meeting with FedEx representatives, including (FedEx CEO) Fred Smith, that their intention is to be a long-term corporate citizen in the state but that it is difficult for them to support, to their shareholders, paying nearly $30 million in taxes in this state when they have the opportunity to fuel up their flights in Indiana where they have zero tax or North Carolina where they have a $2.5 million tax.”
But the heads of two Tennessee airport associations — one representing the six major air-carrier airports in Chattanooga, Jackson, Knoxville, Memphis, Nashville and Tri-Cities, and the other representing 65 small general-aviation airports — told the House committee the bill will hurt airports because of the reduced revenue for airport improvements.
Patrick Wilson, executive director of the Tri-Cities Airport Authority and president of the Tennessee Association of Air Carrier Airports, said he was speaking for large airports except Memphis International on the issue.
“This bill is presented as economic development for one section of the state, but it has the potential to significantly harm economic development across the state if it hurts the ability to grow and maintain the airports we have,” he said.
“The proposed action will negatively impact our state airport system and the ability to attract aerospace and aviation-related companies. We’ve seen a large migration of aerospace companies to the state, and the state has started a recruitment effort and the airports play a big role in that. We think the loss of these funds will hurt our efforts to recruit additional companies to our state,” Wilson said.
Sen. Mark Norris, R-Collierville, the Senate sponsor, added an amendment in the Senate committee Wednesday setting up a task force to examine the impact and possible new revenue sources.
Wilson said the cut will hurt the ability of airports to fund expansions, and could result in higher taxes on other air carriers to make up the difference.
Wilson and Steve Smith, executive director of the Jackson-Madison County Airport Authority and president of the association representing 65 smaller airports, both said they’ve had little time to analyze the bill since the amendment surfaced late in the week before the Easter holiday. The amendment is still not posted on the legislature’s website.
“We’ve only had two working days since we realized there is an issue with our funding. House Bill 1147 as amended will seriously harm our airport system. Once this cap goes into effect and there are no additional funds to help us, you will see your local airport go to just a simple maintenance-type program,” Smith said.
The aviation-fuel tax flows into the state’s Transportation Equity Trust Fund. Half of the money is divided among the six large airports; the other half is divided among the smaller airports, both under an activity-based formula. Most airports use the state money as the share of costs they are required to pay to draw down federal airport improvement money. To get 90 percent federal funding for a project, airports must come up with the other 10 percent.
The Haslam administration is putting on a full-court press for the tax break. TDOT Commissioner John Schroer sent a letter Thursday to all airports in support of the tax cut.
“Together, TDOT, the Department of Revenue and the Department of ECD have examined our state’s competitiveness in the aviation industry and how we encourage cargo and passenger carriers that could locate their planes anywhere in the world to grow their business in our state,” he wrote.
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