Tax News

CCH (cch.taxgroup.com) reports:

The Senate on April 29 turned its attention to legislation reauthorizing the Federal Aviation Administration (FAA). Democratic leaders are expected to amend the original House bill (HR 2881) with tax provisions that would increase the excise jet fuel tax, reclassify multiple-owned aircraft for tax purposes, and eliminate the tax-exempt status of some light jet aircraft.
Leaders of the Senate Finance and Commerce Committees on April 25 agreed to begin funding a new satellite system for American air traffic control, and for U.S. infrastructure projects through the Highway Trust Fund. Senate Finance Committee (SFC) Chairman Max Baucus, D-Mont., and Commerce Subcommittee on Aviation Chairman Jay Rockefeller, D-W.Va., along with SFC ranking member Charles E. Grassley, R-Iowa, and subcommittee ranking member Kay Bailey Hutchison, R-Texas, agreed on modifications to the American Infrastructure Investment and Improvement Act (Sen 2345) approved by the SFC to reauthorize the Airport and Airway Trust Fund (AATF) and fill 2009 shortfalls in the Highway Trust Fund. Final scores are pending from the Joint Committee on Taxation, but the senators' agreement includes as much as $290 million in new funding each year to the AATF to finance the satellite-based NextGen air traffic system and restores $5 billion to the Highway Trust Fund for 2009.
Funding is derived by increasing the general aviation jet fuel tax from the current 21.8¢/gallon to 36¢/gallon, providing approximately $240 million per year in additional AATF funding. Fractionals, or partially (fractionally) owned aircraft, with parties owning shares of a plane would be reclassified as general aviation jets for tax purposes. Also included is an $8-million provision eliminating the tax-exempt status of some light jet aircraft.
The amendment also addresses looming shortfalls in the Highway Trust Fund by suspending transfers from the trust fund for certain repayments and credits, improving aviation fuel tax law compliance, including the taxation of finished gasoline at the refinery gate, the imposition of an excise tax on certain removals of taxable fuels from foreign trade zones, and treatment of qualified alcohol fuel mixtures as taxable fuel, among others.
The general fund costs of the agreement are fully offset by increasing and extending the Oil Spill Liability Trust Fund Tax, and moving back the effective date of a provision in the American Jobs Creation Act taxing corporate inversions after March 4, 2003, to March 20, 2002. Additional tax-related provisions in the amendment would provide: (1) $1.7 billion in Liberty Zone incentives for New York City, offset by allowing Roth-style Code Sec. 457(b) retirement plans to pay taxes up-front rather than deferring until withdrawal of funds, (2) exemptions for some shippers from the harbor maintenance tax at U.S. ports in the Great Lakes/St. Lawrence Seaway system, and (3) $1 billion in tax credit bonds for rail infrastructure, with a corresponding offset requiring individuals who expatriate to market their assets as of the day they depart the United States and subjecting those gains to U.S. taxation.
White House
The Bush administration opposes an Oil Spill Liability Trust Fund provision that would double the per-barrel oil spill tax rate and repeal the requirement to suspend the tax when the unobligated balance of the Fund exceeds $2.7 billion. In a written policy statement, the administration contends there is no reason to continue collecting the tax if there are sufficient funds to pay claims and meet other spending requirements. The administration also strongly opposes a provision authorizing tax credit bonds for rail infrastructure. According to the policy statement, the tax credit bonds would cost the federal government more than direct subsidies.
By Jeff Carlson and Paula Cruickshank, CCH News Staff
Aviation Investment and Modernization Act of 2008, Senate Staff Working Draft, Substitute Amendment to HR 2881
Statement of Administration Policy on HR 2881