Transportation Equity Act: A Legacy for Users - Continued

TRANSPORTATION EQUITY ACT: A LEGACY FOR USERS--Continued -- (Senate - May 17, 2005)

BREAK IN TRANSCRIPT

DIRECT DELIVERIES OF AVIATION FUEL

Mr. SMITH. Mr. President, I would like to ask a question of the chairman of the Finance Committee.

I am concerned about the application of one of the fuel tax provisions of the JOBS bill. Some people were cheating, by paying no tax on aviation fuel and then selling the fuel for highway use. To prevent this, we moved the collection point upstream, to the point at which fuel is removed from the rack.

At the same time, we created exceptions, for situations where there is little risk of evasion. One important exception is for fuel delivered by pipeline to a secure airport that goes from a secure fuel tank at an airport terminal directly into a commercial aircraft.

Here is the problem. Fuel suppliers often enter into lon g-term contracts to deliver fuel throughout an entire region. In some cases, they don't have their own fuel tanks at a particular airport. So the company enters into a contract with a fuel supplier, referred to as a ``position holder,'' who does have fuel available at that airport. In these cases, when planes come in for refueling, the legal title to the fuel shifts from the position holder to the reseller, then to the airline when the fuel goes into the commercial aircraft.

The concern is that situations like this may be disqualified from the exception because some believe the passage of title means that the fuel is not considered to go ``directly'' from the position holder to the commercial aircraft. As a result, the transaction could be subject to the burdens of the new rules even though I believe there is absolutely no risk of evasion.

In the chairman's markup, I filed an amendment to address this concern by clarifying that these so-called ``flash title'' transactions qualify for the exception, as long as they meet all of the other applicable requirements. I understand, however, that some believe my amendment was unnecessary because the transactions could already qualify.

This is an important matter to me. It affects many companies, including a Salem, OR, company that employs more than 100 people and provides an important service to airlines throughout my State.

I would like to get a clarification of this point. Is it the chairman's understanding that a transaction that otherwise qualifies for the exception in section 4081(a)(2)(C) and 4081(a)(3) and (4), which allows commercial aviation to self-assess fuel tax at the commercial rate, when the commercial airline receives fuel at one of the secure airports through the hydrant system exception, is not disqualified merely because of the incidental transfer of title from the original position holder to the reseller, and then to the commercial airline?

Mr. GRASSLEY. Yes, so long as the commercial airline fuel transaction takes place on one of the secure airports listed by the Treasury, then, that also is my understanding.

Mr. SMITH. Mr. President, with that understanding, I thank Chairman GRASSLEY for his assistance in this matter. It is important in order to avoid imposing unnecessary burdens on companies in Oregon and all across the country that provide aviation fuel.

http://thomas.loc.gov/