With FAA’s reauthorization bill recently signed into law, business aviation groups are pinning their hopes on the highway reauthorization bill to overturn a fuel fraud measure that causes certain jet fuel to be taxed at the highway diesel fuel rate. The highway reauthorization legislation, H.R. 7, is expected to come up for debate next week, but is facing controversy as lawmakers wade through numerous amendments and attempt to drum up the necessary votes for its passage.

Business aviation advocates originally had hoped the FAA reauthorization bill would become the vehicle for a repeal of the fuel fraud measure. But lawmakers stripped most new tax provisions out of the FAA bill to ease its passage.

The fuel fraud measure was included in a 2005 highway bill, changing the collection of non-commercial aviation jet fuel taxes to ensure that they were not used for highway purposes. Certain lawmakers were concerned that operators of diesel-engine equipment would try to avoid the higher tax rates of diesel fuel by purchasing their fuel at airports.

Under the 2005 measure, non-commercial jet fuel providers must collect fuel taxes at the higher highway rate, demonstrate that the fuel is sold for aviation purposes and then seek a rebate for the difference between the highway and aviation fuel rates. The taxes, meanwhile, go to the Highway Trust Fund until the rebates are sought.

The National Air Transportation Association estimates the diversion of the aviation fuel taxes costs the Airport and Airway Trust Fund about $50 million annually and says the measures comes at “tremendous administrative costs” to fixed-base operators that sell jet fuel.

“The process of filing for the 2.5-cent-per-gallon refund with the IRS has put an undue burden on aviation businesses, although there is no substantial evidence to prove that fuel fraud is taking place,” the association says, adding, “It makes no sense for operators of diesel-engine equipment to buy jet fuel to avoid a 2.5-cent per gallon difference in tax rate.” The average diesel fuel price is $3.93 per gal., while the average jet fuel price nationally is $5.72 per gal., making it significantly more expensive to buy jet fuel to avoid the diesel fuel tax rate.

NATA also contends that jet fuel’s lower cetane rating, lower lubricity and higher sulfur content make it unsuitable for diesel use. The cetane rating reduces diesel engine performance, while the sulfur content could clog the diesel particulate filter system and cause engine shutdown, the association notes. Further, a low-lubricity fuel can cause excess wear if used in the wrong engine, NATA says.

“For fuel fraud to occur, diesel equipment operators would have to be willing to pay a higher price for a poorer performing fuel and risk significant likelihood of damaging their engines, all just to avoid an additional 2.5 cents per gallon going to the federal government,” NATA says. “The truth is they would not and are not buying jet fuel to avoid paying taxes on diesel fuel.”

The association recently joined seven other aviation associations that wrote key lawmakers on the House Ways and Means and Transportation and Infrastructure Committees urging repeal of the measure. The associations are hoping that lawmakers will include a repeal provision in the manager’s amendment to the highway reauthorization bill.

“Since October 1, 2005, practically all taxes collected for non-commercial jet fuel used in general aviation have been deposited in the Highway Trust Fund instead of the Airport and Airway Trust Fund, where the funds are desperately needed,” the associations say. “The administrative hassle associated with this process has resulted in many fuel providers opting to pass the additional tax on to the end user and forego the process of applying for a refund.”

The associations estimate the provision will cost the Airport and Airways Trust Fund another $500 million in the next 10 years. “This provision is a solution in search of a problem, as evidence of large-scale fraud in the sale of jet fuel has never been demonstrated,” the associations say. “In fact, this provision is harming our national airspace system by depriving it of funds needed to enhance safety and efficiency.”

In addition to NATA, the letters were signed by the Airports Council International-North America, Aircraft Electronics Association, Alliance for Aviation Across America, Aircraft Owners and Pilots Association, Helicopter Association International, National Association of State Aviation Officials and National Business Aviation Association.