[Senate Report 105-4]
[From the U.S. Government Publishing Office]



                                                        Calendar No. 14
105th Congress                                                   Report
                                 SENATE

 1st Session                                                      105-4
_______________________________________________________________________


 
      AIRPORT AND AIRWAY TRUST FUND TAX REINSTATEMENT ACT OF 1997

                                _______
                                

                February 5, 1997.--Ordered to be printed

_______________________________________________________________________


    Mr. Roth, from the Committee on Finance, submitted the following

                              R E P O R T

                         [To accompany S. 279]

      [Including cost estimate of the Congressional Budget Office]

    The Committee on Finance, to which was referred the bill 
(S. 279) to amend the Internal Revenue Code of 1986 to 
reinstate the Airport and Airway Trust Fund excise taxes, and 
for other purposes, having considered the same, reports 
favorably thereon without amendment, and recommends that the 
bill do pass.

                                CONTENTS

                                                                   Page
  I. Summary and Background...........................................2
          A. Summary.............................................     2
          B. Background and Reasons for Legislation..............     2
          C. Legislative History.................................     3
 II. Explanation of the Bill..........................................3
III. Budget Effects of the Bill.......................................6
          A. Committee Estimates.................................     6
          B. Budget Authority and Tax Expenditures...............     6
          C. Consultation with Congressional Budget Office.......     7
 IV. Vote of the Committee............................................9
  V. Regulatory Impact and Other Matters..............................9
          A. Regulatory Impact...................................     9
          B. Information Relating to Unfunded Mandates...........     9
 VI. Changes in Existing Law Made by the Bill, as Reported...........10

                       I. SUMMARY AND BACKGROUND

                               A. Summary

    S. 279, as reported by the Committee on Finance, provides 
for reinstatement of the excise taxes which fund the Airport 
and Airway Trust Fund (the ``Airport Trust Fund'') during the 
period beginning seven days after the date of enactment and 
ending after September 30, 1997. The bill further provides for 
transfer of all revenues derived from these taxes (including 
those deposited and currently scheduled to be deposited in the 
Treasury but which cannot be transferred under present law) to 
the Airport Trust Fund, and includes provisions to ensure 
prompt deposit of tax receipts with the Treasury once the 
excise taxes are reinstated.

               B. Background and Reasons For Legislation

    The operations and capital programs of the Federal Aviation 
Administration (the ``FAA'') are financed with appropriations 
from both the Airport Trust Fund and the General Fund. In 
general, capital programs are financed from the Airport Trust 
Fund and operational expenses (e.g., air traffic controllers) 
are financed from a mix of General Fund and Airport Trust Fund 
revenues. The Airport Trust Fund taxes were last imposed during 
the period from August 27, 1996, through December 31, 1996. 
Receipts from these taxes that were received in the Treasury 
Department before January 1, 1997, are authorized to be 
deposited in the Airport Trust Fund.
    Recently, it was learned that the Treasury Department, 
which credits revenues to the Airport Trust Fund based on 
estimated receipts, has credited the Airport Trust Fund 
approximately $1.2 billion of tax receipts from transportation 
sold during the months September, October, and November, 1996, 
which has not as yet been received by the Treasury Department. 
The delay in receipts was caused by air carriers that (with 
Internal Revenue Service approval) delayed remitting taxes 
collected from their customers during this period until the air 
carriers file their quarterly excise tax returns for the fourth 
quarter of 1996 on February 28, 1997. The Treasury Department 
now must withdraw these amounts from the Airport Trust Fund.
    As a result of this reduction in the Airport Trust Fund's 
balance, the uncommitted monies in the Trust Fund will be 
sufficient only to fund the FAA's operating expenses through 
the end of the 1997 fiscal year, plus capital programs (at 
previously anticipated levels) through March 1997. Further, 
because this information reflects only the best available 
estimates and because of provisions of certain contracts for 
multiple phase projects, the FAA may be required to stop making 
new capital commitments and to begin providing notice that it 
intends to terminate other contracts by March 1, 1997, or 
earlier, absent legislative action.
    By reinstating both the prior-law excise taxes and the 
authority to transfer tax revenues to the Airport Trust Fund, 
the bill will enable the FAA to avoid possible shut-down of its 
capital programs and to finance the agency's activities and 
programs at least through the end of the 1997 fiscal year.

                         C. Legislative History

                             Committee bill

    S. 279 was introduced by Senators Roth and Moynihan on 
February 5, 1997. The bill was considered in a Committee on 
Finance markup on February 5, 1997, and was ordered favorably 
reported by unanimous voice vote.

                          Legislative hearing

    The Committee on Finance held a public hearing on February 
4, 1997, on the effects on the FAA budget of the expired air 
transportation excise taxes and of the recently discovered 
information regarding the deposit of such taxes collected by 
the air carriers from consumers during the months of September, 
October, and November 1996. The hearing also received testimony 
on the issue of possible restructuring of aviation excise 
taxes.

                      II. EXPLANATION OF THE BILL

                         Prior and Present Law

                               Tax rates

    Before January 1, 1997, excise taxes were imposed on 
commercial air passenger and freight transportation and on 
fuels used in general aviation (i.e., transportation on non-
common carrier aircraft which is not for hire) to fund the 
Airport Trust Fund. The Airport Trust Fund was established in 
1970 to finance a major portion of the costs of the Federal 
Aviation Administration (the ``FAA'') services and grant 
programs for State and local government airports. Before 
establishment of the Airport Trust Fund, Federal aviation 
expenditures were financed from general revenues; General Fund 
domestic air passenger and fuels taxes were imposed during this 
period. The structure of the Airport Trust Fund excise taxes 
has remained generally unchanged, except for rates, since 1970.
    Before 1997, the Airport Trust Fund excise taxes included 
three taxes on commercial air transportation:
          (1) A 10-percent excise tax on domestic air passenger 
        transportation;
          (2) A $6 per person international air passenger 
        departure tax; and
          (3) A 6.25-percent domestic air freight excise tax.
    During the same period, general aviation (e.g., corporate 
aircraft) was subject to Airport Trust Fund excise taxes on the 
fuels it used rather than the commercial aviation passenger 
ticket and freight excise taxes. The Airport Trust Fund rates 
for these excise taxes were 17.5 cents per gallon for jet fuel 
and 15 cents per gallon for aviation gasoline.

                     Collection and deposit of tax

    The air passenger ticket and freight excise taxes are 
collected from passengers and freight shippers by the 
commercial air carriers. The air carriers then remit the funds 
to the Treasury Department; however, the air carriers are not 
required to remit monies immediately. Excise tax returns are 
filed quarterly (similar to annual income tax returns) with 
taxes being deposited on a semi-monthly basis (similar to 
estimated income taxes). For air transportation sold during a 
semi-monthly period, air carriers may elect to treat the taxes 
as collected on the last day of the first week of the second 
following semi-monthly period.1 Under these ``deemed 
collected'' rules, for example, the taxes on air transportation 
sold between October 1 and October 15, are treated as collected 
by the air carriers on or before November 7. These amounts 
generally must be deposited with the Treasury by November 10. 
Thus, on average, revenues from commercial air passenger 
transportation generally are not received by the Federal 
Government until approximately one month after the air carrier 
actually sells the transportation.
---------------------------------------------------------------------------
    \1\ Air carriers generally make this election because it allows 
them to delay remitting tax beyond the date when remittance otherwise 
would be required.
---------------------------------------------------------------------------
    Like income tax withholding and estimated tax payments, the 
excise taxes contain payment safe harbors for avoiding 
underpayment penalties. In general, Treasury Department 
regulations provide that commercial air carriers are not 
subject to underpayment penalties if their semi-monthly 
deposits of passenger ticket and freight waybill taxes for a 
quarter equal at least the amount of taxes they were required 
to remit during the second preceding calendar quarter (the 
``look back'' rules). For example, air carriers generally would 
not be subject to underpayment penalties if their semi-monthly 
deposits for the fourth quarter (October 1 through December 31) 
equaled at least the amount they were required to remit during 
the second quarter (April 1 through June 30) of the same year.
    In a general information letter to the Air Transport 
Association of America, dated August 30, 1996, the Internal 
Revenue Service advised the air carriers that, notwithstanding 
that no excise taxes were required to be remitted during a look 
back quarter, applicable Treasury Department regulations 
permitted the air carriers to continue to avail themselves of 
the safe harbor and avoid remitting taxes collected from 
consumers during September, October, and November of 1996 until 
the air carriers file their quarterly excise tax returns for 
that period on February 28, 1997. (Similarly, the air carriers 
are expected to retain most taxes collected from consumers 
during December 1996 until their excise tax returns for the 
first quarter of 1997 are due on May 31, 1997.)

                          Trust Fund deposits

    The Airport Trust Fund receives gross receipts attributable 
to the excise taxes described above. Present law provides that 
taxes received by the Treasury Department through the end of 
the period when the taxes were last imposed (i.e., through 
December 31, 1996) are deposited in the Airport Trust Fund. 
Taxes received after December 31, 1996, may not be transferred 
to the Airport Trust Fund under present law.
    The Treasury Department credited the Airport Trust Fund 
with approximately $1.2 billion based on incorrect estimates of 
excise tax deposits. Subsequently, the Treasury learned that 
the air carriers would not remit taxes attributable to the 
fourth quarter of 1996 to the Treasury until February 28, 1997. 
The Treasury Department plans to reverse this error. As a 
result, the combination of the remaining uncommitted balance in 
the Airport Trust Fund and General Fund appropriations 
available to the FAA are believed to be sufficient only to 
support the FAA's operational expenses through the 1997 fiscal 
year and to allow new capital commitments (assuming previously 
anticipated commitment levels) to be made through March 1997. 
However, because best available estimates of the effect of this 
error on the FAA budget do not include any estimates of the 
costs of terminating certain multiple phase contracts, the FAA 
may have to stop making new commitments and begin notifying 
contractors of its intent to terminate multiple phase contracts 
on March 1, 1997, or earlier, absent legislative action.

                       Explanation of Provisions

               Reinstate air transportation excise taxes

    The bill reinstates the air transportation excise taxes 
that expired after December 31, 1996, during the period 
beginning seven days after the date of enactment and ending 
after September 30, 1997.

              Transfer revenues to the Airport Trust Fund

    The bill authorizes the Treasury Department to transfer to 
the Airport Trust Fund receipts attributable to excise taxes 
described above that are imposed on commercial and general 
aviation. This will permit transfer of receipts attributable to 
taxes imposed both during the period August 27, 1996, through 
December 31, 1996, and during the period beginning seven days 
after the date of enactment.

           Modify Treasury Department tax deposit regulations

    To prevent a delay in depositing tax similar to that which 
occurred with respect to the fourth quarter of 1996, the 
provisions of Treasury Department regulations providing an 
exception to penalties for underpayment of estimated excise 
taxes based on a look-back period will be made inapplicable 
when tax was not imposed throughout the look-back period. In 
such a case, taxpayers could continue to use a present 
alternative safe harbor that provides that no underpayment 
penalty is imposed as long as the taxpayer has paid at least 95 
percent of the current quarter's liability.

                             Effective Date

    The provisions reinstating the commercial air 
transportation excise taxes are effective for (1) 
transportation beginning during the period beginning seven days 
after the date of enactment and ending after September 30, 
1997, and (2) amounts paid during such period for 
transportation beginning after September 30, 1997. If the air 
transportation excise taxes are not extended for transportation 
occurring after September 30, 1997, refunds would be provided 
for any taxes paid on passenger and freight transportation 
purchased before October 1, 1997, for transportation that 
occurs at a time when the taxes are not in effect. No tax is 
imposed on any payment made before seven days after the date of 
enactment (other than certain payments for freight 
transportation made between related parties), even if the 
transportation occurs during the period beginning seven days 
after the date of enactment and ending after September 30, 
1997.
    The provisions reinstating the general aviation gasoline 
excise tax are effective for gasoline removed during the period 
beginning seven days after the date of enactment and ending 
after September 30, 1997. The provision reinstating the general 
aviation jet fuel excise tax is effective for fuels sold by 
producers during the same period. Floor stocks taxes are 
imposed on these fuels held beyond the removal or producer 
level on the date which is seven days after the date of 
enactment.
    The provisions relating to transfer of receipts to the 
Airport Trust Fund and the modification of the Treasury 
Department's excise tax deposit regulations are effective on 
the date of enactment.
    For any transportation beginning before the date of 
enactment, present law continues to apply.

                    III. BUDGET EFFECTS OF THE BILL

                         A. Committee Estimates

    In compliance with paragraph 11(a) of Rule XXVI of the 
Standing Rules of the Senate, the following statement is made 
concerning the estimated budget effects of the bill as 
reported.
    The bill, as reported, is estimated to increase net budget 
receipts by $2.7 billion for fiscal years 1997 and 1998. (See 
the following revenues table.)

Estimated Budget Effects of an Extension of the Airport and Airway Trust 
   Fund Excise Taxes Through Sept. 30, 1997; Effective tp7data DOE \1\

            [In millions of dollars; fiscal years 1997-2007]

1997.............................................................. 2,730
1998..............................................................   -54
1999....................................................................
2000....................................................................
2001....................................................................
2002....................................................................
2003....................................................................
2004....................................................................
2005....................................................................
2006....................................................................
2007....................................................................
1997-2002......................................................... 2,676
1997-2007......................................................... 2,676

\1\ tp7data DOE=tickets purchased 7 days after date of enactment for 
travel 7 days after date of enactment.

Note.--Details may not add to totals due to rounding.
---------------------------------------------------------------------------

                B. Budget Authority and Tax Expenditures

                            Budget authority

    In compliance with section 308(a)(1) of the Budget Act, the 
Committee states that the provisions of the bill as reported 
involve no new or increased budget authority.

                            Tax expenditures

    In compliance with section 308(a)(2) of the Budget Act, the 
Committee states that the provisions of the bill as reported 
involve no new or increased tax expenditures.

            C. Consultation With Congressional Budget Office

    In accordance with section 403 of the Budget Act, the 
Committee advises that the Congressional Budget Office has 
submitted the following statement on this bill:

                                     U.S. Congress,
                               Congressional Budget Office,
                                  Washington, DC, February 5, 1997.
Hon. William V. Roth, Jr.
Chairman, Committee on Finance,
U.S. Senate, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office and the 
Joint Committee on Taxation (JCT) have reviewed the ``Airport 
and Airway Trust Fund Reinstatement Act of 1997,'' as ordered 
reported by the Senate Committee on Finance on February 5, 
1997. The bill would reinstate the Airport and Airway Trust 
Fund excise taxes through September 30, 1997. The JCT estimates 
that this bill would increase governmental receipts by $2.730 
billion in fiscal year 1997 and would decrease revenues by 
$0.054 billion in fiscal year 1998. The revenue effects of the 
bill are summarized in the table below.

                 REVENUE EFFECTS OF THE AIRPORT AND AIRWAY TRUST FUND REINSTATEMENT ACT OF 1997                 
                                    [By fiscal year, in billions of dollars]                                    
----------------------------------------------------------------------------------------------------------------
                                                   1997       1998       1999       2000       2001    2002-2007
----------------------------------------------------------------------------------------------------------------
Proposed changes..............................      2.730     -0.054      0.000      0.000      0.000      0.000
----------------------------------------------------------------------------------------------------------------

    In accordance with the requirements of Public Law 104-4, 
the Unfunded Mandates Reform Act of 1995, JCT has determines 
that the bill contains an intergovernmental mandate. The 
provision to reinstate the Airport and Airway Trust Fund excise 
taxes through September 30, 1997, imposes a federal 
intergovernmental mandate because State, local, and tribal 
governments will be required to pay the requisite taxes for 
commercial air travel by their employers. JCT estimates that 
the direct costs of complying with this federal 
intergovernmental mandate will not exceed $50 million in any of 
the first five fiscal years.
    In addition, JCT has determined that the bill contains a 
federal private sector mandate. The bill would impose direct 
costs on the private sector of more than $100 million in fiscal 
year 1997. The JCT estimates the direct mandate cost of the tax 
increase in the bill would total $2,730 million in 1997, as 
shown below:

                                         FEDERAL PRIVATE SECTOR MANDATES                                        
                                    [By fiscal year, in millions of dollars]                                    
----------------------------------------------------------------------------------------------------------------
                                                              1997       1998       1999       2000       2001  
----------------------------------------------------------------------------------------------------------------
Direct cost of tax increase..............................      2,730        -54          0          0          0
----------------------------------------------------------------------------------------------------------------

    Please refer to the enclosed letter for a more detailed 
account of these mandates.
    Section 252 of the Balanced Budget and Emergency Deficit 
Control Act of 1985 sets up pay-as-you-go procedures for 
legislation affecting receipts or direct spending through 1998. 
Because the bill would affect receipts, pay-as-you-go 
procedures would apply to the bill. There effects are 
summarized in the table below.

                      PAY-AS-YOU-GO CONSIDERATIONS                      
                [By fiscal year, in millions of dollars]                
------------------------------------------------------------------------
                                         1997                1998       
------------------------------------------------------------------------
Changes in receipts.............              2,730                 -54 
Changes in outlays..............                                        
(1)Not Applicable                                                       
------------------------------------------------------------------------

    If you wish further details, please feel free to contact me 
or your staff may wish to contact Stephanie Weiner.
            Sincerely,
                                         June E. O'Neill, Director.
                                ------                                

                     Congress of the United States,
                               Joint Committee on Taxation,
                                  Washington, DC, February 5, 1997.
Mrs. June O'Neill,
Director, Congressional Budget Office,
U.S. Congress, Washington, DC.
    Dear Mrs. O'Neill: We have reviewed the provision approved 
by the Senate Finance Committee on February 5, 1997, to extend 
the Airport and Airway Trust Fund excise taxes through 
September 30, 1997. In accordance with the requirements of 
Public Law 104-4, the Unfunded Mandates Reform Act of 1995 (the 
``Unfunded Mandates Act''), we have determined that this 
provision contains Federal private sector and intergovernmental 
mandates. The attached revenue table reflects amounts that are 
no greater than the aggregate estimated amounts that the 
private sector will be required to spend in order to comply 
with the Federal private sector mandates imposed by the 
provision.
    In addition, this provision imposes a Federal 
intergovernmental mandate because State, local, and tribal 
governments will be required to pay the requisite taxes for 
commercial air travel by State, local, and tribal government 
employees. The staff of the Joint Committee on Taxation 
estimates that the direct costs of complying with this Federal 
intergovernmental mandate will not exceed $50,000,000 in either 
the first fiscal year or in any of the 4 fiscal years following 
the first fiscal year.
    If you would like to discuss this matter in further detail, 
please feel free to contact me. Thank you for your cooperation 
in this matter.
            Sincerely,
                                   Kenneth J. Kies, Chief of Staff.

                       IV. VOTE OF THE COMMITTEE

    In compliance with paragraph 7(b) of the Rule XXVI of the 
Standing Rules of the Senate, the following statement is made 
concerning the vote of the motion to report the bill. The bill 
was ordered favorably reported, without amendment, by unanimous 
voice vote on February 5, 1997, with a quorum present.
    One proposed amendment by Senator Graham to extend the 
Airport Trust Fund excise taxes through December 31, 1997 was 
defeated by voice vote.

                 V. REGULATORY IMPACT AND OTHER MATTERS

                          A. Regulatory Impact

    Pursuant to paragraph 11(b) of Rule XXVI of the Standing 
Rules of the Senate, the Committee makes the following 
statement concerning the possible regulatory impact that might 
be incurred in carrying out the bill as reported.

                  Impact on individuals and businesses

    The bill reinstates the Airport Trust Fund excise taxes 
that were in effect before January 1, 1997, for the period 
beginning seven days after the date of enactment through 
September 30, 1997. This will involve imposition and collection 
of the air passenger and air freight excise taxes by commercial 
air carriers as well as the timely remittance of the excise 
taxes to the Federal Government. Depending on whether these 
excise taxes are partially or fully passed on to consumers in 
the price, the consumers may or may not incur higher air fares 
during the tax extension period.
    Likewise, the reimposition of the excise taxes on 
noncommercial aviation may or may not result in some price 
increase on noncommercial aviation users, depending on price 
competitive factors now and since the prior taxes expired on 
January 1, 1997.

                impact on personal privacy and paperwork

    The bill as reported will have no impact on personal 
privacy. The reinstatement of the Airport Trust Fund excise 
taxes will result in the continuation of filing quarterly 
excise tax returns and semi-monthly deposits by commercial air 
carriers and by users of noncommercial aviation fuels.

              B. Information Relating to Unfunded Mandates

    This information is provided in accordance with section 423 
of the Unfunded Mandates Act of 1995 (P.L. 104-4).
    The Committee has determined that the provisions to extend 
the Airport and Airway Trust Fund excise taxes through 
September 30, 1997, impose a Federal mandate on the private 
sector and a Federal intergovernmental mandate. The costs 
required to comply with the Federal private sector mandate 
generally are no greater than the revenue estimate for the 
provisions. The provisions enable the FAA to avoid possible 
shutdown of its capital programs and to finance the agency's 
activities and programs at least through the end of the 1997 
fiscal year. The Committee believes these benefits of the 
provisions are greater than the costs required to comply with 
the Federal mandates contained in the bill.
    The provisions to reinstate the Airport and Airway Trust 
Fund taxes through September 30, 1997, impose a Federal 
intergovernmental mandate because State, local, and tribal 
governments will be required to pay the requisite excise taxes 
for commercial air travel by State, local, and tribal 
government employees. The staff of the Joint Committee on 
Taxation estimates that the direct costs of complying with this 
Federal intergovernmental mandate will not exceed $50,000,000 
in either the first fiscal year or in any one of the 4 fiscal 
years following the first fiscal year. The Committee intends 
that the Federal intergovernmental mandate be unfunded because 
the Airport and Airway Trust Fund excise taxes are intended to 
fund the maintenance of U.S. airports and airways and the 
Committee believes that it is appropriate for State, local, and 
tribal governments to bear their allocable share of the 
responsibility for such funding.
    The provisions reinstating the Airport and Airway Trust 
Fund excise taxes are imposed both on the private sector and on 
State, local, and tribal governments and, thus, do not affect 
the competitive balance between such governments and the 
private sector.

       VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

    In the opinion of the Committee, it is necessary in order 
to expedite the business of the Senate, to dispense with the 
requirements of paragraph 12 of Rule XXVI of the Standing Rules 
of the Senate (relating to the showing of changes in existing 
law made by the bill as reported by the Committee).

                                
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