[Senate Report 112-1]
[From the U.S. Government Publishing Office]


                                                        Calendar No. 10
112th Congress                                                   Report
                                 SENATE
 1st Session                                                      112-1

======================================================================



 
       AIRPORT AND AIRWAY TRUST FUND REAUTHORIZATION ACT OF 2011

                                _______
                                

               February 14, 2011.--Ordered to be printed

                                _______
                                

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

                              R E P O R T

                         [To accompany S. 340]

    The Committee on Finance, having considered an original 
bill to amend the Internal Revenue Code of 1986 to extend the 
funding and expenditure authority of the Airport and Airway 
Trust Fund, and for other purposes, reports favorably thereon 
and recommends that the bill do pass.

                                CONTENTS

                                                                   Page
 I. LEGISLATIVE BACKGROUND............................................2
II. EXPLANATION OF THE BILL...........................................2
        A. Extension of Taxes Funding the Airport and Airway 
            Trust Fund (sec. 2 of the bill and secs. 4081, 4261, 
            and 4271 of the Code)................................     2
        B. Extension of Airport and Airway Trust Fund Expenditure 
            Authority (sec. 3 of the bill and sec. 9502 of the 
            Code)................................................     3
        C. Modification of Excise Tax on Kerosene Used in 
            Aviation (sec. 4 of the bill and secs. 4081, 4082, 
            6427, 9502, and 9503 of the Code)....................     5
        D. Air Traffic Control System Modernization Account (sec. 
            5 of the bill, and sec. 9502 of the Code)............     8
        E. Treatment of Fractional Ownership Aircraft Programs 
            (sec. 6 of the bill and new sec. 4043 of the Code)...     9
        F. Termination of Exemption For Small Jet Aircraft on 
            Nonestablished Lines (sec. 7 of the bill and sec. 
            4281 of the Code)....................................    10
        G. Transparency in Passenger Tax Disclosures (sec. 8 of 
            the bill and sec. 7275 of the Code)..................    11
        H. Tax-Exempt Private Activity Bond Financing for Fixed-
            Wing Emergency Medical Aircraft (sec. 9 of the bill 
            and sec. 147(e) of the Code).........................    12
        I. Protection of Airport and Airway Trust Fund Solvency 
            (sec. 10 of the bill and sec. 9502 of the Code)......    13
III.BUDGET EFFECTS OF THE BILL.......................................13

IV. VOTES OF THE COMMITTEE...........................................16
 V. REGULATORY IMPACT AND OTHER MATTERS..............................16
VI. CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED............17

                       I. LEGISLATIVE BACKGROUND

    The taxes dedicated to the Airport and Airway Trust Fund 
generally do not apply after March 31, 2011. The Airport and 
Airway Trust Fund expenditure authority also terminates on 
March 31, 2011.
    On February 3, 2011, the Committee on Finance held hearings 
on the status of the Airport and Airway Trust Fund. The 
Committee heard from Gerald Dillingham, Director, Physical 
Infrastructure Issues, Government Accountability Office 
(``GAO''), regarding the financial condition of the Airport and 
Airway Trust Fund.\1\ That testimony indicated that for fiscal 
year 2010, FAA expenditures totaled roughly $15.5 billion, with 
the Airport and Airway Trust Fund covering approximately $10.2 
billion, or 66 percent of those expenditures. The GAO testimony 
indicated that the FAA's investment in NextGen, the new 
satellite-based air traffic management system is expected to be 
between $11 billion to $12 billion through 2018 and that FAA 
plans call for building or expanding runways at the nation's 35 
busiest airports to handle the additional capacity associated 
with NextGen.
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    \1\Government Accountability Office, Airport and Airway Trust Fund: 
Declining Balance Raises Concerns Over Ability to Meet Future Demands 
(February 3, 2011).
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    In addition, the GAO testimony indicated that the 
uncommitted balance of the Airport and Airway Trust Fund has 
declined significantly in recent years, from $7.35 billion in 
fiscal year 2001 to just $770 million in fiscal year 2010. The 
testimony suggested that, in light of the decline in the 
uncommitted balance, better matching of actual revenues to the 
appropriation from the Trust Fund would help ensure that Trust 
Fund revenues are sufficient to cover the obligations that FAA 
has authority to incur. One approach suggested by the GAO 
testimony would be to appropriate less than 100 percent of the 
forecasted revenues.
    The Senate Committee on Finance marked up an original bill, 
S. 340 (the ``Airport and Airway Trust Fund Reauthorization Act 
of 2011'') on February 8, 2011, and, with a majority and quorum 
present, ordered the bill favorably reported on that date. This 
report describes the provisions of the bill.

                      II. EXPLANATION OF THE BILL


    A. Extension of Taxes Funding the Airport and Airway Trust Fund


(Sec. 2 of the bill and secs. 4081, 4261, and 4271 of the Code\2\)
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    \2\All references to section numbers are to the Internal Revenue 
Code of 1986, as amended (the ``Code'') unless otherwise indicated.
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                              PRESENT LAW

    Excise taxes are imposed on amounts paid for commercial air 
passenger and freight transportation and on fuels used in 
commercial and noncommercial (i.e., transportation that is not 
``for hire'') aviation to fund the Airport and Airway Trust 
Fund. The present aviation excise taxes are as follows:

------------------------------------------------------------------------
          Tax (and Code section)                      Tax rates
------------------------------------------------------------------------
    Domestic air passengers (sec. 4261)...  7.5 percent of fare, plus
                                             $3.70 (2011) per domestic
                                             flight segment
                                             generally.\3\
    International travel facilities tax     $16.30 (2011) per arrival or
     (sec. 4261).                            departure.\4\
    Amounts paid for right to award free    7.5 percent of amount paid.
     or reduced rate passenger air
     transportation (sec. 4261).
    Air cargo (freight) transportation      6.25 percent of amount
     (sec. 4271).                            charged for domestic
                                             transportation; no tax on
                                             international cargo
                                             transportation.
Aviation fuels (sec. 4081):\5\
    Commercial aviation...................  4.3 cents per gallon.
    Non-commercial (general) aviation:
        Aviation gasoline                   19.3 cents per gallon.
        Jet fuel                            21.8 cents per gallon.
------------------------------------------------------------------------
\3\The domestic flight segment portion of the tax is adjusted annually
  (effective each January 1) for inflation (adjustments based on the
  changes in the consumer price index (the ``CPI'')).
\4\The international travel facilities tax rate is adjusted annually for
  inflation (measured by changes in the CPI).
\5\Like most other taxable motor fuels, aviation fuels are subject to an
  additional 0.1-cent-per-gallon excise tax to fund the Leaking
  Underground Storage Tank (``LUST'') Trust Fund.

    All Airport and Airway Trust Fund excise taxes, except for 
4.3 cents per gallon of the taxes on aviation fuels, are 
scheduled to expire after March 31, 2011. The 4.3-cents-per-
gallon fuels tax rate is permanent.

                           REASONS FOR CHANGE

    To ensure an uninterrupted funding source, the Committee 
believes it is appropriate to extend further the taxes that 
finance the Airport and Airway Trust Fund.

                        EXPLANATION OF PROVISION

    The provision extends the present-law Airport and Airway 
Trust Fund excise taxes through September 30, 2013.

                             EFFECTIVE DATE

    The provision takes effect on April 1, 2011.

  B. Extension of Airport and Airway Trust Fund Expenditure Authority


(Sec. 3 of the bill and sec. 9502 of the Code)

                              PRESENT LAW

In general

    The Airport and Airway Trust Fund was created in 1970 to 
finance a major portion of Federal expenditures on national 
aviation programs. Operation of the Airport and Airway Trust 
Fund is governed by the Code and authorizing statutes. The Code 
provisions govern deposit of revenues into the trust fund 
approve the use of trust fund money (as provided by 
appropriation acts) for expenditure purposes in authorizing 
statutes as in effect on the date of enactment of the latest 
authorizing Act. The authorizing acts provide specific trust 
fund expenditure programs and purposes.
    Authorized expenditures from the Airport and Airway Trust 
Fund include the following principal programs:
    1. Airport Improvement Program (``AIP'') (airport planning, 
construction, noise compatibility programs, and safety 
projects);
    2. Facilities and Equipment (``F&E'') program (costs of 
acquiring, establishing, and improving the air traffic control 
facilities);
    3. Research, Engineering, and Development (``RED'') program 
(FAA research and development activities);
    4. FAA Operations and Maintenance (``O&M'') programs; and
    5. Certain other aviation-related programs specified in 
authorizing acts.
    Part of the O&M programs is financed from General Fund 
monies as well. Of the total FAA appropriations, the General 
Fund contribution has ranged from 15 to 24 percent in recent 
years.\6\
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    \6\Congressional Budget Office, Financing Federal Aviation 
Programs: Statement of Robert A. Sunshine before the House Committee on 
Ways and Means (May 7, 2009) at 3.
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Limits on Airport and Airway Trust Fund expenditures

    No expenditures are currently permitted to be made from the 
Airport and Airway Trust Fund after March 31, 2011. Because the 
purposes for which Airport and Airway Trust Fund monies are 
permitted to be expended are fixed as of the date of enactment 
of the Airport and Airway Extension Act of 2010, Part IV, the 
Code must be amended to authorize new Airport and Airway Trust 
Fund expenditure purposes. In addition, the Code contains a 
specific enforcement provision to prevent expenditure of 
Airport and Airway Trust Fund monies for purposes not 
authorized under section 9502. Should such unapproved 
expenditures occur, no further aviation excise tax receipts 
will be transferred to the Airport and Airway Trust Fund. 
Rather, the aviation taxes would continue to be imposed, but 
the receipts would be retained in the General Fund.

                           REASONS FOR CHANGE

    The Committee believes that reauthorizing the Airport and 
Airway Trust Fund expenditure authority will support jobs 
throughout the aviation industry, such as financing airport 
construction projects across the country. Reauthorizing the FAA 
legislation and making investments to modernize the air traffic 
control system is estimated to create 280,000 jobs in airports 
throughout the country.

                        EXPLANATION OF PROVISION

    The provision authorizes expenditures from the Airport and 
Airway Trust Fund through September 30, 2013. The provision 
also amends the list of authorizing statutes to include the 
``FAA Air Transportation Modernization and Safety Improvement 
Act,'' which sets forth aviation program expenditure purposes 
through September 30, 2013.

                             EFFECTIVE DATE

    The provision takes effect on April 1, 2011.

       C. Modification of Excise Tax on Kerosene Used in Aviation


(Sec. 4 of the bill and secs. 4081, 4082, 6427, 9502, and 9503 of the 
        Code)

                              PRESENT LAW

In general

    Under section 4081, an excise tax is imposed upon (1) the 
removal of any taxable fuel from a refinery or terminal,\7\ (2) 
the entry of any taxable fuel into the United States, or (3) 
the sale of any taxable fuel to any person who is not 
registered with the IRS to receive untaxed fuel, unless there 
was a prior taxable removal or entry.\8\ The tax does not apply 
to any removal or entry of taxable fuel transferred in bulk by 
pipeline or vessel to a terminal or refinery if the person 
removing or entering the taxable fuel, the operator of such 
pipeline or vessel (excluding deep draft vessels), and the 
operator of such terminal or refinery are registered with the 
Secretary.\9\ If the bulk transfer exception applies, tax is 
not imposed until the fuel ``breaks bulk,'' i.e., when it is 
removed from the terminal, typically by rail car or truck, for 
delivery to a smaller wholesale facility or retail outlet, or 
removed directly from the terminal into the fuel tank of an 
aircraft.\10\
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    \7\A ``terminal'' is a taxable fuel storage and distribution 
facility that is supplied by pipeline or vessel and from which taxable 
fuel may be removed at a rack. A ``rack'' is a mechanism capable of 
delivering taxable fuel into a means of transport other than a pipeline 
or vessel. A terminal can be located at an airport, or fuel may be 
delivered to the airport from a terminal located off the airport 
grounds.
    \8\Sec. 4081(a)(1).
    \9\Sec. 4081(a)(1)(B).
    \10\In general, the party liable for payment of the taxes when the 
fuel breaks bulk at the terminal is the ``position holder,'' the person 
shown on the records of the terminal facility as holding the inventory 
position in the fuel. However, when fuel is removed directly into the 
fuel tank of an aircraft for use in commercial aviation, the person who 
uses the fuel is liable for the tax. The fuel is treated as used when 
such fuel is removed into the fuel tank. Sec. 4081(a)(4).
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    The term ``taxable fuel'' means gasoline, diesel fuel 
(including any liquid, other than gasoline, that is suitable 
for use as a fuel in a diesel-powered highway vehicle or 
train), and kerosene.\11\ The term includes kerosene used in 
aviation (jet fuel) as well as aviation gasoline.
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    \11\Sec. 4083(a).
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    Section 4041(c) provides a back-up tax for liquids (other 
than aviation gasoline) that are sold for use as a fuel in 
aircraft and that have not been previously taxed under section 
4081.

Kerosene for use in aviation

            In general
    Present law generally imposes a total tax of 24.4 cents per 
gallon on kerosene. However, reduced rates apply for kerosene 
removed directly from a terminal into the fuel tank of an 
aircraft.\12\ For kerosene removed directly from a terminal 
into the fuel tank of an aircraft for use in commercial 
aviation, the tax rate is 4.4 cents per gallon.\13\ For 
kerosene removed directly from a terminal into the fuel tank of 
an aircraft for use in noncommercial aviation, the tax rate is 
21.9 cents per gallon. All of these tax rates include 0.1 cent 
per gallon for the Leaking Underground Storage Tank Trust Fund. 
For kerosene removed directly from a terminal into the fuel 
tank of an aircraft for an exempt use (such as for the 
exclusive use of a State or local government), generally only 
the Leaking Underground Storage Tank Trust Fund tax of 0.1 cent 
per gallon applies.
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    \12\If certain conditions are met, present law permits the removal 
of kerosene from a refueler truck, tanker, or tank wagon to be treated 
as a removal from a terminal for purposes of determining whether 
kerosene is removed directly into the fuel tank of an aircraft. A 
refueler truck, tanker, or tank wagon is treated as part of a terminal 
if: (1) the terminal is located within an airport; (2) any kerosene 
which is loaded in such truck, tanker, or wagon at such terminal is for 
delivery only into aircraft at the airport in which such terminal is 
located; and (3) no vehicle licensed for highway use is loaded with 
kerosene at such terminal, except in exigent circumstances identified 
by the Secretary in regulations. To qualify for the special rule, a 
refueler truck, tanker, or tank wagon must: (1) have storage tanks, 
hose, and coupling equipment designed and used for the purposes of 
fueling aircraft; (2) not be registered for highway use; and (3) be 
operated by the terminal operator (who operates the terminal rack from 
which the fuel is unloaded) or by a person that makes a daily 
accounting to such terminal operator of each delivery of fuel from such 
truck, tanker, or tank wagon. Sec. 4081(a)(3).
    \13\Tax is imposed at this rate if the commercial aircraft operator 
is registered with the Internal Revenue Service (``IRS''), and the fuel 
terminal is located within a secured area of an airport. The IRS has 
identified airports with secured areas in which a terminal is located. 
See Notice 2005-4, 2005-1 C.B. 289, at sec. 4(d)(2)(ii) (2005) and 
Notice 2005-80, 2005-2 C.B. 953, at sec. 3(c)(2) (2005). If the fuel 
terminal is located at an unsecured airport, the fuel is taxed at 21.9 
cents per gallon if the fuel is removed directly from the terminal into 
the fuel tank of an aircraft.
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    ``Commercial aviation'' generally means any use of an 
aircraft in the business of transporting by air persons or 
property for compensation or hire.\14\ Commercial aviation does 
not include transportation exempt from the ticket taxes and air 
cargo taxes by reason of sections 4281 or 4282 or by reason of 
section 4261(h) or 4261(i). Thus, small aircraft operating on 
nonestablished lines (sec. 4281), air transportation for 
affiliated group members (sec. 4282), air transportation for 
skydiving (sec. 4261(h)), and certain air transportation by 
seaplane (sec. 4261(i)) are excluded from the definition of 
commercial aviation, and accordingly are subject to the tax 
regime applicable to noncommercial aviation.
---------------------------------------------------------------------------
    \14\Sec. 4083(b).
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            Refunds and credits to obtain the appropriate aviation tax 
                    rate
    If the kerosene is not removed directly into the fuel tank 
of an aircraft, the fuel is taxed at 24.4 cents per gallon, the 
rate applied to diesel fuel and kerosene used in highway 
vehicles. A claim for credit or payment may be made for the 
difference between the tax paid and the appropriate aviation 
rate (21.9 cents per gallon for noncommercial aviation, 4.4 
cents per gallon for commercial aviation, and 0.1 cent per 
gallon for an exempt use).\15\
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    \15\Sec. 6427(l)(4).
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    For noncommercial aviation, other than for exempt use, only 
the registered ultimate vendor may make the claim for the 2.5-
cent-per-gallon difference between the 24.4 cents per gallon 
rate and the noncommercial aviation rate of 21.9 cents per 
gallon.\16\ For commercial aviation and exempt use (other than 
State and local government use), the ultimate purchaser may 
make a claim for the difference in tax rates, or the ultimate 
purchaser may waive the right to make the claim for payment to 
the ultimate vendor.\17\ For State and local government use, 
the registered ultimate vendor is the proper claimant.\18\
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    \16\Sec. 6427(l)(4)(C)(ii).
    \17\Sec. 6427(l)(4)(C)(i).
    \18\See sec. 6427(l)(5). Special rules apply if the kerosene is 
purchased with a credit card issued to a State or local government.
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    Commercial aviation claimants are permitted to credit their 
fuel tax claims against their other excise tax liabilities, 
thereby reducing the amount of excise tax to be paid with the 
excise tax return.
            Transfers between the Highway Trust Fund and the Airport 
                    and Airway Trust Fund to account for aviation use
    Kerosene that is not removed directly from the terminal 
into an airplane (e.g., the jet fuel is transferred from the 
terminal by highway vehicle to the airport) is taxed at the 
highway fuel rate of 24.4 cents per gallon. The Highway Trust 
Fund is credited with 24.3 cents per gallon of the 24.4 cents 
per gallon imposed. The remaining 0.1 cent is credited to the 
Leaking Underground Storage Tank Trust Fund. If a claim for 
payment is later made indicating that the fuel was used in 
aviation, the Secretary then transfers to the Airport and 
Airway Trust Fund 4.3 cents per gallon for commercial aviation 
use and 21.8 cents per gallon for noncommercial aviation use. 
These transfers initially are based on estimates, and proper 
adjustments are made in amounts subsequently transferred to the 
extent prior estimates were in excess of, or less than, the 
amounts required to be transferred. Thus, to the extent claims 
for credit or payment are not made for the difference between 
the highway rate and the aviation rate, the Airport and Airway 
Trust Fund will not be credited for fuel used in aviation that 
was taxed at the 24.4 cents per gallon rate.

Aviation gasoline

    The tax on aviation gasoline is 19.4 cents per gallon 
(including a 0.1 cent per gallon Leaking Underground Storage 
Tank Trust Fund component). If aviation gasoline is used in 
commercial aviation, the ultimate purchaser may obtain a credit 
or payment in the amount of 15 cents per gallon, such that the 
tax rate on such gasoline is 4.4 cents per gallon.\19\ If 
aviation gasoline is sold for an exempt use, a credit or refund 
is allowable for all but the Leaking Underground Storage Tank 
Trust Fund tax (0.1 cent per gallon).\20\
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    \19\Sec. 6421(f)(2).
    \20\Sec. 6416(a); sec. 6420 (farming purposes); sec. 6421(c); and 
sec. 6430.
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                           REASONS FOR CHANGE

    The Committee believes that modernization of the air 
traffic control system must be adequately funded and that all 
aircraft making use of FAA resources should bear an appropriate 
share of the cost. The Committee has provided for an increase 
in the taxes imposed on aviation-grade kerosene used in 
noncommercial aviation to help provide the resources needed to 
fund the modernization of the air traffic control system.

                        EXPLANATION OF PROVISION

    The provision creates a separate category of kerosene for 
tax purposes: aviation-grade kerosene.\21\ Aviation-grade 
kerosene is taxed at 35.9 cents per gallon plus 0.1 cent per 
gallon for the Leaking Underground Storage Tank Trust Fund. 
Under the provision, aviation-grade kerosene used in 
noncommercial aviation will be taxed at the full rate. The rate 
of tax for aviation-grade kerosene used in commercial aviation 
and exempt use remains unchanged.\22\
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    \21\Aviation-grade kerosene means, as defined by the IRS, kerosene-
type jet fuel covered by ASTM specification D1655, or military 
specification MIL-DTL-5624 (Grade JP-5), or MIL-DTL-83133E (Grade JP-
8). See section 4(b) of Notice 2005-4.
    \22\Accordingly, commercial aviation use will continue to be 
subject to a tax of 4.4 cents per gallon and exempt use will be subject 
to 0.1 cent per gallon.
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    Because the tax on aviation-grade kerosene used in 
noncommercial aviation is equal to the full rate of tax 
collected, the provision repeals the ultimate vendor refund 
provisions for noncommercial aviation. In addition, the 
provision eliminates the inter-fund transfers from the Highway 
Trust Fund to the Airport and Airway Trust Fund for kerosene 
used in aviation. Instead, the taxes imposed on aviation-grade 
kerosene will be credited to the Airport and Airway Trust Fund 
only.\23\ The provision also provides a refund mechanism for 
aviation-grade kerosene used for a taxable purpose other than 
in an aircraft.
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    \23\The 0.1 per gallon will continue to be transferred to the 
Leaking Underground Storage Tank Trust Fund.
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    In the case of aviation-grade kerosene held on April 1, 
2011, by any person, a floor stocks tax is imposed equal to the 
tax that would have been imposed if the increased rates had 
been in effect before such date less the tax actually imposed 
on such fuel. The tax is to be paid at such time and in such 
manner as the Secretary shall prescribe.
    The floor stocks tax does not apply to fuel held 
exclusively for any use to the extent a refund or credit of tax 
is allowable under the Code. The floor stocks tax does not 
apply if the amount of fuel held by a person does not exceed 
2,000 gallons.
    For purposes of the floor stocks tax, a controlled group is 
treated as one person. ``Controlled group'' for these purposes 
means a parent-subsidiary, brother-sister, or combined 
corporate group with more than 50-percent ownership with 
respect to either combined voting power or total value. Under 
regulations, similar principles may apply to a group of persons 
under common control where one or more persons are not a 
corporation.
    All provisions of law, including penalties, applicable with 
respect to the taxes imposed by section 4081 also apply to the 
floor stocks taxes to the extent not inconsistent with the 
provisions of the provision. For purposes of determining 
receipts to the Airport and Airway Trust Fund, the floor stocks 
tax is treated as if it were a tax listed in section 9502(b)(1) 
(governing transfers of tax receipts to the Airport and Airway 
Trust Fund).

                             EFFECTIVE DATE

    The provision is generally effective for fuel removed, 
entered, or sold after March 31, 2011. The floor stocks tax is 
effective April 1, 2011.

          D. Air Traffic Control System Modernization Account


(Sec. 5 of the bill, and sec. 9502 of the Code)

                              PRESENT LAW

    Under present law, there is no special sub-account of the 
Airport and Airway Trust Fund to which funds are dedicated for 
air traffic control system modernization.

                           REASONS FOR CHANGE

    The Committee is concerned with the congestion at our 
airports and in our airways. The Committee believes that action 
must be taken to address increasing air travel delays, 
passenger frustrations, and safety concerns. Given these 
concerns, the Committee believes it is important to set aside 
specific funds within the Airport and Airway Trust Fund for air 
traffic control system modernization so that this important 
work can move forward.

                        EXPLANATION OF PROVISION

    The provision creates an Air Traffic Control System 
Modernization Account (``Modernization sub-account'') within 
the Airport and Airway Trust Fund to ensure sufficient funding 
is provided for modernization of the air traffic control 
system. The Modernization sub-account is supported through 
annual transfers of $400 million from the Airport and Airway 
Trust Fund that are attributable to the taxes on aviation-grade 
kerosene. The funds are available, subject to appropriation, 
for expenditures relating to the modernization of the air 
traffic control system. Use of the funds also may include 
facility and equipment account expenditures.

                             EFFECTIVE DATE

    The provision is effective on the date of enactment.

         E. Treatment of Fractional Ownership Aircraft Programs


(Sec. 6 of the bill and new sec. 4043 of the Code)

                              PRESENT LAW

    For excise tax purposes, fractional ownership aircraft 
flights are treated as commercial aviation. As commercial 
aviation, for 2011, such flights are subject to the ad valorem 
tax of 7.5 percent of the amount paid for the transportation, a 
$3.70 segment tax, and tax of 4.4 cents per gallon on fuel. For 
international flights, fractional ownership flights pay the 
$16.30 international travel facilities tax.
    For purposes of the FAA safety regulations, fractional 
ownership aircraft programs are treated as a special category 
of general aviation.\24\
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    \24\14 C.F.R. Part 91, subpart k.
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                           REASONS FOR CHANGE

    The Committee notes that the IRS and FAA classify flights 
on aircraft that are part of a fractional ownership program 
differently. Under the FAA safety regulations, such flights are 
considered general aviation, while the IRS classifies such 
flights as commercial aviation for tax purposes. The Committee 
wishes to make clear that fractional flights should be 
considered as noncommercial aviation for tax purposes. In 
keeping with the Committee's view that the burden of funding a 
modernized system should be broadly shared, the Committee 
believes it is appropriate to subject such flights to the 
increased fuel taxes applicable to noncommercial aviation 
provided by the bill (35.9 cents per gallon), as well as an 
additional fuel surtax of 14.1 cents per gallon.

                        EXPLANATION OF PROVISION

    Under the provision, transportation as part of a fractional 
ownership aircraft program is not classified as commercial 
aviation for Federal excise tax purposes. Instead, such flights 
would be subject to the increased Airport and Airway Trust Fund 
fuel tax rate for noncommercial aviation and an additional fuel 
surtax of 14.1 cents per gallon. For this purpose, a 
``fractional ownership aircraft program'' is defined as a 
program in which:
           A single fractional ownership program 
        manager provides fractional ownership program 
        management services on behalf of the fractional owners;
           Two or more airworthy aircraft are part of 
        the program;
           There are one or more fractional owners per 
        program aircraft, with at least one program aircraft 
        having more than one owner;
           Each fractional owner possesses at least a 
        minimum fractional ownership interest in one or more 
        program aircraft;\25\
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    \25\A ``minimum fractional ownership interest'' means: (1) A 
fractional ownership interest equal to or greater than one-sixteenth 
(1/16) of at least one subsonic, fixed wing or powered lift program 
aircraft; or (2) a fractional ownership interest equal to, or greater 
than one-thirty-second (1/32) of a least one rotorcraft program 
aircraft. A ``fractional ownership interest'' is (1) the ownership 
interest in a program aircraft; (2) the holding of a multi-year 
leasehold interest in a program aircraft; or (3) the holding of a 
multi-year leasehold interest that is convertible into an ownership 
interest in a program aircraft.
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           There exists a dry-lease aircraft exchange 
        arrangement among all of the fractional owners;\26\ and
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    \26\A ``dry-lease aircraft exchange'' means an arrangement, 
documented by the written program agreements, under which the program 
aircraft are available, on an as-needed basis without crew, to each 
fractional owner.
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           There are multi-year program agreements 
        covering the fractional ownership, fractional ownership 
        program management services, and dry-lease aircraft 
        exchange aspects of the program.
    The fuel taxes are dedicated to the Airport and Airway 
Trust Fund. Consistent with the general extension of the taxes 
dedicated to the Airport and Airway Trust Fund, the provision 
sunsets September 30, 2013.

                             EFFECTIVE DATE

    The provision is effective for taxable transportation 
provided after, and fuel used after, March 31, 2011.

 F. Termination of Exemption for Small Jet Aircraft on Nonestablished 
                                 Lines


(Sec. 7 of the bill and sec. 4281 of the Code)

                              PRESENT LAW

    Under present law, transportation by aircraft with a 
certificated maximum takeoff weight of 6,000 pounds or less is 
exempt from the excise taxes imposed on the transportation of 
persons by air and the transportation of cargo by air when 
operating on a nonestablished line. Similarly, when such 
aircraft are operating on a flight for the sole purpose of 
sightseeing, the taxes imposed on the transportation or persons 
or cargo by air do not apply.

                           REASONS FOR CHANGE

    The present-law tax exemption for small aircraft operating 
on nonestablished lines does not reflect the technological 
advances allowing for the construction of lightweight jet 
aircraft. The Committee believes that such aircraft use FAA 
resources and utilize facilities receiving assistance from the 
Airport and Airway Trust Fund. Consistent with the intent of 
the bill that all aircraft making use of FAA resources bear an 
appropriate share of the cost, the Committee finds that it is 
proper to remove jet aircraft from this exemption.

                        EXPLANATION OF PROVISION

    The provision repeals the exemption as it applies to 
turbine engine powered aircraft (jet aircraft).

                             EFFECTIVE DATE

    The provision is effective for transportation provided 
after March 31, 2011.

              G. Transparency in Passenger Tax Disclosures


(Sec. 8 of the bill and sec. 7275 of the Code)

                              PRESENT LAW

    Transportation providers are subject to special penalties 
relating to the disclosure of the amount of the passenger taxes 
on tickets and in advertising. The ticket is required to show 
the total amount paid for such transportation and the tax. The 
same requirements apply to advertisements. In addition, if the 
advertising separately states the amount to be paid for the 
transportation or the amount of taxes, the total shall be 
stated at lease as prominently as the more prominently stated 
of the tax or the amount paid for transportation. Failure to 
satisfy these disclosure requirements is a misdemeanor, upon 
conviction of which the guilty party is fined not more than 
$100 per violation.\27\
---------------------------------------------------------------------------
    \27\Sec. 7275.
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    There is no prohibition against airlines including other 
charges in the required passenger taxes disclosure (e.g., fuel 
surcharges retained by the commercial airline). In practice, 
some but not all airlines include such other charges in the 
required passenger taxes disclosure.

                           REASONS FOR CHANGE

    The Committee believes that separating charges payable to a 
government entity from those paid to a transportation provider 
will reduce confusion on the part of consumers.

                        EXPLANATION OF PROVISION

    The provision prohibits all transportation providers from 
including amounts other than the passenger taxes imposed by 
section 4261 in the required disclosure of passenger taxes on 
tickets and in advertising when the amount of such tax is 
separately stated. Disclosure elsewhere on tickets and in 
advertising (e.g., as an amount paid for transportation) of 
non-tax charges is allowed.

                             EFFECTIVE DATE

    The provision is effective for transportation provided 
after March 31, 2011.

H. Tax-Exempt Private Activity Bond Financing for Fixed-Wing Emergency 
                            Medical Aircraft


(Sec. 9 of the bill and sec. 147(e) of the Code)

                              PRESENT LAW

    Interest on bonds issued by State and local governments 
generally is excluded from gross income for Federal income tax 
purposes.\28\ Bonds issued by State and local governments may 
be classified as either governmental bonds or private activity 
bonds. Governmental bonds are bonds the proceeds of which are 
primarily used to finance governmental functions or which are 
repaid with governmental funds. In general, private activity 
bonds are bonds in which the State or local government serves 
as a conduit providing financing to nongovernmental persons 
(e.g., private businesses or individuals).\29\ The exclusion 
from income for State and local bonds does not apply to private 
activity bonds, unless the bonds are issued for certain 
permitted purposes (``qualified bonds'') and other Code 
requirements are met.\30\
---------------------------------------------------------------------------
    \28\Sec. 103(a).
    \29\See sec. 141 defining ``private activity bond.''
    \30\See sec. 103(b) and sec. 141(e).
---------------------------------------------------------------------------
    Section 147(e) of the Code provides, in part, that a 
private activity bond is not a qualified bond if issued as part 
of an issue and any portion of the proceeds of such issue is 
used for airplanes.\31\ The Internal Revenue Service has ruled 
that a helicopter is not an ``airplane'' for purposes of 
section 147(e).\32\
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    \31\Other prohibited facilities include any skybox, or other 
private luxury box, health club facility, facility primarily used for 
gambling, or store the principal business of which is the sale of 
alcoholic beverages for consumption off premises. Sec. 147(e).
    \32\Rev. Rul. 2003-116, 2003-46 I.R.B. 1083, 2003-2 C.B. 1083 
(November 17, 2003) (released: October 29, 2003).
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    A fixed-wing aircraft providing air transportation for 
emergency medical services and that is equipped for, and 
exclusively dedicated on that flight to, acute care emergency 
medical services is exempt from the air transportation excise 
taxes imposed by sections 4261 and 4271.\33\
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    \33\Sec. 4261(g)(2).
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                           REASONS FOR CHANGE

    The Committee believes it is appropriate to correct the 
disparity by which tax-exempt bond financing may be used for 
helicopters providing emergency medical care but not for 
airplanes.

                        EXPLANATION OF PROVISION

    The provision amends section 147(e) so that the prohibition 
on the use of proceeds for airplanes does not apply to any 
fixed-wing aircraft equipped for, and exclusively dedicated to, 
providing acute care emergency medical services (within the 
meaning of section 4261(g)(2)).

                             EFFECTIVE DATE

    The provision is effective for obligations issued after the 
date of enactment.

        I. Protection of Airport and Airway Trust Fund Solvency


(Sec. 10 of the bill and sec. 9502 of the Code)

                              PRESENT LAW

    The uncommitted cash balance in the Airport and Airway 
Trust Fund has declined significantly in recent years. At the 
end of Fiscal Year 2001, the uncommitted cash balance was $7.3 
billion. At the end of Fiscal Year 2010, the balance was 
approximately $770 million.\34\
---------------------------------------------------------------------------
    \34\Government Accountability Office, Airport and Airway Trust 
Fund: Declining Balance Raises Concerns Over Ability to Meet Future 
Demands (February 3, 2011) at p. 5.
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    The current statutory formula requires that estimated 
Airport and Airway Trust Fund receipts each year must equal 
trust fund expenditures. However, amounts appropriated from the 
Airport and Airway Trust Fund are based on revenue receipt 
projections and have exceeded the amounts actually deposited 
into the Airport and Airway Trust Fund, resulting in declines 
in the uncommitted cash balance.

                           REASONS FOR CHANGE

    The FAA's fiscal year appropriation from the Airport and 
Airway Trust Fund is based on the forecasted level of trust 
fund revenues, including interest on trust fund balances, 
projected for the coming fiscal year. Each year's forecast is 
based on information available in the first quarter of the 
preceding fiscal year. Thus, if the forecast is overly 
optimistic and revenues fall short of the forecast for that 
fiscal year, the appropriation to spend from the trust fund 
will exceed revenues actually deposited. This provision will 
provide for the long-term fiscal health of the trust fund by 
providing that only 90 percent of the forecasted revenues for a 
given fiscal year are made available for appropriation.

                        EXPLANATION OF PROVISION

    The provision amends section 9502 to limit the budgetary 
resources initially made available each fiscal year from the 
Airport and Airway Trust Fund to 90 percent, rather than 100 
percent, of forecasted revenues for that year.

                             EFFECTIVE DATE

    The provision is effective for fiscal years 2012 and 2013.

                    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 revenue 
provisions of the ``Airport and Airway Trust Fund 
Reauthorization Act of 2011,'' as reported.

                         ESTIMATED REVENUE EFFECTS OF THE ``AIRPORT AND AIRWAY TRUST FUND REAUTHORIZATION ACT OF 2011,'' AS REPORTED BY THE SENATE COMMITTEE ON FINANCE
                                                                        [Fiscal Years 2011-2021, in millions of dollars]
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
               Provision                        Effective          2011    2012    2013    2014    2015    2016    2017    2018    2019    2020    2021    2011-15   2011-16   2011-20   2011-21
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
1. Extension of taxes funding Airport                    4/1/11                                                          No revenue effect
 and Airway Trust Fund (sunset 9/30/13)
2. Extension of Airport and Airway                       4/1/11                                                          No revenue effect
 Trust Fund expenditure authority
 (sunset 9/30/13)......................
3. Modification of excise tax on                 freosa 3/31/11       25      56      58       2  ......  ......  ......  ......  ......  ......  ......       141       141       141       141
 kerosene used in aviation (sunset 9/30/
 13) (35.9 cpg for noncommercial
 aviation).............................
4. Air Traffic Control System                               DOE                                       Estimate to be provided by Congressional Budget Office
 Modernization Account.................
5. Treatment of fractional ownership              fua 3/31/11 &        2      31      22      -4  ......  ......  ......  ......  ......  ......  ......        51        51        51        51
 aircraft program (treated as                      ttpa 3/31/11
 noncommercial aviation: 35.9 cpg fuel
 tax, plus 14.1 cpg fuel surtax,
 exemption from taxes on commercial
 aviation) (sunset 9/30/13)............
6. Termination of exemption for small              ttpa 3/31/11    (\1\)       1       1       1       1       1       1       1       1       2       2         4         6        10        13
 jet aircraft operated on
 nonestablished lines or for
 sightseeing...........................
7. Transparency in passenger tax                   ttpa 3/31/11                                                      Negligible revenue effect
 disclosures...........................
8. Tax-exempt bond financing for fixed-                 oia DOE    (\2\)   (\2\)      -1      -1      -2      -2      -3      -3      -4      -5      -5        -4        -6       -21       -26
 wing emergency medical aircraft.......
9. Protection of Airport and Airway                fyba 9/30/11                                                          No revenue effect
 Trust Fund Solvency...................
                                                                 -------------------------------------------------------------------------------------------------------------------------------
    NET TOTAL..........................  .......................      27      88      80      -2      -1      -1      -2      -2      -3      -3      -3       192       192       181       179
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
NOTE: Details may not add to totals due to rounding. Date of enactment is assumed to be March I, 2011.
Source: Joint Committee on Taxation.
(\1\) Gain of less than $500,000.
(\2\) Loss of less than $500,000.
Legend for ``Effective'' column: DOE = date of enactment; freosa = fuels removed, entered, or sold after; fua = fuel used after; fyba = fiscal years beginning after; oia = obligations issued
  after; ttpa = taxable transportation provided after.

                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 do 
not involve new or increased budget authority.

Tax expenditures

    In compliance with section 308(a)(2) of the Budget Act, the 
Committee states that the revenue-reducing provisions of the 
bill involve increased tax expenditures (see revenue table in 
Part A., above). The revenue-increasing provisions of the bill 
involve reduced tax expenditures (see revenue table in part A, 
above).

            C. Consultation With Congressional Budget Office

    In accordance with section 403 of the Budget Act, the 
Committee advises that the Congressional Budget Office has not 
submitted a statement on the bill. The letter from the 
Congressional Budget Office has not been received, and 
therefore will be provided separately.

                       IV. VOTES OF THE COMMITTEE

    In compliance with paragraph 7(b) of Rule XXVI of the 
standing rules of the Senate, the Committee states that, with a 
majority and quorum present, the ``Airport and Airway Trust 
Fund Reauthorization Act of 2011,'' was ordered favorably 
reported by voice vote on February 8, 2011.

                 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 regulatory impact that might be 
incurred in carrying out the provisions of the bill as amended.

Impact on individuals and businesses, personal privacy and paperwork

    The bill increases the tax on aviation-grade kerosene for 
noncommercial aviation, and removes flights by jet aircraft 
from the exemption for small aircraft operating on 
nonestablished lines, which may cause such flights to be 
subject to the air passenger and air cargo excise taxes. For 
individuals and businesses engaged in activities subject to 
these taxes, the provisions should not result in additional 
recordkeeping responsibilities beyond that required for present 
law. The provisions increasing revenues to the Airport and 
Airway Trust Fund will fund improvements to the air traffic 
control system from which individuals and businesses using such 
system will benefit. The bill does not have any impact on 
personal privacy.

                     B. Unfunded Mandates Statement

    This information is provided in accordance with section 423 
of the Unfunded Mandates Reform Act of 1995 (Pub. L. No. 104-
4).
    The Committee has determined that the bill contains no 
unfunded mandates. The tax provisions of the reported bill do 
not impose a Federal intergovernmental mandate on State, local, 
or tribal governments within the meaning of Public Law 104-4, 
the Unfunded Mandates Reform Act of 1995.

                       C. Tax Complexity Analysis

    Section 4022(b) of the Internal Revenue Service 
Restructuring and Reform Act of 1998 (the ``IRS Reform Act'') 
requires the Joint Committee on Taxation (in consultation with 
the Internal Revenue Service and the Department of the 
Treasury) to provide a tax complexity analysis. The complexity 
analysis is required for all legislation reported by the Senate 
Committee on Finance, the House Committee on Ways and Means, or 
any committee of conference if the legislation includes a 
provision that directly or indirectly amends the Internal 
Revenue Code (the ``Code'') and has widespread applicability to 
individuals or small businesses.
    The staff of the Joint Committee on Taxation has determined 
that a complexity analysis is not required under section 
4022(b) of the IRS Reform Act because the bill contains no 
provisions that have ``widespread applicability'' to 
individuals or small businesses.

       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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