Which airport fuel fees could a vendor exclude from taxable gross receipts: into-plane facility charges or business-permit fees?

Plain-English summary

An airline asked whether airport fuel-flow charges passed through on its vendor's invoice were taxable. An August letter initially treated them as taxable overhead based on an assumption about who the airport charged and why.

After reviewing the actual airport resolutions, the October clarification separated two types of fees:

• Charges for use of airport fuel-delivery facilities in making final delivery could be excluded under section 6012(c)(7) when separately stated and no greater than the vendor's cost.
• Charges imposed on permittees for the right to conduct business and deliver petroleum products at the airport were costs of doing business and remained taxable even if separately stated.

The opinion added that delivery in the vendor's own facilities would require a reasonable charge for transportation after the sale to qualify.

Source-history note

The official PDF includes an August 28, 1990 letter based on incomplete assumptions and an October 25, 1990 clarification based on the airport resolutions. This page follows the later analysis.

Citations and references

• California Revenue and Taxation Code section 6012(c)(7) (as cited)
• California Business Taxes Law Guide Annotation 295.1820 dated September 5, 1974 — as cited; August 28 letter literally prints 99/5/74, while later correspondence and the live source use September 5, 1974; supporting opinion not supplied
• Los Angeles Department of Airports Resolutions 15146, 15147, and 15715 — described and reviewed; copies said to be enclosed with the September correspondence but not included in the official PDF
• October 25, 1989 airline letter, December 6, 1989 Board response, July 26, 1990 president's letter received August 14, August 28 assumption-based Board response, September 24 Fuel and Tax Manager letter, and September 27 Assistant Controller letter — letters and attachments, except the two Board responses preserved in the PDF, not reproduced
• November 18, 1986 Donald Hennessy memorandum concluding that separately stated into-plane fees were not taxable — memorandum described as attached to the September 24 letter but not reproduced in the official PDF
• Airport flow fees, one-, three-, five- and fifteen-cent-per-gallon charges, fuel and lubricant deliveries, signatory-air-carrier exclusions, fuel-delivery permits and licenses, vendor invoices, weekly airport payments, and separately stated into-plane charges — airport agreements, permits, licenses, fuel records, invoices, payment records, and cost records not reproduced in the official PDF
• October 25, 1990 clarification distinguishing fuel-delivery-facility charges from business-right charges and copied to the Fuel and Tax Manager — no airline or vendor reply, invoice adjustment, tax refund, audit, assessment, agency adoption, appeal, or later outcome supplied
• Official Annotation 295.1335's resolution terms, fee rates, signatory-carrier exceptions, final-delivery and business-right distinctions, August 28 and October 25, 1990 dates — annotation omits the earlier correspondence chain, August assumptions and correction process, Resolution 15147's irrelevance, October 1989 invoice statement, November 1986 memorandum, literal 99/5/74 typo, missing resolutions and transaction records, later outcome, and reliance status and supplies no additional proceeding record

Source

• Annotated Legal Opinions collection: https://cdtfa.ca.gov/taxes-and-fees/annotations-menu.htm
• Annotation page: https://cdtfa.ca.gov/lawguides/vol2/suta/295-0000-all.html
• Original supporting opinion: https://cdtfa.ca.gov/lawguides/annotations/295-1335.pdf

Original ruling text

295.1335

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
1020 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 445-5550

August 28, 1990

Mr. W. J--- L--President
U--- E--XXXX East --- Road
---, -- XXXXX-XXXX
Re:

S--- A--- Inc.
SJ – XX-XXXXXX

Dear Mr. L---:
This is in response to your letter which we received on August 14, 1990 regarding the measure of sales tax on your purchases of fuel. At the current time, you operated out of --- as a non-signatory airline, that is, as a scheduled itinerant. Until you become a signatory airline at ---, the airport imposes two fuel fees which are usually described as flow fees. One fee is three cents per gallon as a fuel delivery charge. The other fee is apparently one cent per gallon and is an into-plane fueling charge. These fees appear as a single item on the vendor’s invoice. The vendor would then pay the airport weekly. After reviewing my letter to you dated December 6, 1989 and upon reading Business Taxes Law Guide Annotation 295.1820 99/5/74), you suspect the flow fees are subject to state, local, and district taxes. You ask whether your suspicion is correct. Annotation 295.1820 provides that fees collected by a port which are passed on to the customer as part of the sale are includable in the seller’s gross receipts. That is, the port charged the seller certain fees and, rather than simply including that cost in a single sales price as with its other overhead costs, the seller separately stated that cost on its invoice to the purchaser. The transaction about which you inquire appears similar to the one involved in the annotation. It appears that the airport is charging your vendor certain fees, and your vendor separately states the overhead cost on its invoice to you. If this is the case, the airport fees are part of your vendor’s costs of business recovered as part of its sales price of fuel to you and are includable in your vendor’s taxable gross receipts.

Mr. W. J--- L---

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August 28, 1990
295.1335

Our conclusion that the fees are includable in the seller’s taxable gross receipts is based on the understanding that the airport is charging your vendor the flow fees, and your vendor reimburses itself by separately stating these fees to you. If our understanding is incorrect, you may wish to write us again with further information. Sincerely,

David H. Levine
Senior Tax Counsel

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295.1335

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION
1020 N STREET, SACRAMENTO, CALIFORNIA
(P.O. BOX 942879, SACRAMENTO, CALIFORNIA 94279-0001)
(916) 445-5550

October 25, 1990

Mr. J--- E. M--Assistant Controller
U--- E--XXXX East --- Road
---, -- XXXXX-XXXX
Re:

S--- A---, Inc.
SJ – XX-XXXXXX

Dear Mr. M---:
This is in response to your letter dated September 27, 1990 and a letter dated September 24, 1990 from your Fuel and Tax Manager J--- B---. Your president, W. J--- L---, wrote us a letter dated July 26, 1990 asking whether certain fees imposed by the L--- A--- D--- of A--- (L---) were included in the measure of tax with respect to your purchases of fuel. Mr. L--- believed that these fees were subject to tax but asked for confirmation. In my letter dated August 28, 1990, I stated that this transaction appeared similar to the transaction involved in Annotation 295.1820, which was cited by Mr. L-. Thus, I concluded that the fees were includable in the seller’s taxable gross receipts, but I noted that this was based on the understanding that L--- charged your vendor these fees and your vendor reimbursed itself by separately stating the fees to you. You state that you are absolutely positively convinced that both fees are subject to sales tax. Nevertheless, you ask for a more certain decision than set forth in my previous letter. To this end, you have enclosed copies of L--- Resolutions 15146, 15147, and 15715. Initially, I note that Resolution 15147 does not involve flow fees and does not appear to relate to the sale of fuel. It therefore does not appear relevant to this discussion. Resolution 15146 establishes license requirements and fees to airlines and other companies providing contract and/or into-plane fueling services. A licensee must pay one cent per gallon for all fuel placed into any aircraft. In addition, if a licensee elects to provide into-plane fueling services as an agent for an oil company that does not have a valid fuel delivery permit, the licensee pays five cents per gallon for all aviation gasoline delivered and input into aircraft at the airport. These fees do not apply when the services are provided to signatory air carriers whose operating agreements with the airport provide that no such fees shall be imposed. The fees imposed by Resolution 15146 with respect to fuel delivered into aircraft appeared to be charges for use of the

Mr. J--- E. M---

-2-

October 25, 1990
295.1335

airport’s fuel delivery facilities. As such, when the fuel vendor separately states these charges in an amount that does not exceed the cost to the vendor, these amounts are excludable from the vendor’s measure of sales tax. (Rev. & Tax. Code § 6012(c)(7).) Resolution 15715 provides for the issuance of permits to conduct business at the airport to oil companies and others supplying petroleum products to tenants and users of the airport. Permittees pay three cents per gallon for all fuel delivered to the airport and fifteen cents per gallon for all lubricants delivered to the airport. Fuel and lubricants supplied to a signatory air carrier are excluded from these charges. These fees are not for transportation to the purchaser, but rather are charges for the right to conduct business at the airport. These charges are costs of doing business by the permittees and is therefore not excludable from the measure of tax. The fact that the vendors may choose to separately state such charges on their billings has no effect on the application of tax. Mr. B---’s letter refers to a letter written to us by Mr. L--- dated October 25, 1989. Mr. L--had indicated that C--- included the amount of into-plane fees in the measure of tax. (Since Mr. L--did not inquire about this statement, my letter did not address this specific issue.) Mr. B--- now believes that Mr. L---’s statement was wrong. He has reviewed a C--- invoice and concluded that C--- did not charge tax on the into-plane fees which were separately stated. Mr. B--- included a copy of a memorandum from Senior Tax Counsel Donald Hennessy dated November 18, 1986, in which Mr. Hennessy concluded that separately stated into-plane fees are not subject to sales tax. You ask us what our position is now. Our position has not changed. When the into-plane charge satisfies the requirements of subdivision (c)(7) of Revenue and Taxation Code section 6012, the into-plane charges are excludable from the measure of tax. For example, as mentioned above, my understanding of Resolution 15146 is that the fees are for use of the airport’s facilities in making final delivery of fuel. When the vendor separately states that charge in an amount not exceeding the amount charged by the airport, the charge is for transportation which is excludable from the vendor’s measure of tax. On the other hand, if the charge by C--- had been for delivery in its own facilities, it would not be excludable unless it was a reasonable charge for delivery after the sale. If you have further questions, feel free to write again. Sincerely,

David H. Levine
Senior Tax Counsel

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cc:
Mr. J--- B---