Is domestic (non-bonded) jet fuel sold to a commercial airline for international flights exempt from Colorado tax the way fully tax-exempt bonded jet fuel is?

Plain-English summary

A jet fuel supplier asked whether it could sell domestic (non-bonded) jet fuel to a commercial airline for use strictly on international flights and treat it like bonded jet fuel, which is fully exempt from all taxes. The supplier's concern was practical: bonded fuel had become scarce, and it wanted to substitute ordinary domestic fuel without losing the tax break.

The Department declined to give a yes-or-no answer, but it laid out how the two taxes interact. Colorado exempts specially blended kerosene and other fuel products from its fuel excise tax if (1) they are exempt from federal aviation fuel taxes and (2) they are used in aircraft operated by scheduled air carriers or commuter airline operators (§ 39-27-101(12), C.R.S.). Fuel used for foreign trade is generally exempt from the federal excise tax — but the federal exemption comes with strings, such as rules requiring bonded fuel from secured facilities. The Department said it was "not in a position" to know whether the federal government would extend that exemption to non-bonded fuel used on international flights.

The crucial twist is what happens if the fuel does qualify for the excise exemption: "If the fuel is exempt from Colorado excise tax, then it is subject to sales taxes." In other words, escaping the fuel excise tax does not make the fuel tax-free — it flips the sale into the sales-tax system instead. Bonded fuel is fully exempt from everything; non-bonded fuel is not the same animal. Airlines that paid state fuel excise tax on transactions they believe were exempt may apply to the Department for a refund.

What this means for you

Fuel suppliers and distributors

Don't assume domestic fuel burned on international flights gets bonded-fuel treatment. The excise exemption hinges on the federal treatment of that specific fuel, which the Department wouldn't confirm. And even a successful excise exemption isn't a clean win — it pushes the sale into sales tax. Map both taxes before you re-price a substitution.

Commercial airlines

If you paid Colorado fuel excise tax on fuel you believe qualified for the exemption, you can file for a refund with the Department. But weigh the offset: an excise-exempt fuel becomes subject to sales tax, so the net benefit may be smaller than the excise refund alone suggests.

Accountants and tax professionals

The takeaway is the excise-vs-sales interaction: the two are not redundant. § 39-27-101(12) ties Colorado's excise exemption to the federal aviation-fuel exemption and to carrier type, and the moment fuel leaves the excise base it can enter the sales base. Because this is a GIL the Department made no determination; a binding answer requires a private letter ruling (and a fee) under Reg. 24-35-103.5.

Common questions

Q: Is domestic jet fuel for international flights exempt from Colorado tax?
A: The Department wouldn't say for sure. It might be exempt from the fuel excise tax if the federal government exempts that non-bonded fuel and a scheduled/commuter carrier uses it — but if it is excise-exempt, it then becomes subject to sales tax. Bonded fuel, by contrast, is fully exempt from all taxes.

Q: Why would an exemption make the fuel taxable?
A: Colorado's fuel excise tax and its sales tax are separate systems. The excise exemption only removes the excise tax; the Department stated that fuel exempt from Colorado excise tax "is subject to sales taxes." So the question isn't "taxed or not" — it's "which tax."

Q: We already paid state excise tax — can we get it back?
A: The letter says airlines that paid state fuel excise tax and believe the transactions were exempt "may apply to the Department for a refund." Keep in mind a refunded excise transaction may then owe sales tax.

Q: Can I rely on this letter for my own fuel sales?
A: No. This is a General Information Letter — a general good-faith discussion that makes no specific determination and binds no one. For an answer you can rely on, request a private letter ruling under Reg. 24-35-103.5.

Citations and references

Statutes:
- § 39-27-101(12), C.R.S. — exempts specially blended kerosene and other fuel products from Colorado fuel excise tax if exempt from federal aviation fuel taxes and used in aircraft operated by scheduled air carriers or commuter airline operators

Department procedure:
- Reg. 24-35-103.5 (general information letters vs. private letter rulings)

Related Colorado rulings (jet fuel / federal excise on fuel):
- [[gil-14-003-domestic-jet-fuel-used-in-international-flights]]
- [[gil-14-004-sales-taxability-of-federal-excise-tax-on-jet-fuel-sales]]
- [[gil-15-014-sales-taxability-of-federal-excise-tax-on-aviation-fuel-later-refunded]]
- [[plr-21-007-sales-tax-on-shredded-tires-and-railroad-ties-used-as-alternative-fuel]]

Source

• Landing page: https://tax.colorado.gov/sales-use-tax-letter-rulings
• Original PDF: https://tax.colorado.gov/sites/tax/files/documents/GIL-13-019.pdf

Original ruling text

Office of Tax Policy
P.O. Box 17087
Denver, CO 80217-0087
[email protected]

GIL-13-019
May 28, 2013
XXXXXXXXXXXXXXX
Attn: XXXXXXXXXXX
XXXXXXXXXXXXXXX
XXXXXXXXXXXXXXX
XXXXXXXXXXXXXXX
Re: Sale of Domestic Jet Fuel for Commercial International Flights
Dear XXXXXXXXX,
You submitted on behalf of XXXXXXXXXXXX (“Company”) a request for guidance to determine
the applicability of Colorado taxes on the sale of domestic jet fuel to a commercial airline who
uses the domestic jet fuel strictly for international flights.
The Colorado Department of Revenue (“Department”) issues general information letters and private
letter rulings. A general information letter provides a general overview of the relevant tax issues
and is not binding on the Department. A private letter ruling provides a specific determination for a
specific set of facts, is binding on the Department but not on the taxpayer, and requires payment of
a fee. For more information about general information letters and private letter rulings, please see
Department regulation 24-35-103.5 at www.colorado.gov/revenue/tax > Tax Library > Rulings.
The Department initially treats your request as one of a general information letter. If you would like
the Department to issue a private letter ruling on the issues you raise, you can resubmit a request
and fee in compliance with regulation 24-35-103.5. It is important to remember that general
information letters, such as this one, are general discussions of tax law and are not a determination
of the tax consequence of any particular action or inaction.
Issue
Can the sale of domestic jet fuel used strictly for commercial international flights have similar tax
treatment of bonded jet fuel that is fully exempt from all taxes?
Background
The available supply of bonded jet fuel is becoming scarce and very difficult to find in a steady
supply and volume. Therefore, Company asserts that it would be beneficial to the petroleum
industry, airline industry and the public to supply domestic jet fuel that is exempt from tax to the
airline industry for use in international flights.

Discussion
Colorado exempts from its fuel excise tax specially blended kerosene and other fuel products if they
are exempt from federal aviation fuel taxes and used in aircraft operated by scheduled air carriers
or commuter airline operators.1 In general, blended kerosene fuel and aviation gasoline are exempt
from the federal excise tax on fuel if the fuel is used for foreign trade. However, there are several
federal requirements that such carriers and operators must meet in order to qualify for the federal
exemption, such as requirements governing the use of bonded fuel from secured facilities. We are
not in a position at this time to know whether the federal government will exempt from federal
excise taxes non-bonded fuels used for international flights. Airlines who pay state excise tax and
believe that the transactions were exempt from state fuel excise tax may apply to the Department
for a refund. If the fuel is exempt from Colorado excise tax, then it is subject to sales taxes.
Miscellaneous
This letter represents the good faith opinion of Department personnel who are knowledgeable on
state taxes issues. However, the Department does not make a specific determination here on any
of the issues raised and the Department is not bound by this general information letter.
The Department administers state and state-administered local sales and use taxes. This letter
does not address sales and use taxes administered by home-rule cities and home-rule counties.
You may wish to consult with local governments which administer their own sales or use taxes
about the applicability of those taxes. Visit our web site at www.colorado.gov/revenue/tax for more
information about state and local sales taxes.
Enclosed is a redacted version of this letter. Pursuant to statute and regulation, this redacted letter
will be made public within 60 days of the date of this letter. Please let me know in writing within that
60 day period whether you have any suggestions or concerns about this redacted letter.
Sincerely,
Office of Tax Policy
Colorado Department of Revenue

1

§39-27-101(12), C.R.S.

2