Can an airline get a refund of Colorado sales tax on jet fuel it buys (and fuels up) in Colorado but burns on international flights?

Plain-English summary

A commercial airline asked whether it could get a refund of Colorado sales tax on domestic jet fuel it buys in Colorado but uses on international flights. (Previously, bonded foreign fuel used on international flights was exempt — but the fuel company at Denver International Airport de-bonded its fuel effective November 1, 2013, so no bonded fuel was available.)

The Department's answer: no — the sales tax stands, and there's no refund.

The reasoning:

• Aviation fuel for commercial carriers is exempt from Colorado excise fuel tax, and fuel that's exempt from the excise tax is subject to sales tax instead. So the airline owes sales tax on its fuel.
• The sale occurs in Colorado. A sale happens where possession or ownership passes to the buyer, and the fuel is delivered into the aircraft's tanks in Colorado. The airline also has substantial physical presence in the state. So Colorado may tax the sale.
• Sales tax is transactional. Events after the sale generally don't change the liability fixed at the time of the transaction. A buyer who takes possession in Colorado owes the tax even if it later moves or consumes the goods outside Colorado.
• Two related exemptions don't fit: (1) the out-of-state-delivery exemption (buyer takes delivery and uses the property outside Colorado) fails because the airline takes the fuel in Colorado; (2) the federally-prohibited-tax exemption doesn't help because courts read the Commerce Clause and Foreign Commerce Clause to allow state sales tax when the sale occurs in the taxing state (citing Shell Oil Co. v. Director of Revenue (Mo. 1987) and Wardair Canada Inc. v. Florida Dept. of Revenue, 477 U.S. 1 (1986)).

So Colorado sales tax applies to fuel sold in Colorado to commercial airlines even if the fuel is later used for international flights.

What this means for you

Airlines and aviation businesses

If you fuel up in Colorado, you owe Colorado sales tax on that jet fuel — and you can't refund it by pointing to where the flight goes. The tax attaches at the pump in Colorado, where possession passes. The only ways out are a genuine out-of-state delivery (you take and use the fuel outside Colorado) or a now-unavailable bonded-foreign-fuel posture.

Fuel suppliers

The place of delivery controls. Fuel delivered into tanks in Colorado is an in-state sale subject to sales tax regardless of the flight's destination or where the contract was made.

Accountants and tax professionals

This is the transactional-tax doctrine applied to mobile goods: liability fixes at the passing of possession (Rule 39-26-102.10; Rule 39-26-704.2), and subsequent out-of-state use doesn't unwind it. Excise-exempt aviation fuel falls to sales tax (§ 39-26-715(1)(a)(I)). The dormant Commerce/Foreign Commerce Clause arguments fail for intrastate sales (Shell Oil; Wardair, 477 U.S. 1). Pairs with the FET-on-jet-fuel direct-vs-indirect analysis in [[gil-14-004-sales-taxability-of-federal-excise-tax-on-jet-fuel-sales]] and the refundable-FET exception in [[gil-15-014-sales-taxability-of-federal-excise-tax-on-aviation-fuel-later-refunded]].

Common questions

Q: Can an airline get a Colorado sales tax refund on fuel used for international flights?
A: No. The Department concluded the sales tax is owed where the fuel is pumped into the aircraft in Colorado, and later use on an international flight doesn't create a refund.

Q: Why is the fuel subject to sales tax at all?
A: Aviation fuel for commercial carriers is exempt from Colorado excise fuel tax, and excise-exempt fuel is instead subject to sales tax.

Q: Doesn't the Foreign Commerce Clause bar taxing fuel for international flights?
A: No. Courts have held states may tax a sale that occurs within the state, even if the fuel is later used in foreign or interstate commerce (Shell Oil; Wardair).

Q: What about the bonded-fuel exemption?
A: Bonded foreign fuel used on international flights had been exempt, but DIA's fuel was de-bonded as of November 1, 2013, so no bonded fuel was available for this airline.

Q: Can I rely on this letter?
A: No. A General Information Letter is general guidance, is not binding on the Department, and makes no determination on any specific facts. It also doesn't cover self-collected home-rule city taxes.

Citations and references

Statutes:
- § 39-27-102(1)(a)(IV)(B), C.R.S. (aviation fuel for commercial carriers exempt from excise fuel tax)
- §§ 39-26-104(1)(a), 39-26-715(1)(a)(I), C.R.S. (excise-exempt fuel subject to sales tax)
- § 39-26-102(9), C.R.S. (retail sale includes all sales within the state)

Rules:
- 1 CCR 201-4, Department Rule 39-26-102.10 (sale occurs when possession or ownership passes)
- 1 CCR 201-4, Department Rule 39-26-704.2 (in-state delivery taxable regardless of ultimate destination)
- Department Rule 24-35-103.5 (GIL / PLR procedure)

Cases:
- Shell Oil Co. v. Director of Revenue, 732 S.W.2d 178 (Mo. 1987)
- Wardair Canada Inc. v. Florida Dept. of Revenue, 477 U.S. 1 (1986)

Source

• Landing page: Colorado Sales & Use Tax Letter Rulings
• Original PDF: GIL-14-003.pdf

Original ruling text

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

GIL-14-003
January 23, 2014
XXXXXXXXXXXXX
ATTN: XXXXXXXX
Re: Domestic Jet Fuel Used in International Flights
Dear XXXXXXXXXX,
You submitted on behalf of XXXXXXXXXXX (“Company”) a request for guidance to determine
whether airlines that purchase domestic fuel for international flights will be eligible for a refund
of the sales taxes paid.
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 Rule 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 Rule 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
Are airlines that purchase domestic fuel for international flights eligible for a refund of the sales taxes
paid?
Background
Company makes the following representations. Bonded jet fuel, which originates from another
country, enters into the United States through a free trade zone area under bond. Bonded jet fuel is
considered foreign merchandise outside the authority of U.S. commerce unless it is sold for
domestic use. Bonded jet fuel used in international flights is treated as exempt from Colorado sales
taxes. However, no foreign crude oil is being imported into Denver International Airport and the fuel
company at DIA de-bonded their fuel effective November 1, 2013. Therefore, there is no available
bonded fuel for international flights.

Discussion
Fuel used in commercial aviation is exempt from Colorado excise tax.1 Fuel that is exempt
from excise tax is subject to sales tax.2 In general, Colorado has authority to levy sales tax on
sales that occur in Colorado.3 A sale occurs when either possession or ownership passes to
the buyer.4 Company operates a commercial airline and has substantial physical presence in
Colorado. The fuel is delivered to Company into the tanks of its aircraft in Colorado. Thus,
based on the limited information we have, the sale of fuel occurs in Colorado.
Sales tax is a tax on transactions. Events that occur subsequent to the sale generally do not
alter the sales tax liability created at the time of the transaction.5 For example, a buyer located
in Colorado incurs sales tax liability if it takes possession or ownership in Colorado, even
though the buyer later moves the goods outside Colorado or consumes the goods outside
Colorado.6
There are two sales tax exemptions that are related to the issue you raise, but neither applies
to the specific facts you have described. First, Colorado exempts transactions when the buyer
takes delivery of the goods outside Colorado and uses the property outside Colorado.7 This
does not appear to be the case in the facts you provided because Company takes possession
of the fuel in Colorado.
Colorado also exempts property that the United States Constitution or federal law prohibits the
state from taxing.8 For example, the Commerce Clause and Foreign Commerce Clause of the
Constitution place restrictions on Colorado’s authority to levy taxes on interstate and foreign
commerce. However, neither of these prohibitions applies to the transactions at issue here.
Courts have interpreted these clauses not to prohibit imposition of state sales taxes when the
events that constitute the sale occur in the taxing state. For example, in Shell Oil Company v
Director of Revenue (Missouri), 732 S.W.2d 178 (Mo. 1987), the Missouri Supreme Court
dismissed a claim by a fuel retailer who argued that the Commerce Clause prohibited states
from levying sales tax on fuel sold to commercial airlines for interstate flights. The Court held
that states have the right to tax transactions that occur within their boundaries and the sale and
delivery of the fuel occurred in the taxing state. (“Since this Court has found the sale(s) to be
intrastate in character, this challenge [base on the Commerce Clause] evaporates.”)

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§39-27-102(1)(IV)(B), C.R.S. This statute, as well as department regulations and other publications, can be
viewed at www.Colorado.org/revenue/tax > Taxes > Tax Library.
§§39-26-104(1)(a) and 715(1)(a) (I), C.R.S.
§39-26-102(9), C.R.S. (“A retail sale includes all sales within the state …”); 39-26-104(1)(a), C.R.S. (Sales tax is
applied to all retail sales.)
Department Rule 39-26-102.10.
See. Department General Information Letter (GIL) 07-033 citing Southern California Edison Co. v. State Board of
Equalization, 7 Cal 3d 652 102 Cal Rptr 766, 498 P2d 1014 (1972) (retailer not entitled to sales tax refund for a
price adjustment made subsequent to sale and based on damages paid by retailer to purchaser). General
information letters, regulations, and other department publications can be viewed at
www.Colorado.gov/revenue/taxes > Tax Library.
See, Department rule 39-26-704.2(3) (“Sales of tangible personal property located within this state at the time of
sale and delivered within this stat6e are taxable, irrespective of the ultimate destination of the property sold, ore
where the parties to the contract of sale are located, or where the contract was made or accepted or the funds
paid.”)
See, Department Rule 39-26-704.2(4).
See, Department Rule 39-26-704.2(1).

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Similarly, in Wardair Can Inc. v. Florida Department of Revenue, 477 US 1 (1986), the
Supreme Court rejected a claim that the Foreign Commerce Clause and other federal law
prohibited states from levying a sales tax on fuel used by commercial airlines for international
flights.
For these reasons, Colorado sales tax applies to fuel sold in Colorado to commercial airlines
even if the fuel is later used for international flights.
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

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