Code Section 4043
| Code Section | Effective Date | Name of Act | Name of Provision | 10yr Revenue Estimate ($millions) |
|---|---|---|---|---|
| 4043 | 3/31/2012 | FAA Modernization and Reform Act of 2012 | Treatment of Fractional Ownership Aircraft Program Flights | 138 |
Treatment of Fractional Ownership Aircraft Program Flights
Explanation of Provision
The Act provides an exemption, through September 30, 2021, from the commercial aviation taxes (secs. 4261, 4271 and the 4.4 cents-per-gallon tax on fuel) for certain fractional aircraft program flights. In place of the commercial aviation taxes, the Act applies a fuel surtax to certain flights made as part of a fractional ownership program.
Through September 30, 2021, these flights are treated as noncommercial aviation, subject to the fuel surtax and the base fuel tax for fuel used in noncommercial aviation.193 Specifically, the additional fuel surtax of 14.1 cents per gallon will apply to fuel used in a fractional program aircraft (1) for the transportation of a qualified fractional owner with respect to the fractional aircraft program of which such aircraft is a part, and (2) with respect to the use of such aircraft on the account of such a qualified owner. Such use includes positioning flights (flights in deadhead service).194 Through September 30, 2021, the commercial aviation taxes do not apply to fractional program aircraft uses subject to the fuel surtax. Under the Act, flight demonstration, maintenance, and crew training flights by a fractional program aircraft are excluded from the fuel surtax and are subject to the noncommercial aviation fuel tax only.195 The fuel surtax of 14.1 cents per gallon sunsets September 30, 2021.
A ‘‘fractional program aircraft’’ means, with respect to any fractional ownership aircraft program, any aircraft which is listed as a fractional program aircraft in the management specifications issued to the manager of such program by the Federal Aviation Administration under subpart K of part 91 of title 14, Code of Federal Regulations and is registered in the United States.
A ‘‘fractional ownership aircraft program’’ is a program under which:
• A single fractional ownership program manager provides fractional ownership program management services on behalf of the fractional owners;
• There are one or more fractional owners per program aircraft, with at least one program aircraft having more than one owner;
• With respect to at least two fractional program aircraft, none of the ownership interests in such aircraft can be less than the minimum fractional ownership interest, or held by the program manager;
• There exists a dry-lease aircraft exchange arrangement among all of the fractional owners; and
• 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 term ‘‘qualified fractional owner’’ means any fractional owner that has a minimum fractional ownership interest in at least one fractional program aircraft. 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 at 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 or a multi-year leasehold interest that is convertible into an ownership interest in a program aircraft. A ‘‘fractional owner’’ means a person owning any interest (including the entire interest) in a fractional program aircraft.
Amounts equivalent to the revenues from the fuel surtax are dedicated to the Airport and Airway Trust Fund.
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193- No inference is intended as to the treatment of these flights as noncommercial aviation under present law.
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194- A flight in deadhead service is presumed subject to the fuel surtax unless the costs for such flight are separately billed to a person other than a qualified owner. For example, if the costs associated with a positioning flight of a fractional program aircraft are separately billed to a person chartering the aircraft, that positioning flight is treated as commercial aviation.
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195- It is the understanding of the conferees that a prospective purchaser does not pay any amount for transportation by demonstration flights, and that if an amount were paid for the flight, the flight would be subject to the commercial aviation taxes and not treated as noncommercial aviation.
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