At a recent transportation infrastructure summit, proponents of extending North Carolina’s tax break on jet fuel continued to argue that Charlotte must remain competitive for American Airlines.
Even without a special handout, American Airlines is getting one of the best deals in the country when it flies through Charlotte. The Charlotte Airport Governance Study, commissioned by the City of Charlotte in 2013, found that Charlotte Douglas International Airport had the lowest cost per enplaned passenger (CPE) of all top 25 U.S. airports.
CPE is the industry standard for comparing airline costs at different airports and evaluating airport competitiveness in attracting airlines.
In addition to a low CPE, North Carolina is one of only six states that only taxes airlines on the fuel used within the state. That means airlines only pay taxes on the fuel used from takeoff until they leave North Carolina state boundaries.
This additional tax exemption – not currently at risk of ending – is worth an estimated $27 million per year in addition to the estimated $15.5 million tax break that only American Airlines gets from the sales tax cap on jet fuel. Only the special handout for American Airlines is set to expire on January 1, 2016.
American Airlines’ special tax break was passed by lawmakers when the airline – then US Airways – was struggling, in part due to rising fuel prices. A decade later, fuel prices have plummeted. American Airlines reported record profits of $4.2 billion in 2014. The global airline industry expects $25 billion in profit in 2015.
Last month, Georgia lawmakers responded to the changing airline industry by passing legislation to end a lucrative tax break Delta Air Lines has enjoyed on jet fuel. Both Georgia and North Carolina originally passed temporary exemptions in 2005.
The special treatment of American Airlines means that North Carolina is giving the airline an unfair advantage over its competitors – a lower effective tax rate than any other airline in the state.
American Airlines has said that if lawmakers let its special handout expire, North Carolina will be the fifth most expensive state to buy fuel. That is inaccurate. Factoring in the tax break for out of state fuel use lowers the effective jet fuel rate for airlines significantly. This additional estimated $27 million tax break from which all airlines currently benefit will keep North Carolina competitive even if the American Airlines handout expires.
Lawmakers are right to let this special handout, which was always meant to be temporary, expire.
Adam Yalowitz is a Research Analyst with 12billion.org, a first-of-its-kind research project to look at state and local tax breaks airlines receive on their jet fuel purchases.
