Tax proposal estimated to cost state $4 million
The measure would give a tax break on fuel for airlines within the islands
A tax break for airlines flying within the state should cost less than $4 million, not the nearly $30 million estimated by the state Tax Department, an attorney representing one of the airlines said.
Ronald Sakamoto, an attorney representing Aloha Airlines, said accounting discrepancies caused the state to over-estimate the amount of taxable aviation fuel sold in the state.
The proposal, House Bill 487, exempts from the general excise and use tax the fuel bought by airlines flying within the state, such as Aloha and Hawaiian airlines.
A spokesman for the Tax Department, Jason Healey, said their estimates were based on the amount of fuel taxes collected and based on the reported sale of aviation fuel.
"We are assuming that fuel sold through the foreign trade zone would not be taxed and therefore would not be reported. So only the reported income would be for interstate travel," Healey said.
Sakamoto, however, said at least one of the two refineries, Tesoro, had been reporting to the tax department all fuel sold, not just the fuel sold for interstate travel. Healey said he would have to recheck the figures sent in from the refineries before revising his estimates.
Aviation fuel in Hawaii is now stored in Hawaii Fueling Facilities Corp. tanks, which are located in a foreign trade zone, and exempt from general excise and fuel taxes. The refineries are also located in foreign trade zones. But, without the proposed exemption, fuel sold for local consumption is subject to state taxes.
Senate Transportation Chairwoman Lorraine Inouye (D, Hilo-Honokaa) said she is asking her committee to approve the measure and send it to the Senate Ways and Means Committee.
Hawaiian and Aloha are asking for the tax break because the rising price of fuel is hurting the airlines, both of which just emerged from bankruptcy protection.
David Arakawa, Hawaiian senior vice president, said every penny change in the price of fuel affects Hawaiian's bottom line by $1.1 million a year.
"For the first time in history, the price of fuel has replaced labor as the largest single operating cost for airlines," Arakawa said.
Stephanie Ackerman, senior vice president for Aloha, said the bill "will assist Aloha in controlling costs in a time of exceedingly high fuel prices."
Aloha says the bill would save $1.9 million in taxes and Hawaiian says it would save $1.2 million.