NC loses $10 million from airlines’ tax break, union report says

A tax break on jet fuel costs North Carolina $10 million in revenue every year, a union that represents thousands of airport workers said Tuesday as it kicked off a new push to end such tax breaks.

Unite Here said in its report that tax exemptions cost states a total of $1 billion a year in lost revenue. The airlines’ main advocacy group countered that airlines are already overtaxed and that tax breaks create jobs and help grow air service.

The group is highlighting North Carolina, where American Airlines is pushing for an extension on a sales tax cap that saves the carrier millions of dollars annually. Airlines operating in the state are refunded for fuel taxes they pay beyond $2.5 million a year. The biggest beneficiary is American, which operates its second-busiest hub at Charlotte Douglas International Airport, with 650 flights a day.

The sales tax cap is set to expire at the beginning of 2016. If the cap isn’t extended and if Mecklenburg voters enact an additional quarter-cent sales tax, meant to benefit education, American contends its expenses would increase even more.

Unite Here, a union that represents 33,000 airport concession and airline catering employees, launched a push Tuesday to draw attention to the cost of fuel sales tax breaks. The union has sparred with airlines and airports over wages.

“For ordinary taxpayers who have to drive to work, they’re paying 37 cents a gallon on their gas,” said report author Adam Yalowitz. “The airlines are paying a fraction of that.”

At a time when airlines have added fees for checked bags and increased the cost to change tickets, Yalowitz said such tax breaks are especially egregious.

The group is highlighting North Carolina and Michigan, where the legislature is considering enacting a tax break that could save airlines an additional $27 million. To calculate the cost to states, Yalowitz said the group talked to tax officials, used states’ estimates of the value of tax breaks, used publicly available fuel purchase data and examined each state’s tax code.

A spokeswoman for American declined to comment, referring to a presentation by Charlotte-based lobbyist Tracy Montross two weeks ago in which she laid out the airline’s position on sales taxes.

“North Carolina needs to be competitive for air service and airline investment,” Montross said during an interview after her presentation to the Charlotte Rotary Club. “We are working on exempting the sales tax on jet fuel permanently through legislation. Until that is in place, any increase in the sales tax impacts our services.”

Airlines for America, the main airline lobbying group, blasted Unite Here and the fuel tax study.

“It’s unfathomable that an organization that purports to represent the interests of labor would advocate for any business, whose financial well-being directly impacts its employees, to pay higher taxes,” said spokesman Vaughn Jennings.

“States that have a lower tax burden on airline jet fuel do so because they recognize that despite these hefty tax burdens, the industry helps create 11 million U.S. jobs,” said Jennings. He also said it’s “inherently unfair” for the government to tax both airfares and the components that go into airfares, such as jet fuel.

South Carolina exempts jet fuel from sales tax, which the union estimated costs the state $13.6 million a year. Other states see much higher losses through such tax breaks: Washington loses $123 million, New York loses $115 million, and California loses $384 million, the union estimated.

In Texas, where American operates its biggest hub at Dallas/Fort Worth, jet fuel isn’t taxed. The union didn’t estimate how much revenue that state loses.

Airlines are no strangers to fights over taxes. Industry executives argue that airlines are overtaxed. Airlines for America estimates that 21 percent of the cost of a $300 ticket goes to taxes. Airlines are also pushing for a new measure that would let them list the cost of a ticket without taxes included. Consumer advocates have said that would be deceptive.

Fuel taxes have been at issue in other states. Chicago’s Regional Transportation Authority has sued American and United Airlines, claiming the carriers purchased fuel from sham businesses outside Cook County to avoid paying local sales taxes.

In June, Mecklenburg County commissioners voted 5-4 to put a referendum to raise the sales tax by a quarter-cent on the November ballot. Commissioners say 80 percent of the added revenue would go to raising pay of Charlotte-Mecklenburg Schools employees, and 7.5 percent would raise pay at Central Piedmont Community College. The Arts & Science Council would get 7.5 percent, and the balance would go to public libraries.

After the vote, American expressed concern that a quarter-cent increase could cost the company $500,000 a year in fuel expense. But the airline said the rate increase would have no impact on American if the state sales tax cap is kept in place, or if the airline is exempted entirely from fuel taxes.