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IRS Issues Guidance on Secure Airport Terminal Designation

The IRS has issued guidance describing the procedures and conditions for a terminal within a secure area of an airport to be designated as a Secure Airport Terminal (“SAT”) for purposes of the federal excise tax on kerosene used in aviation.  Pursuant to 26 U.S.C. § 4081, kerosene for use in commercial aviation is taxed at a reduced rate of $0.043 per gallon (exclusive of LUST Tax) if it is either removed directly from a terminal into the fuel tank of the aircraft, or is removed onto a refueler truck, tanker or tank wagon located within the secure area of a terminal for delivery to an aircraft within that secure area. 

IRS Notice 2016-15 sets down the following nine (9) step criteria in order for a terminal to be designated as a SAT:

(1) The terminal operator requests that the terminal be designated as a SAT by writing to the IRS Excise Operations Unit.  A request should include the name of the entity making the request, the company EIN, mailing address, the terminal TCN and the name a contact person.  The IRS will conduct an onsite inspection and approve or deny the request within 60 days from receipt of the initial request. In the case of a denial, the applicant may appeal to the Chief of Excise Tax Examination.  Note that terminals currently on the list are not required to reapply under the procedures of the Notice.

(2) The terminal operator is registered as a terminal operator under § 4101 (Form 637 “S” registration).

(3)  The terminal is a terminal within the meaning of § 48.4081-1 (i.e. it has a truck rack or other mechanism capable of delivering taxable fuel into a means of transport other than a pipeline or vessel);

(4) The terminal is located within an airport;

(5) Only authorized vehicles are allowed to enter and exit the terminal;

(6) Kerosene received, stored, and removed is exclusively for delivery into the fuel tank of an aircraft at the terminal;

(7) Kerosene delivery into the fuel tank of an aircraft is made directly from the terminal, such as through a hydrant system, or by qualifying refuelers (meaning refuelers that have storage tanks, hose, and coupling equipment designed and used for the purposes of fueling aircraft, that are not registered for highway use and are operated by the terminal operator or someone who makes a daily accounting to the terminal operator of deliveries), that are used only to transport and deliver kerosene into the fuel tank of an aircraft.

(8) Except in the case of exigent circumstances identified by the Secretary in regulations, no vehicle registered for highway use is loaded with kerosene at such terminal.

(9) The terminal has security measures that are consistent with customary business security practices designed to resist access to the terminal by unauthorized personnel and unauthorized vehicles.

Any changes in business operations, including changes in refueling equipment, security measures, owners/operators, or any other change to any of the SAT designation criteria must be provided to the IRS in writing within 10 daysof the change.  Should a SAT no longer meet the criteria to qualify, the IRS will issue written notice and revoke the SAT status within no less than 10 business days from the date of written notification.

The entire Notice, which includes the current list of SATs may be found at https://www.irs.gov/pub/irs-drop/n-16-15.pdf