While nearly all passenger airlines that fly into Illinois are posting multimillion-dollar losses, the state’s coffers will take in millions of dollars more from carriers this year.
Illinois will reap a sales tax windfall because the average price of jet fuel is about 60 percent higher than it was in April 2004. As the price of fuel increases, the amount of sales tax revenue also goes up.
The state’s tax on jet fuel, already the highest in the nation, could generate an additional $15 million or more in 2005 if oil prices remain at near-record levels, according to industry tax experts.
“Illinois is the worst,” said Jim Hultquist of the Airline Transportation Association, an industry trade group. “Because you’ve got the state sales tax, and then Chicago puts on another 5 cents per gallon. Chicago is the highest place, without any question, when it comes to jet fuel.”
That extra nickel a gallon charged by Chicago generated about $36 million in each of the last two years.
The Illinois Department of Revenue estimates it collected $65 million in taxes on jet fuel last year, up from $45 million the year before. Two factors accounted for the increase: The amount of fuel used climbed about 5 percent, to 883.3 million gallons, and the average price of a gallon of jet fuel jumped to $1.21 last year from 86.7 cents in 2003.
Fuel prices began rising in the fall and generally have continued to move upward. In recent days, a gallon of jet fuel has averaged $1.65 a gallon.
Much of that additional tax money will be paid by United Airlines, the largest carrier at O’Hare International Airport. United paid $34 million last year in various state and local taxes on fuel sales in Illinois. If the price of jet fuel were to stabilize at $1.50 a gallon, the carrier estimates its tax burden in Illinois would increase by $6.5 million this year.
Fuel taxes vary across the nation. New York and New Jersey, for example, only tax fuel used to fly within the state. Texas and Maryland are among those that don’t tax it. Fuel pumped for international flights is also not subject to state and local sales taxes.
At O’Hare and Midway Airport, airlines pay 8.75 percent in sales taxes on fuel purchases for domestic flights. In addition, the City of Chicago charges its 5 cents a gallon.
High fuel prices have prompted carriers to increase efforts to reduce consumption and find other ways to lower costs. When possible, aircraft are taking on fuel in other states before coming to Illinois, said representatives of United and American Airlines, the second-largest carrier at O’Hare.
Atlanta-based Delta Air Lines, one of United’s competitors, has found some relief from high fuel taxes in its home state of Georgia. Lawmakers there have agreed to cap the amount of jet fuel taxes the airline pays in that state.
Illinois has no such cap. United, whose headquarters are in Elk Grove Township, is the only large airline based in Illinois. But the important role that Chicago plays in the nation’s traffic pattern–O’Hare handles more flights than any other airport–makes avoiding Illinois’ fuel taxes impossible for most carriers.
Georgia lawmakers have taken the unusual step of putting a temporary limit on the amount of fuel taxes that an airline has to pay in that state. For the next two years, Georgia has a $15 million cap on the amount that the state can collect. A limit also was put on the amount of tax the county can collect on jet fuel. The Atlanta Journal-Constitution has estimated the caps will save Delta about $12 million a year.
The caps are so high that it will affect only Delta. The carrier lost more than $5 billion last year, and several analysts have predicted Delta could be forced to seek bankruptcy protection if its fortunes don’t improve.
“One of our competitors, Delta, will certainly benefit from that,” said Robert Gransee, manager of tax for United. “For us, the major expense is in Illinois.”
Filling up elsewhere is often not practical, United spokeswoman Jean Medina said.
“We can look at tankering fuel in, but that adds weight, which also adds to the cost,” she said.
It’s not like stopping to top off the gas tank at a service station where the pump price is a few cents less a gallon. A 747 holds about 57,000 gallons. Choosing to fuel that plane at Washington Dulles International Airport instead of O’Hare can save about $17,000 in fuel taxes, Medina said.
Such factors are considered every time fuel is put into a plane. At Ft. Worth-based American Airlines, a “fuel ferry” computer program weighs factors that include fuel prices, the weight of the aircraft, wind and weather before recommending where and when to purchase fuel, spokeswoman Mary Frances Fagan said.
American paid about $15 million in fuel taxes in Illinois last year, she said.
“Taxes are a consideration in the computer model,” she said. “It’s a factor because, obviously, we’re trying to control costs. Illinois is not a favorable state for fuel purchases, but taxes are not the only factor.”
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mskertic@tribune.com
