S 173119th CongressIn Committee

Fueling Alternative Transportation with a Carbon Aviation Tax Act of 2025

Introduced: Jan 21, 2025

Standard Summary

Comprehensive overview in 1-2 paragraphs

S. 173, titled the Fueling Alternative Transportation with a Carbon Aviation Tax Act of 2025, would raise excise taxes on aviation fuels and create a new dedicated fund to support clean-air and public-transit projects. The bill keeps a small tax for commercial aviation but imposes a substantial new levy on fuel used in non-commercial aviation (primarily private jets). The revenue would flow into a new "Funding to Support Clean Communities Trust Fund" to support air quality monitoring, public transit near airports, and other environmental justice and transportation projects, with strong emphasis on benefiting disadvantaged communities. The changes would take effect January 1, 2026, and include a temporary refundable provision for certain fuels used in emergencies or special circumstances, plus inflation adjustments over time. In short, the bill aims to deter high-emission private aviation by upping fuel taxes and uses the resulting funds to fund clean-air initiatives and transit improvements, especially in communities most affected by air pollution. It also tightens exemptions and requires several conforming changes to the Internal Revenue Code to implement and administer the new taxes.

Key Points

1Tax rate changes for aviation fuels:
2- Commercial aviation: 4.3 cents per gallon.
3- Non-commercial aviation (e.g., private jets, generally): a total of 35.9 cents per gallon plus $1.641 per gallon (totaling $2.000 per gallon before any inflation adjustments). After 2026, the $1.641 portion would be adjusted for cost-of-living.
4Tax administration and conforming changes:
5- Applies to both retail excise tax (section 4041(c)) and manufacturers excise tax (section 4081) with updated rates.
6- Several cross-references and related provisions are amended to align with the new rates (conforming amendments).
7Elimination of certain exemptions:
8- Removes a current exemption from air transportation excise tax for certain uses of aircraft/kerosene tied to planting, agriculture, or related activities, effective January 1, 2026.
9Refunds/credits for reasonable-cause scenarios:
10- If the tax increase is determined to be inappropriate for certain fuels (e.g., used in scientific research, natural-disaster evacuations, or medical emergencies), the Secretary can reimburse the ultimate purchaser for the increase (no interest). This applies to both the retail excise tax on aviation fuels and the manufacturers tax on kerosene, and the provision terminates after January 1, 2028.
11New Funding to Support Clean Communities Trust Fund:
12- Establishes a new trust fund in the Treasury funded by amounts equivalent to the aviation-fuel tax receipts and kerosene-related tax receipts attributable to the new rates.
13- Expenditures can support: air monitoring networks (including near airports), expansion/maintenance of air-quality monitoring and sensors in disadvantaged communities, and public-transit/rail infrastructure near airports.
14- At least 50% of annual expenditures are set aside for disadvantaged communities, with prioritization for communities disproportionately affected by air pollution.
15Disadvantaged communities definition:
16- Community with significant representation of low-income or socially disadvantaged groups.
17- Low-income criteria include census blocks where at least 30% of residents have incomes at or below the greater of 80% of area median income or 200% of the Federal poverty line.
18Effective date:
19- The new tax rates, refunds for reasonable cause, exemption eliminations, and the funding fund take effect January 1, 2026.
20- Related provisions and conforming amendments are aligned with this effective date.

Impact Areas

Primary group/area affected:- Private aviation users and operators (owners of private jets and other non-commercial aircraft) who would face significantly higher fuel taxes, potentially affecting operating costs and demand for private air travel.Secondary group/area affected:- Federal and state tax administration (IRS) entities responsible for implementing and auditing aviation-fuel taxes, as well as fuel suppliers and manufacturers of aviation fuels (kerosene).Additional impacts:- Communities near airports and in regions with higher air pollution, especially disadvantaged communities, stand to gain from expanded air-quality monitoring, better public transit options near airports, and targeted environmental-justice investments.- The bill’s inflation adjustments would gradually increase the per-gallon tax over time (via COLA), potentially increasing revenue and ongoing program funding.- A temporary refund mechanism provides relief in emergency or special-use cases, but the non-commercial tax would become permanent (the refund mechanism ends in 2028 for the relevant provisions).- The elimination of certain exemptions broadens tax coverage, increasing overall tax receipts from aviation fuels.- The funding fund reallocates a portion of aviation-fuel tax dollars toward environmental and transportation improvements, which could influence local air quality and mobility, particularly in disadvantaged communities.Retail excise tax (section 4041(c)) and manufacturers excise tax (section 4081): these are two layers of federal taxation on aviation fuels—one assessed when fuel is sold to users, the other assessed on manufacturers of aviation fuels.Cost-of-living adjustment (COLA): an annual adjustment used by the tax code to keep certain dollar amounts aligned with inflation.Disadvantaged community: a defined category for eligibility based on income and demographic criteria designed to prioritize investments in areas with higher pollution burden or economic need.Refund/credit for reasonable cause: a provision allowing reimbursement of increased tax amounts in certain emergency or legitimate-use cases.

Generated by gpt-5-nano on Oct 31, 2025