New Jersey Wants To Eliminate Tax Exemption For United Airlines

The New Jersey legislature has introduced a bill that would eliminate a significant tax exemption on fuel… but only for United Airlines. The state wants to build a PATH train extension to Newark Airport that would cost at least $700 million, so that’s what the added tax revenue would go towards.

So, what tax exemption is the state looking at eliminating? Most states tax all jet fuel that’s purchased by an airline in the state, while New Jersey currently only taxes the fuel that is consumed during the “burnout” period, which includes taxi and takeoff.

The state is thinking of changing that and taxing all fuel burn, as is the case in most states. What’s strange is how they plan on enacting this. New Jersey only plans on enacting this for airlines that transport more than eight million passengers per year from New Jersey, along with their regional carriers.

So that means exactly one airline — United — would be subjected to these new rules. As you might expect, United isn’t too happy about this. They say that this would require them to pay an additional four cents per gallon of fuel purchased in New Jersey that’s consumed inflight, and that would cost them roughly an additional $20 million per year.

Here’s what United says about how much money they’ve invested in the airport itself, the community, and how many people they employ:

On Thursday, New York/New Jersey President Jill Kaplan testified at the New Jersey Senate Transportation Committee hearing on proposed legislation that would raise jet fuel taxes for United and our regional partners.

If enacted, the law would require us to pay 4 cents per every gallon of fuel purchased in New Jersey, resulting in an additional $20 million annual cost increase to United. The tax hike would only apply to United and not to any other airlines that fly out of EWR or other small airports in New Jersey.

As home to one of our biggest hubs, Newark and its surrounding communities are important to us because they are where many of our customers and employees live. United has made over $2 billion in unsubsidized investments at EWR since 2000, and just this past July, we announced two new community partnership grants totaling $1 million for the cities of Newark and Elizabeth. We are also one of the state’s top 10 employers and have supported a multitude of local community organizations through the years.

As such it’s not unreasonable for New Jersey to eliminate this tax exemption on fuel, as their new policy would mirror the policy in most other states. However, it does seem bizarre that they’re only targeting United with this change.

My guess is that New Jersey worded it this way because they realize that United has nowhere to go, given their massive hub at the airport. They’re not afraid of losing them, since it’s not like they can move to another NYC airport, and NYC is a critically important market for the airline.

Presumably the state isn’t thinking of adding this new tax on other airlines because they think it could impact the amount of flights they operate to Newark, and they don’t want to lose airlines over this.

What do you make of this — is it fair that New Jersey just wants to eliminate this tax exemption for United?

(Tip of the hat to airliners.net)

Comments

  1. We should have a system where people that move from low tax states to hitch tax states have to tax penalty.

    Any Republican scumbag moving from polluting, low tax southern states to high tax northern states like NY, NJ, CA, MA should have to pay extra catch up taxes to enjoy the nice air and higher quality of life.

    Enough welfare to Republican freeloaders.

  2. It sounds fair that NJ wants to eliminate this tax exemption which effectively acts as a subsidy. But, it sounds unfair that they only want to do this to one airline. I would support removing the fuel tax exemption, but for ALL airlines.

    Another point. In the United press release they make a big fact that they’ve made $2 billion in “unsubsidized” investment in the EWR hub. What a sad state of affairs it is when corporate subsidies have become such a given that a corporation feels it’s a special thing to point out when they make unsubsidized investment. NJ’s history of tax incentives and tax breaks to get corporations to invest (they’ve offered $5 billion+ to Amazon if they move to Newark) is terrible. Tax incentives and breaks to some companies/individuals means everyone else just has to pay more.

  3. Getting the PATH extension done to EWR would be fantastic. 1-train service to WTC and downtown Manhattan would be a huge thing for business travellers. Well, I guess it would still be “2-trains” thanks to those ridiculous “Airtrains” all the NY airports have. Why they can’t just build mass public transit straight into the airports like all the best major world airports do in Europe and Asia beats me.

  4. The interesting twist to this is that NJ wants to build a PATH train to EWR which I would assume United (and all other airlines) would support given it would increase accessibility to the airport. Perhaps this will spur some kind of compromise. It is unlikely United will be able to really do anything about it since it would be more expensive to route flights elsewhere and they certainly are not going to pull out of Newark. The Feds already stiffed NJ property owners by capping the property tax exemption in the tax bill.

  5. Sorry, Justin, but letting someone or some company keep more of the money they’ve earned isn’t a subsidy. Orwell would be proud.

  6. hahaha ROFL! United cannot do anything about it because they cannot move that EWR hub. They don’t have PHL or JFK so they’ll just have to bite the bullet. But once this is done UA will reap the most benefits.

  7. I could see UA move some international flights from EWR to IAD, but I’m sure they will only do that if nothing else works (then again, NYC and DC are completely different markets)

  8. @James: Eye roll. The point about tax exemptions is not related to a point about the appropriate level of the general public sector tax take. How much public sector dollars go into major infrastructure projects which PRIVATE companies like United benefit from? Newark airport wasn’t built for and paid for by United, yet they benefit from the billions that NJ taxpayers pour into the highways, road connections, security etc that goes into building and running an airport like that. So, it’s sort of obvious and basic that there’s a certain level of taxation that individuals and corporations do need to pay into to benefit from public goods. Taxation is not inherently bad, but of course there are more appropriate and less appropriate LEVELS of taxation as well as good and bed METHODS of taxation that limit or increase the negative externalities that taxation can create. In this case, we are talking about a fuel tax EXEMPTION which is acting as a SUBSIDY to United and all other airlines at Newark versus other airports. So, just as you believe that companies should be taxed less, I also believe that companies should not get unnecessary subsidies from other taxpayers. If you believe taxes are too high, then getting rid of these targeted subsidies and lowering the general income tax rate is something I’d agree with. Of course, NJ is unlikely to do the latter, but that is a separate point to the immediate issue at hand.

  9. I think it’s absurd for politicians to target a single company with subsidies *or* special tax penalties. There should be a level playing field with the same rules and taxes are applicable to all competitors. It’s shameful to have corporate welfare or targeted attacks/taxes singling out a particular company.

  10. John: +1 If we get rid of all these targeted incentives/taxes we could have lower taxation rates for everyone. See Singapore/Baltic states, with their low, uncomplicated, flat/flattish tax systems.

  11. Sooooo what’s missing here? At an additional $20 million annually, it’ll take over 35 years to collect the $700 million for the PATH extension. Where the hell is Trenton going to get the rest of the money from? The recently passed budget, despite some tax increases, still has a huge deficit which Governor Murphy plans to close through “high economic growth.” I wonder if that budget already has this extra $20 million forecast in there.

  12. I believe the PATH train extension is a great idea and will benefit both passengers and airlines.

    Didn’t Delta recently lose a fuel tax exemption at ATL? I’m sure UA will not end up in Chapter 11 over this.

  13. I still don’t get why United decided to move out of JFK.

    NJ might as well proposed a bill saying, a tax that only airlines whose name starts with a ‘U’ and end with a ‘D’ should have to pay.

  14. @James
    “letting someone or some company keep more of the money they’ve earned isn’t a subsidy”

    Definition of subsidy:
    Subsidies come in various forms including: direct (cash grants, interest-free loans) and indirect (tax breaks, insurance, low-interest loans, accelerated depreciation, rent rebates).
    Tax breaks are often considered to be a subsidy. Like other subsidies, they distort the economy; but tax breaks are also less transparent, and are difficult to undo.

    Yes, Orwel was right. And he would not be proud of today’s “free” economy.

  15. But then again United has been enjoying tax breaks for a lot time, while just across the river it’s competitors are paying more, which gave them a slight advantage over the NYC market. It’s not like they’re going to be at a disadvantage now.

  16. The NJ legislature should explain to United that the increased tax is to ‘enhance the airline’s experience’ operating in New Jersey.

  17. An American airline whining about loosing its oil subsidy but was complaining about “subsidies” received by the ME3. Who would have thought that?

  18. I’d be curious to hear what Scott Kirby has to say… one could remember Pittsburgh and US Aireways walking away there I would bet Dulles loves this…

  19. This is completely fine. They are basically now having to pay something they should have been paying all along. They’ve got the money and benefit significantly from the state as it is. And as far as it being only united – what are they like 99% of all traffic at EWR? Give up some gates to some of the other guys and we can let them not have the exemption as well.

  20. I wonder if the constitutionality of this could be challenged……in general it is supposed to be unlawful to write legislation that is aimed expressly at a single target….even if the main impact falls on a single target the law is supposed to be based on a broadly defensible principle….and it’s hard to see the defensible principle here……Though also worth noting the dollar amounts are quite small relative to the enormous sums at stake for BOTH New Jersey and United in this mutually dependent relationship.

    At IAD even more than EWR, United manages big and presumably profitable operations at facilities badly in need of renovation and new investment…..more of that has taken place at Newark (though lots of room still to improve) compared to the deplorable mid-field terminal United uses at Dulles.

  21. Scooter – Nope. That isn’t how this is working. ONLY United is being subject. All other airlines will continue to earn the “subsidy”/tax advantage.

    Maybe it would be a good idea to only subject the additional tax marginally on all passengers after 8 million per year. That would be more level.

  22. Nothing will happen in the long run. This happened here in GA with Delta and things went right back to normal after some behind the scenes lobbying. No one is going to stiff a major employer in a state head on.

    This may be a ploy to get United to pump more money into the airport infrastructure.

  23. As is the case with most things like this, there is a lot more to this story than what we see at face value.

    https://tinyurl.com/y9pdt5bf

    A good article that gives a detailed backstory on the situation. After reading it, it makes you think that UA should pony up more.

  24. People here who commented, probably never taken PATH or NJ Transit frow EWR.

    YOU CAN TAKE NJ TRANSIT to Newark Penn (then PATH) or NY Penn.
    The 2 reason it is not popular (nor well promoted) is
    1. EWR sucks for NYC, go ask any New Yorker you know. EWR is for ppl in Jersey.
    2. PATH train sucks.

    I agree UA should be pissed. This is a waste of money and will NOT help business. LGA have a very bad public transportation system for 50 years, yet it is still over crowded and more popular than EWR.

    And don’t under estimate Scott Kirby. USAir used to screw PIT big time. NJ would think UA has no choice. Think again, this is Scott Kirby we are talking about.

  25. NJ is worse than broke. The debt servicing expenses destroy their annual budget, and they can’t even keep up with repairs to infrastructure let alone take on new projects. NJ is seriously looking in the couch cushions to scrape two pennies together. You thought they taxed everything already (and at a high rate), they are now looking to tax water from your tap. It’s insane.

  26. The idiotic PATH extension was created due to corruption at United, who bribed the PANY executives via unprofitable flights + service to AC in exchange for funding PATH. This isnt a conspiracy – it was widely reported and went to court.

    Why does United care about PATH? They abandoned JFK and need a direct link to Wall Street to compete with Delta (AA has ceded NYC)

    Why is the PATH extension idiotic? Because extending AirTrain to Newark Penn makes more sense for NJ residents.

  27. Reading this “back and forth” has only bolstered my thrill of having moved my business (and myself) to Plano/Frisco, TX!!!!!, a truly dynamic business friendly environment in the midst of a business friendly state. The State of NJ squeezes every last dime from its citizens and companies, some “legit and some sleazy like this one, and even charges a Corporation to leave the state. Yes, you have to pay a “departure tax” to the NJ Secretary of State, the only NJ business tax worth paying! (and with the flight of businesses go the jobs). This is why the trade association of moving companies (I forget their acronym, considers NJ an “origination state” as opposed to an “arrival state” like Texas. The only problem with the move? Being a lifetime UA 1K finding one’s self based out of DFW!

    Happy Friday, all!

  28. ??? It’s not like UA won’t just pass the tax on to their passengers, who follow them like sheep and never care what they are charged.

  29. “Equal Taxation” is the way it’s supposed to be done. A level playing field. Other municipalities have written legislation which charge all carriers according to the same rules. It’s just the principle of the thing.

    I doubt 20 Million will influence revenue management over at UA to raise fares. If it did, of course it would be passed on to you and me like any cost of doing business. I just think it’s ironic that the culprit is NJ.

  30. United “nickel and dimes” its customer so the Port Authority is returning the favor. Perhaps the the recently increased baggage fees will cover the loss of tax exemption.

  31. @Bzzz – not easy to move any flights to LGA, as LGA is slot-controlled, has the 1500-mile perimeter rule, can only take international flights from pre-clearance cities (there is on-call CBP for private jets, though), isn’t really good for anything bigger than a 757/A321, and right now is a giant construction zone so getting gate and ticket counter space would be a bear. If they could get the slots, they could add a few flights to other hubs (ORD, IAH, DEN – Denver is exempt form the perimeter rule) No way in the world they could run a hub there, or at JFK for that matter – no slots (except in the dead of night), no terminal space.

    @JJJ – extending the existing AirTrain to Newark Penn would be less helpful than you might think. The trains are so narrow that at peak times it’s not unusual to have to wait for one or two to go by before you can get on, especially from Terminal C toward the airport train station. They’re also ridiculously slow. Replacing the existing AirTrain with a JFK-style train would solve those problems, but be brutally expensive.

  32. ATTN IN RESPONSE TO UNITED HAS NO WHERE TO GO REPLY . PULL ALL EUROPE ROUTES most to DULLES VA AIRPORT. ORLANDO will be opening a MAJOR INTL GATEWAY by 2020 .UNITED CAN pull ALL SOUTH AMER CENTRAL AMER AND A FEW MORE EUROPEAN ROUTES .THINK AGAIN IF YOU THINK UNITED HAS NO WHERE TO GO . IM sure there is plenty of other states the would love to have UNITED. WAKE UP CALL

Leave a Reply

Your email address will not be published. Required fields are marked *