PHOENIX (AP) - Gov. Doug Ducey and the Arizona Legislature have given airlines a big tax break, but it comes at the expense of the city of Phoenix.
Legislation signed by the Republican governor Thursday will cap the amount of jet fuel Phoenix is allowed to tax for each large carrier, costing the city about $2 million a year and benefiting American Airlines and Southwest Airlines in particular.
American, Southwest and national airline trade group Airlines for America pushed for House Bill 2064. The Arizona Chamber of Commerce and Industry also supported it.
The legislation emerged March 8 as an amendment to an unrelated bill in the Senate Finance Committee and swiftly made its way to Ducey’s desk.
Phoenix lobbyist Barry Aarons tried unsuccessfully to persuade committee members to stop it, arguing that losing the money will make it more difficult to ensure Phoenix Sky Harbor International Airport is well-maintained.
Chamber lobbyist Garrick Taylor testified that having the city tax jet fuel hurts the state’s competitive position, noting that major hub cities like Charlotte, North Carolina, and Washington, D.C., don’t levy a similar tax.
“Cities and states around the country are in pitched battle to attract airlines,” Taylor said. “Let’s face it, if you’ve got a strong air profile, it sends a message that you are open for business.”
The new law allows Phoenix to keep levying its tax, but only on the first 10 million gallons each carrier buys. The tax is tiny, just .007 cents per gallon, and brings in about $3 million per year.
The state taxes jet fuel at 3.05 cents per gallon, but it has been limited to the first 10 million gallons that each company buys since 1995. In the 2015-2016 fiscal year, the state collected $4.3 million.
Rep. Michelle Ugenti-Rita sponsored the amendment, saying that making Sky Harbor competitive is a statewide concern.
“There are some states that do not even impose this tax on jet fuel,” she said. “But if we’re going to, cap it at the 10 million gallons.”
Democratic Sen. Steve Farley of Tucson asked how the tax cut wasn’t just a sweetheart deal for out-of-state airlines, a veiled reference to American, which maintained its corporate headquarters in Texas after being bought by Tempe-based US Airways in 2013. Southwest also is based in Texas.
“I’m having a hard time getting my mind around the idea that it isn’t just a special interest corporate tax giveaway, and I don’t like those very much,” he said.
Farley questioned whether airlines will reduce their flights to Sky Harbor if the tax isn’t cut, saying college basketball’s Final Four being held in Glendale and the state’s overall attraction make that unlikely.
“You think airlines would actually refuse to service us if they don’t get a few hundred thousands of dollars off the top that would otherwise be going to reinvest into the airport to make it a better place to land?” Farley asked Taylor.
Taylor said airlines make decisions on where to base flights based on costs, and it can’t help to have a higher tax in Phoenix.
The tax goes into the general fund, but Phoenix plans to shift it to airport uses by the end of the year because of a change in federal policy on such taxes. Under the bill Ducey signed, that’s required.
Despite Farley’s opposition, he joined in a unanimous Senate vote for the legislation Wednesday after Phoenix dropped its formal opposition. The House gave final approval on a 36-20 vote the next day.
Phoenix officials were unable to say why they dropped their opposition.
Ducey spokesman Daniel Scarpinato said the tax was putting the state’s major airport at a disadvantage.
“This improves our competitiveness with other large cities,” he said of the law.
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