Illinois Taxes Hurting Airline Industry

Published June 1, 2006

O’Hare International Airport in Chicago, perennially one of the nation’s busiest airports, has the dubious distinction of charging the nation’s highest jet fuel taxes. Its smaller sister airport, Midway Airport on Chicago’s south side, charges the same high fuel taxes.

“In those states where the fuel tax is a percentage of the cost of the fuel, taxes have skyrocketed, resulting in a windfall for the states. Fuel purchased in Chicago is now subject to the highest taxes in the country,” said John Heimlich, vice president and chief economist at the Air Transportation Association (ATA), in an April 11 press statement. ATA members transport more than 90 percent of all U.S. airline passenger and cargo traffic.

Chicago’s airports charge the Illinois state sales tax of 6.25 percent, local sales taxes of 2.75 percent, and an additional tax of 5 cents per gallon. As a result, airlines are paying about 21.2 cents in taxes on top of the estimated fuel price of $1.80 per gallon, said Heimlich.

Buying Fuel Elsewhere

In early March, the Illinois Senate Revenue Committee met to discuss the issue and listen to the concerns of the airline industry.

Mark Anderson, United Airlines vice president for government affairs, told the committee, “As the price of fuel goes up, our taxes in Illinois have gone up exponentially. United has decreased its purchase of fuel in Illinois by about 10 percent, through conservation and purchasing it in other states.” United is headquartered in suburban Chicago.

“We are doing everything possible to lower the cost of fuel,” said Mary Frances Fagan, spokeswoman for American Airlines, at the committee meeting. “But at the end of the day, you still have a very high tax rate in the state of Illinois. We’ve spent a lot of time looking at ways to reduce our fuel costs. Looking at our tax bill is part of that.”

Considering Tax Cap

Illinois Senate Assistant Majority Leader James DeLeo (D-Chicago) has offered a solution. DeLeo is advancing a bill to cap state jet fuel taxes in Illinois at 7.2 cents per gallon. That would be about 5 cents per gallon lower than the current state tax on jet fuel, making Illinois airports more tax-competitive with the rest of the nation.

DeLeo’s measure would aid United Airlines and its hub in Chicago. Since 2002, the amount of money United has spent on jet fuel and taxes in Illinois has doubled, according to DeLeo.

“Just use United as a barometer; they are just coming out of bankruptcy,” DeLeo said during the committee meeting. “They’re not asking for a handout, they’re not asking for a subsidy. They’re our own economic engine and a [wellspring] of jobs.”

John W. Skorburg ([email protected]) is a visiting lecturer in economics at the University of Illinois at Chicago and associate editor of Budget & Tax News.