Can a Tennessee municipal airport authority charge a fuel flowage fee, and do nonprofits have to pay it?

Subject

Opinion No. 18-32, Authority of Municipal Airport Authority to Levy and Collect Fuel Flowage Fees, July 20, 2018

Plain-English summary

A fuel flowage fee is a per-gallon charge that airport operators add to fuel sold on airport property. Senator Todd Gardenhire asked the AG two questions about whether a Tennessee municipal airport authority is allowed to impose them, and if so, whether nonprofit entities can be exempted.

On the first question, the AG concluded that a municipal airport authority may impose a fuel flowage fee. The Airport Authorities Act expressly forbids airport authorities from levying taxes or special assessments, but it also empowers them to set "charges, rentals or fees" for use of their property and for services on it through leases, agreements, and other arrangements. The AG read fuel flowage fees as falling on the fee side of the tax-versus-fee line: they are paid not into the general public treasury but earmarked to maintain, operate, and improve airport facilities and to defray the cost of fuel handling. Under City of Tullahoma v. Bedford Cty., 938 S.W.2d 408 (Tenn. 1997), that earmarking distinguishes a regulatory fee from a tax.

On the second question, the AG concluded that nonprofits are not exempt as a matter of state law. The Airport Authorities Act does not limit fuel flowage fees to for-profit entities, and § 42-3-118(b) says the Act's powers can be exercised "without regard to" restrictions in other laws unless the chapter itself says otherwise. The opinion noted earlier guidance (Tenn. Att'y Gen. Op. 07-32) reaching the same kind of conclusion for handicapped-driver parking fees at airports. An airport authority that wants to waive the fee for nonprofits is free to do so by contract; nothing in state law requires it.

Currency note

This opinion was issued in 2018. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Background and statutory framework

Tennessee's 1957 legislation gave municipalities two paths to operate an airport: directly under the Municipal Airport Act (Tenn. Code Ann. §§ 42-5-101 to -205), or through a separate municipal or regional airport authority created under the Airport Authorities Act (Tenn. Code Ann. §§ 42-3-101 to -205). The Airport Authorities Act gives an authority "all powers necessary or convenient" to operate airport facilities but explicitly bars it from levying taxes or special assessments under § 42-3-108(a).

The fee-setting authority sits in § 42-3-112(a)(1)(D), which lets an airport authority enter into leases, agreements, and other arrangements that "[d]etermin[e] the charges, rentals or fees for the use of any properties under its control, and the charges for any services or accommodations, and the terms and conditions under which the properties may be used." Subsection (a)(2) requires that fees and conditions be "reasonable and uniform for the same class of privilege or service" and set with "due regard" to the airport's property and operating costs.

The tax-versus-fee distinction comes from City of Tullahoma v. Bedford Cty., 938 S.W.2d 408, 412 (Tenn. 1997), where the Tennessee Supreme Court explained that a tax is "a revenue raising measure levied for the purpose of paying the government's general debts and liabilities," while a fee "is imposed for the purpose of regulating a specific activity or defraying the cost of providing a service or benefit to the party paying the fee." The AG also leaned on the "essential test" framing from a 2012 AG opinion: whether the money is paid into the general public treasury and disbursable for general public expenses.

Federal cases like Exec. Air Taxi Corp. v. City of Bismarck, 518 F.3d 562 (8th Cir. 2008), and Haile v. Town of Addison, 264 F. Supp. 2d 464 (N.D. Tex. 2003), are referenced not as binding authority but to confirm that fuel flowage fees are an established fixture of airport-operator contracting and that the funds are typically used for fuel-handling and common-area airport improvements.

The Act's preemption-style clause in § 42-3-118(b) drove the answer to question two: airport authority powers can be exercised "without regard to requirements, restrictions or procedural provisions contained in any other law or chapter, except as expressly provided in this chapter." Because nothing in the Airport Authorities Act exempts nonprofits, the default is that nonprofits pay the same fee as any other tenant.

Common questions

What is a fuel flowage fee?

A fuel flowage fee is a per-gallon charge that an airport operator adds to fuel sold on airport property. It is typically set in a contract between the airport authority and a fixed-base operator, fuel vendor, or other tenant. The money is generally used to maintain runways, taxiways, fuel farms, and other shared airport infrastructure.

Why is a fuel flowage fee not considered a tax?

Under the Tullahoma framework, a charge is a fee rather than a tax when (1) it is imposed to regulate a specific activity or recover the cost of providing a service or benefit to the payer, and (2) the proceeds are earmarked for that purpose rather than deposited into the general treasury for general public expenses. Fuel flowage fees fund airport operations, maintenance, and fuel safety. They are not deposited into the municipality's general fund. That earmarking pulls them out of the tax bucket.

Can an airport authority charge a flowage fee even though it cannot levy taxes?

Yes. The Airport Authorities Act bars taxes but expressly authorizes the authority to set "charges, rentals or fees" for the use of its property and services through contracts, leases, and other agreements. The flowage fee is a contractual fee, not a sovereign tax.

Are nonprofits exempt from these fees?

Not under state law. The Airport Authorities Act does not exempt nonprofits, and § 42-3-118(b) lets airport authorities exercise their powers without regard to general-law restrictions unless the chapter itself carves out an exception. An individual airport authority may negotiate a discounted or waived rate with a nonprofit by contract, but nothing in the statute requires it to.

What limits apply to the fee an authority can charge?

Two statutory guardrails. First, fees and conditions must be "reasonable and uniform for the same class of privilege or service" under § 42-3-112(a)(2). Second, they must be set with "due regard" to property and operational expenses of the airport authority, meaning the fee should bear some relationship to the cost of running the facility. Beyond that, the Act gives the authority broad discretion.

Does this opinion bind the airport authority or the courts?

No. AG opinions in Tennessee are persuasive authority, not binding precedent. They guide state agencies and inform contracting decisions, but a court interpreting these statutes in a contested case is free to reach a different conclusion.

Citations

Statutes

• Tenn. Code Ann. § 42-3-108 (powers and limits, including no taxing authority)
• Tenn. Code Ann. § 42-3-112 (authority to set charges, rentals, and fees by agreement)
• Tenn. Code Ann. § 42-3-118 (exercise of powers without regard to other laws)
• Tenn. Code Ann. §§ 42-5-101 to -205 (Municipal Airport Act)
• Tenn. Code Ann. §§ 42-3-101 to -205 (Airport Authorities Act)

Cases

• Exec. Air Taxi Corp. v. City of Bismarck, 518 F.3d 562 (8th Cir. 2008)
• Haile v. Town of Addison, 264 F. Supp. 2d 464 (N.D. Tex. 2003)
• City of Tullahoma v. Bedford Cty., 938 S.W.2d 408 (Tenn. 1997)

Prior AG opinions

• Tenn. Att'y Gen. Op. 16-14 (April 5, 2016)
• Tenn. Att'y Gen. Op. 12-11 (Feb. 3, 2012)
• Tenn. Att'y Gen. Op. 07-32 (Mar. 23, 2007)

Source

• Landing page: https://www.tn.gov/attorneygeneral/opinions.html
• Original PDF: https://www.tn.gov/content/dam/tn/attorneygeneral/documents/ops/2018/op18-32.pdf

Original opinion text

STATE OF TENNESSEE
OFFICE OF THE ATTORNEY GENERAL
July 20, 2018

Opinion No. 18-32

Authority of Municipal Airport Authority to Levy and Collect Fuel Flowage Fees

Question 1

Does a municipal airport authority have the authority to levy and collect fuel flowage fees under Tenn. Code Ann. § 42-3-108 and § 42-3-112?

Opinion 1

Yes. Because an airport authority has discretion to determine the fees applicable to businesses operating on its property when it enters into contracts or other agreements with those businesses, it may impose a fuel flowage fee as part of those agreements.

Question 2

If municipal airport authorities are authorized to levy and collect fuel flowage fees, are non-profit entities exempt from paying this fee?

Opinion 2

No.

ANALYSIS

In 1957 the General Assembly enacted legislation to allow municipalities to establish, operate, regulate, and maintain airports. See 1957 Tenn. Pub. Acts, chs. 375, 376. Under the Municipal Airport Act, Tenn. Code Ann. §§ 42-5-101 to -205, municipalities may perform these functions themselves. Alternatively, under the Airport Authorities Act, Tenn. Code Ann. §§ 42-3-101 to -205, municipalities may establish municipal or regional airport authorities to perform these functions. See Tenn. Att'y Gen. Op. 16-14 (April 5, 2016).

The Airport Authorities Act grants an authority "all powers necessary or convenient" to operate airport facilities, but does not permit an authority to levy and collect taxes or special assessments. Tenn. Code Ann. § 42-3-108(a). The Act also empowers an airport authority to, among other things, enter into leases, agreements, or other arrangements that "[d]etermin[e] the charges, rentals or fees for the use of any properties under its control, and the charges for any services or accommodations, and the terms and conditions under which the properties may be used[.]" Id. § 42-3-112(a)(1)(D). The fees and conditions imposed by an authority must be "reasonable and uniform for the same class of privilege or service" and established with "due regard" to the property and operational expenses of the airport authority. Id. § 42-3-112(a)(2).

1. In its contracts, leases, and other agreements with entities operating on its property, an airport authority may levy a fuel flowage fee pursuant to its authority to determine "charges, rentals or fees" for the use of its facilities or for services provided on its property.

A fuel flowage fee is a fee levied by an airport operator on each gallon or unit of fuel sold at the airport. These fees are typically established in a contractual agreement between the authority and the entity wishing to sell fuel on airport premises. See, e.g., Exec. Air Taxi Corp. v. City of Bismarck, 518 F.3d 562, 569-70 (8th Cir. 2008) (breach of contract claim involving contractual provision for fuel flowage fees). Airport authorities and municipalities use the money collected from these fees to, among other things, operate, improve, and maintain the airport, particularly common areas such as fuel farms, runways, and taxiways, and to ensure the safety of fuel and fuel transfers. See Haile v. Town of Addison, 264 F. Supp. 2d 464, 464-65 (N.D. Tex. 2003).

A fuel flowage fee levied by an airport authority would be a "charge" or "fee" related to the services rendered by the airport and the privilege of operating on airport property. The fee would not be a tax. No statute grants airport authorities the power to impose taxes; to the contrary, airport authorities are prohibited from levying and collecting taxes by § 42-3-108(a). As the Tennessee Supreme Court has explained, "[a] tax is a revenue raising measure levied for the purpose of paying the government's general debts and liabilities." City of Tullahoma v. Bedford Cty., 938 S.W.2d 408, 412 (Tenn. 1997). By contrast, a fee "is imposed for the purpose of regulating a specific activity or defraying the cost of providing a service or benefit to the party paying the fee." Id.; see also Tenn. Att'y Gen. Op. 12-11 (Feb. 3, 2012) (noting that the "essential test to determine whether fees are really taxes is whether they are, or are not, paid into the general public treasury and disbursable for general public expenses"). Fuel flowage fees are not imposed by the municipality to raise revenue and are not deposited into the public treasury; rather, they are earmarked by the airport authority to help maintain, operate, and improve the airport facilities and regulate and defray the costs of fuel sales on airport property. The fuel flowage fees are thus not a tax, and an airport authority does not contravene § 42-3-108(a) by choosing to impose the fees.

In short, because an airport authority has discretion to "[d]etermine the . . . fees" applicable to businesses operating on its property when it enters into contracts or other agreements with those businesses, it may impose a fuel flowage fee as part of those agreements.

2. An airport authority may enter into agreements that require non-profit entities to pay fuel flowage fees. The statutory authority of a municipal airport authority to assess fuel flowage fees is not limited to assessing those fees to for-profit entities. The Airport Authorities Act states that "[t]he powers granted by this chapter may be exercised without regard to requirements, restrictions or procedural provisions contained in any other law or chapter, except as expressly provided in this chapter." Tenn. Code Ann. § 42-3-118(b). Nothing in the Airport Authorities Act limits assessment of fuel flowage fees to for-profit entities or prohibits assessment of fuel flowage fees to not-for-profit entities. See Tenn. Att'y Gen. Op. 07-32 (Mar. 23, 2007) (opining that because "[n]othing in the Airport Authority Act expressly prohibits an authority from charging a parking fee to a handicapped driver," an airport authority could charge parking fees to handicapped drivers "without regard" to the general prohibition on such fees).

HERBERT H. SLATERY III
Attorney General and Reporter

ANDRÉE SOPHIA BLUMSTEIN
Solicitor General

JONATHAN SHAUB
Assistant Solicitor General

MARY FOUST
Senior Counsel

Requested by:
The Honorable Todd Gardenhire
State Senator
425 5th Avenue N, Suite 732
Nashville TN 37243-0215