Airport Projects Hit Turbulence With Paperwork & Tax Issues
October 14, 2020 at 2:48 a.m.
By David [email protected]
The issues were brought up at the Warsaw Board of Aviation Commissioners Tuesday.
On the 18/36 (north/south) runway project, Mary Kerstein, project manager with the airport’s aviation consulting company CHA, said the Federal Aviation Administration (FAA) grant for the project was received and construction has started.
“It was a real quick turnaround,” Airport Manager Nick King said.
“We did have a little hiccup with the runway,” Kerstein said. “Part of the original design that was done by the previous consultant was to remove portions of the aligned taxiways on the ends of each runway, and convert that to displaced threshold. And, unfortunately, the FAA came back to us at the last possible moment and said that the paperwork is not in that needed to be in for the runway to go from an aligned taxiway on the ends to displaced threshold.”
Aligned taxiways and displaced threshold determine where airplanes can take off and land on a runway.
Kerstein said the environmental document that had been submitted stated that the project was only a runway rehabilitation.
“I know it’s splitting hairs at this point, and I agree completely, but it should have been written as a runway rehabilitation and a runway extension,” she said. Because “one word” was left off the paperwork, the FAA will not allow for that work to happen.
The runway would not physically be extended, but the markings dictating where a plane can take off and land would change.
She said they asked if they could get the paperwork to the FAA right away as a lot of work to make the aligned taxiway into displaced threshold was to happen at the end of the construction, which is scheduled for 55 days. The FAA said they wouldn’t issue a grant without that paperwork.
“So it was either receive a grant this year for the runway and get it paved and rehabbed, or not receive a grant, so we went ahead and received a grant for it,” Kerstein said.
She said it’ll take another project to complete the displaced threshold.
“And that’s about 360 feet as I understand it?” Board President Jay Rigdon asked Kerstein, and she said yes.
“And, also, is it your opinion that this will not in any way significantly affect usage out at the airport?” Rigdon asked her, and she agreed. The project just won’t be fully completed until next year.
“It’s very minor. It’s changing lights and changing pavement markings, but they wouldn’t allow that. Unfortunately, we’ll have to go and get that documentation done after the fact,” she said.
She also said the main reason behind this is that when the power lines are lowered at the east end of runway 9/27, the displaced thresholds would help larger aircraft on the runway.
“So we really need to do that work before we do 9/27 so that some of our larger aircraft can still take off,” Kerstein said.
She said they have a meeting with FAA and the Indiana Department of Transportation in November and that’s when they’re hoping to discuss finishing the 18/36 project in 2021.
Construction of the project was on day 19 of 55 Tuesday. Weather permitting, paving is scheduled for Thursday.
Phend & Brown is the contractor for the 18/36 project and Kerstein said CHA reviewed Phend & Brown’s first pay request for $115,000 and found it correct. The Board of Aviation approved the request.
Kerstein then moved on to the power line lowering project on the east end of runway 9/27. There’s been some discussion for months about whether or not American Electric Power has to pay the federal Contributions in Aid of Construction (CIAC) gross-up tax or not if AEP is paid to lower the lines. The tax would be over $600,000 for AEP.
Kerstein said, “For the construction mitigation, we have heard back from the FAA on the gross-up tax, and unfortunately, they said that they do not have the information to support that they are exempt from that gross-up tax, so they referred us to talk to a (certified public accountant).”
King said the issue they’re running up against with the gross-up tax is that there’s no case law that has been tried. It’s part of the new tax code, having just been introduced in December 2017.
“There’s not been a situation like ours yet to really look into how this law has risen and is this type of tax applicable for this project,” King said. “Because, in my opinion, and I’m not an attorney, the way I read the tax code, this is not an eligible project for that tax because AEP is not improving their lines, we are requiring them to lower them. They gain no new customers, they gain no new infrastructure. It is the same after as it is before, just 100 feet lower. That’s all we’re asking them to do.”
He said he thinks the tax is only applicable if AEP improves its infrastructure or gaining new clients, which AEP isn’t doing. King said they just need a person with the proper credentials to go through all of that and make sure that’s correct. Once they have that opinion, he said they’ll go back to negotiations with AEP.
Rigdon asked King if he had any feeling on what AEP says they will need in order to feel comfortable to remove that. Kerstein said AEP was amenable to the FAA coming back and saying AEP was exempt, but she didn’t know how amenable they were to an attorney saying they were. King said AEP wasn’t going to do the legal legwork to find out the answer.
Rigdon said they needed to get a legal opinion, which would be taken to the FAA to have their legal counsel sign off on it. If the FAA went along with it, Rigdon said AEP “probably” would go along with it. King added the IRS may have to sign off on it, too.
“We are in the middle of researching it right now,” King said.
Dan Robinson, board member, said since the gross-up tax is a federal tax, “Wouldn’t it be smart to just contact the IRS commissioner and get an opinion?”
King said originally they thought the tax was an Indiana Utility Regulatory Commission tax.
“We’re paying AEP this amount of money for the project. It is AEP’s opinion that if this tax applied, they have to pay income tax on the money we give them because they have to put it in their books as income. They are taxed at the federal level at 21% and at the state level at 5%. We’ve already got the Indiana Department of Revenue to decouple from this rule, so that took the 5% right off. And it was their opinion that it didn’t matter because they didn’t think this project qualified (for the tax), but that’s just the state, not the IRS,” King explained.
It’ll still be a $650,000 tax on the project even after depreciation, he said, and that’s huge.
Later in the meeting, Robinson said they had AEP’s price, AEP is aware of its tax situation and Indiana agreed to remove its 5% tax. “So, we have a price, why can’t we move forward with this since we have the grant, with the understanding that, basically, if we win on the tax issue, write a change order and be done with it so we can get going? Because I’m afraid if this keeps going another year, the price is going to go up more than we gain in the taxes. We’re not going to gain any ground here. We’ve put this off year after year ... and every year the cost goes up another 10% or so.”
Kerstein said they’d look into that.
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The issues were brought up at the Warsaw Board of Aviation Commissioners Tuesday.
On the 18/36 (north/south) runway project, Mary Kerstein, project manager with the airport’s aviation consulting company CHA, said the Federal Aviation Administration (FAA) grant for the project was received and construction has started.
“It was a real quick turnaround,” Airport Manager Nick King said.
“We did have a little hiccup with the runway,” Kerstein said. “Part of the original design that was done by the previous consultant was to remove portions of the aligned taxiways on the ends of each runway, and convert that to displaced threshold. And, unfortunately, the FAA came back to us at the last possible moment and said that the paperwork is not in that needed to be in for the runway to go from an aligned taxiway on the ends to displaced threshold.”
Aligned taxiways and displaced threshold determine where airplanes can take off and land on a runway.
Kerstein said the environmental document that had been submitted stated that the project was only a runway rehabilitation.
“I know it’s splitting hairs at this point, and I agree completely, but it should have been written as a runway rehabilitation and a runway extension,” she said. Because “one word” was left off the paperwork, the FAA will not allow for that work to happen.
The runway would not physically be extended, but the markings dictating where a plane can take off and land would change.
She said they asked if they could get the paperwork to the FAA right away as a lot of work to make the aligned taxiway into displaced threshold was to happen at the end of the construction, which is scheduled for 55 days. The FAA said they wouldn’t issue a grant without that paperwork.
“So it was either receive a grant this year for the runway and get it paved and rehabbed, or not receive a grant, so we went ahead and received a grant for it,” Kerstein said.
She said it’ll take another project to complete the displaced threshold.
“And that’s about 360 feet as I understand it?” Board President Jay Rigdon asked Kerstein, and she said yes.
“And, also, is it your opinion that this will not in any way significantly affect usage out at the airport?” Rigdon asked her, and she agreed. The project just won’t be fully completed until next year.
“It’s very minor. It’s changing lights and changing pavement markings, but they wouldn’t allow that. Unfortunately, we’ll have to go and get that documentation done after the fact,” she said.
She also said the main reason behind this is that when the power lines are lowered at the east end of runway 9/27, the displaced thresholds would help larger aircraft on the runway.
“So we really need to do that work before we do 9/27 so that some of our larger aircraft can still take off,” Kerstein said.
She said they have a meeting with FAA and the Indiana Department of Transportation in November and that’s when they’re hoping to discuss finishing the 18/36 project in 2021.
Construction of the project was on day 19 of 55 Tuesday. Weather permitting, paving is scheduled for Thursday.
Phend & Brown is the contractor for the 18/36 project and Kerstein said CHA reviewed Phend & Brown’s first pay request for $115,000 and found it correct. The Board of Aviation approved the request.
Kerstein then moved on to the power line lowering project on the east end of runway 9/27. There’s been some discussion for months about whether or not American Electric Power has to pay the federal Contributions in Aid of Construction (CIAC) gross-up tax or not if AEP is paid to lower the lines. The tax would be over $600,000 for AEP.
Kerstein said, “For the construction mitigation, we have heard back from the FAA on the gross-up tax, and unfortunately, they said that they do not have the information to support that they are exempt from that gross-up tax, so they referred us to talk to a (certified public accountant).”
King said the issue they’re running up against with the gross-up tax is that there’s no case law that has been tried. It’s part of the new tax code, having just been introduced in December 2017.
“There’s not been a situation like ours yet to really look into how this law has risen and is this type of tax applicable for this project,” King said. “Because, in my opinion, and I’m not an attorney, the way I read the tax code, this is not an eligible project for that tax because AEP is not improving their lines, we are requiring them to lower them. They gain no new customers, they gain no new infrastructure. It is the same after as it is before, just 100 feet lower. That’s all we’re asking them to do.”
He said he thinks the tax is only applicable if AEP improves its infrastructure or gaining new clients, which AEP isn’t doing. King said they just need a person with the proper credentials to go through all of that and make sure that’s correct. Once they have that opinion, he said they’ll go back to negotiations with AEP.
Rigdon asked King if he had any feeling on what AEP says they will need in order to feel comfortable to remove that. Kerstein said AEP was amenable to the FAA coming back and saying AEP was exempt, but she didn’t know how amenable they were to an attorney saying they were. King said AEP wasn’t going to do the legal legwork to find out the answer.
Rigdon said they needed to get a legal opinion, which would be taken to the FAA to have their legal counsel sign off on it. If the FAA went along with it, Rigdon said AEP “probably” would go along with it. King added the IRS may have to sign off on it, too.
“We are in the middle of researching it right now,” King said.
Dan Robinson, board member, said since the gross-up tax is a federal tax, “Wouldn’t it be smart to just contact the IRS commissioner and get an opinion?”
King said originally they thought the tax was an Indiana Utility Regulatory Commission tax.
“We’re paying AEP this amount of money for the project. It is AEP’s opinion that if this tax applied, they have to pay income tax on the money we give them because they have to put it in their books as income. They are taxed at the federal level at 21% and at the state level at 5%. We’ve already got the Indiana Department of Revenue to decouple from this rule, so that took the 5% right off. And it was their opinion that it didn’t matter because they didn’t think this project qualified (for the tax), but that’s just the state, not the IRS,” King explained.
It’ll still be a $650,000 tax on the project even after depreciation, he said, and that’s huge.
Later in the meeting, Robinson said they had AEP’s price, AEP is aware of its tax situation and Indiana agreed to remove its 5% tax. “So, we have a price, why can’t we move forward with this since we have the grant, with the understanding that, basically, if we win on the tax issue, write a change order and be done with it so we can get going? Because I’m afraid if this keeps going another year, the price is going to go up more than we gain in the taxes. We’re not going to gain any ground here. We’ve put this off year after year ... and every year the cost goes up another 10% or so.”
Kerstein said they’d look into that.
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