The Core Footprint: Launch Sites and Re-Entry Sites Under Title 51
The One Big Beautiful Bill Act authorized tax-exempt private activity bonds for “spaceports.” The definition of a spaceport has two core components: a geographic limit, and an activity-based limit. In other words, where is the facility you want to finance, and what does it do?
Let’s talk about the “where?” question. The statute provides that a “spaceport” means “any facility located at or in close proximity to a launch site or a re-entry site.” This suggests that qualifying facilities can be either on a core footprint that is “the site,” or on land that is some additional distance outside that footprint. So this raises two important questions – what is the scope of that core footprint, and how much farther beyond that can we go in treating additional facilities as satisfying the geographic limit?
The spaceport rules punt the first question – what is the core footprint? – to Title 51 of the U.S. Code (“National and Commercial Space Programs”), section 50902. There, both “launch site” and “reentry site” are defined by the geographic boundaries of the spaceport’s Federal Aviation Administration (FAA) license. (We will discuss those licenses in additional articles in the future.)
What "In Close Proximity To" Means for Spaceport Facilities
The second question is what we’ll discuss here: What does it mean for a facility to be “in close proximity to” a launch site or re-entry site?
Congress did not define what it means (and the Joint Committee on Taxation (JCT) did not venture a guess in the Blue Book), but we have some clues. The spaceport bond provisions are linked to the existing law governing tax-exempt private activity bonds (PABs) for airports. (Recall that the heading of the section that enacted the spaceport provisions was: “Spaceports are treated like airports under exempt facility bond rules.”) Treasury has promulgated airport PAB regulations that use that exact phrase when discussing what facilities are included in the definition of an “airport” for PAB purposes. Specifically, the airport PAB regulations provide that a facility is not a qualified airport facility “if the facility need not be located at, or in close proximity to, the take-off and landing area in order to perform its function.” Treas. Reg. 1.103-8(e)(2)(ii)(a). The regulations then give examples of “facilities which satisfy those requirements,” which are “terminals, runways, hangars, loading facilities, repair shops, and land-based navigation aids such as radar.” Land-based navigation aids are specifically cited by the regulations as an example of a facility that “may qualify under this provision even though not located at the take-off and landing area.” T.D. 7737 (Nov. 17, 1980). The regulations also give an example of a facility that likely does not meet the “in close proximity to” standard. Interestingly, these 1980 regulations are the most recent ones issued for airport PABs, and they were issued largely to prevent the financing of the headquarters of an airline, or, to use the words from the regulations: “an office building (or office space within a building) or a computer facility, either of which serves a system-wide or regional function of an airline, is not considered part of an airport.” Id.
Applying the Standard: Lessons from FSA 200237016
However, there is very little guidance – a single “Field Service Advice” (FSA) from the IRS Chief Counsel’s Office – that applies that regulation to particular facts. In FSA 200237016 (May 14, 2002), Tim Jones of the IRS Chief Counsel’s Office advised a deputy area counsel’s office that “maintenance engineering facilities adjacent to” an airport (think of the giant hangars that you sometimes see along the runway when you’re taxiing for takeoff) that would be leased to a common carrier airline were qualified airport facilities. The FSA does not say what “adjacent to” means, or how close the maintenance facility was to the airport, however, so it is of limited use for illustrating how the “in close proximity to” standard applies to spaceports. Interestingly, the airline did not provide passenger service at that particular airport, and it appears the airport was mostly unused.
The airport provided “air freight, air cargo, charter flights, flight instruction, avionics service, and major repairs” but had “no regularly scheduled air carrier service.” The FSA advises that the maintenance facility was a qualified airport facility because: (1) The maintenance facility “services and maintains aircraft used by” the airline; (2) The adjacent airport “is capable of handling the size and type of aircraft serviced” at the maintenance facility; and (3) The maintenance facility “is located at or adjacent to the Airport and must be so located in order to perform its function.”
In its analysis, the FSA seems to be borrowing principles from the “functionally related and subordinate” rules, which treat a facility as a qualified PAB facility if it is “functionally related and subordinate” to the core facility. This standard is one that is common to all of the different categories of exempt facilities that qualify for PAB financing under Code Section 142, although some of the categories of exempt facility bonds have special considerations for applying that test to a particular category. Beyond that, however, the FSA does not provide much guidance that is useful for spaceports.
How the Spaceport Standard Differs from the Airport PAB Standard
There is a subtle distinction between the way that the “in close proximity” standard works in the airport rules compared to the spaceport rules, however, which makes the standard potentially more favorable for spaceports than for airports. For airport PABs, a facility is not a qualified airport facility if it “need not be located at, or in close proximity to” the takeoff and landing area. In other words, you can’t transform a facility into a qualified airport facility just by plopping it down near a runway if it need not be located there to do its job. (Although the thought of getting in the cockpit of a Boeing 787 at LaGuardia, driving it onto the Grand Central Parkway, paying the toll on the Triborough Bridge, and then double-parking the aircraft outside a maintenance facility in lower Manhattan is an amusing one, I think we can agree that maintenance facilities probably need to be located close to the runways to best do their job.) Compare that to the headquarters for an airline, which doesn’t need to be located near the airport for the airline’s corporate employees to do their jobs.
In contrast, even if a facility that otherwise qualifies as a spaceport would not need to be located at or in close proximity to a spaceport, it can be a qualified facility if it is, in fact, located in close proximity to a spaceport. This makes some sense, given that the list of qualified spaceport activities is much broader and includes manufacturing facilities, which would not need to be located near a spaceport. Indeed, locating those facilities at some distance from the spaceport makes sense in general for the very simple reason that it avoids the inherent hazards of being near a launch site, which is much less of a concern than for airports.
Practical Considerations for Financing Spaceport Facilities
As with most standards like this in the tax-exempt bond realm (think of all the conversations over the years about whether a facility is close enough to one that was described in a Tax Equity and Fiscal Responsibility Act of 1982 [TEFRA] notice, for example), we are left without clear rules and forced to make hard calls. I think we can safely say, however, that the standard for whether a facility is located in close proximity to a launch site or re-entry site will be similar to the standard that applies to airports. Further, I think we can safely say that the standards for what makes a facility functionally related and subordinate to a spaceport will be helpful in determining whether a facility is located in close proximity to a spaceport, as the IRS showed in the FSA described above. The question of whether and how the functionally related and subordinate test applies to spaceports is a separate topic, however.
