Legislature(2013 - 2014)HOUSE FINANCE 519
04/07/2014 08:30 AM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB314 | |
| HB376 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | SB 119 | TELECONFERENCED | |
| + | HB 314 | TELECONFERENCED | |
| + | SB 178 | TELECONFERENCED | |
| + | HB 376 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE BILL NO. 314
"An Act relating to the application of the passenger
vehicle rental tax; and providing for an effective
date."
8:46:01 AM
REPRESENTATIVE THOMPSON, SPONSOR, introduced HB 314. He
recounted that the legislature passed the rental vehicle
tax in 2003 in order to help offset the costs for road
repair and maintenance. Since passage of the legislation,
the statute was amended three times due to the law's impact
on Alaskans. He indicated that the bill clarified that the
tax only applied to passenger recreational vehicles as
defined in AS 43.52.010.
JANE PIERSON, STAFF, REPRESENTATIVE THOMPSON, provided a
sectional analysis of the current transportation version of
the bill:
(1) Section 1 Amends AS 43.52.010 and consolidates two
existing sections, regarding the terms "recreational"
and "passenger" into one section. Except for the tax
rates, the factors are the same for both types of
vehicles.
(2) Section 2 Amends AS 43.52.010 by reducing the term
from 90 days to 28 days, for which a lease or rental
is exempt from the rental vehicle tax. It also
clarifies that all renewals and extensions of a
vehicle lease are included when determining if a lease
is more than 28 days and, therefore, exempt from the
rental vehicle tax, as long as no time has lapsed
between the initial end date and the period of
extension.
Ms. Pierson noted that the changes aligned with the current
contracts used by rental companies and that most visitors
rent cars for less than twenty-eight days.
(3) Section 3 Amends AS 43.52.020 to again consolidate
the terms "recreational" and "passenger" to better
organize the statute. This section clearly states that
passenger vehicles are taxed at 10% and recreational
vehicles are taxed at 3%.
(4) Section 4 Repeals AS 43.52.030 and AS 43.52.040
because they are no longer needed due to the changes
made in Sections 1 and 3 together.
(5) Section 5 Provides for an immediate effective
date.
Ms. Pierson furthered that two sections were removed from
the current version. One section decreased the gross
vehicle weight from 8,500 pounds to 6,500 pounds. The
change increased the fiscal note because light weight pick-
up trucks and some models of sport utility vehicles (SUV)
fell into the weight class and were rented as passenger
cars. She added that another change pertained to reducing
the rental term from 90 days to 28 days. Some business
vehicles were leased along with heavy equipment used on the
North Slope or for mining and weren't driven on public
roads. Decreasing the lease period excluded the vehicles
involved in business to business leases. She noted that the
provisions were supported in written testimony.
Representative Holmes recalled that last year the
legislature dealt with the tax on leased motorcycles. She
asked whether the bill affected leased motorcycles.
Ms. Pierson replied in the negative.
Representative Gara stated that he liked the legislation
and understood the purpose of the bill. He supported
addressing the problem for vehicle rentals between Alaska
business to Alaska business and the language regarding
recreational and passenger vehicles. He cited page 1, line
12:
(1) the initial lease or rental contract is for a
period of 28 days or more;
Representative Gara deemed that 28 days was not the
appropriate alternative to solve the problem. He indicated
that many Alaska visitors came for longer than 28 days and
should pay the tax. He suggested crafting different
language that applied an exemption if the rental was for
the purposes of work with another Alaska business and not
for recreational purposes.
Ms. Pierson replied that the twenty-eight day time period
was chosen because it was the shortest amount of days in a
month and the shortest term of a commercial lease. She
stated that the bill had "gone through multiple
iterations." She shared a brief summation of the issue. She
cited a letter from British Petroleum (BP) (copy on file).
She cautioned that a criminal investigation was underway
around the issue which created ethical challenges during
discussions of the legislation. The business rental
vehicles were not driven on state maintained or public
roads but were being taxed. The situation was problematic
for the Department of Revenue (DOR) because they did not
have a way to determine the end use of the lease. Industry
was receiving tax notices for the rentals. She was unaware
of companies that collected the tax, and did not submit the
revenue to the state, but if the scenario happened criminal
charges should ensue. She discerned that the situation was
problematic for when taxes were not paid for vehicles
destined for the North Slope due to the description of
"highways" in statute. She noted that statutes contained
three different definitions of highway. Two of the
definitions included roads having public access and public
maintenance. One other definition contained in AS 19.59.001
described highway as follows:
(8) "highway" includes a highway (whether included in
primary or secondary systems), road, street, trail,
walk, bridge, tunnel, drainage structure and other
similar or related structure or facility, and right-
of-way thereof, and further includes a ferry system,
whether operated solely inside the state or to connect
with a Canadian highway, and any such related
facility;
Ms. Pierson wondered whether the question of how to
interpret what a public highway was would be best addressed
by the Department of Revenue. She read the passenger
vehicle tax statute:
The passenger vehicle is a motor vehicle as defined in
AS 28.90.990 that is driven or moved on a highway or
other public right-of-way of the state.
Ms. Pierson concluded that the issue was "hard to define."
8:56:48 AM
Representative Gara mentioned the zero fiscal note.
Ms. Pierson pointed out that the fiscal note; FN1 (REV) was
indeterminate for changes in revenue. She related that the
changes reflected in the legislation resulted in a minimal
reduction in the vehicle rental tax collected. A costly
fiscal note was associated with the previous version of the
bill. The weight restriction provision alone lost
approximately $750 thousand in revenues for the state.
Representative Gara asked whether a business to business
rental would pay the rental for the first 28 days.
Ms. Pierson replied in the affirmative. She added that a
business vehicle rented for less than 28 days on the North
Slope would also be taxed according to DOR.
Representative Gara referred to page 1, line 12. He deduced
that if the rental was longer than twenty-eight days the
leasee would qualify for a refund for the initial twenty-
eight days. He wondered why the initial 28 days was
exempted from the tax.
Ms. Pierson disagreed and stated the provisions in the bill
specify the conditions of exemption for a lease over
twenty-eight days. She read the conditions [page 1, line 12
through page 2, line 5]:
(1) the initial lease or rental contract is for a
period of 28 days or more;
(2) the initial lease or rental contract is in
writing; and
(3) the lease or rental contract is not terminated
before the expiration 1 of 28 days.
(c) An extension of a lease or rental that is
exempt under (b) of this section is exempt if the
extension is agreed upon before the expiration of
the initial 28-day lease or rental period and
there is no break between the initial period and
the period of the extension.
Ms. Pierson noted that some vehicles arrive at the North
Slope and never leave.
Representative Gara requested clarification. He pointed to
the conditions on [Section 2] page 1, lines 11 through 14
and page 2, lines 1 through 5 [listed above] and
ascertained that the leasee was exempt from the initial 28
day period if the conditions were met. He recommended
inserting a provision that the leasee was not exempt from
the initial twenty-eight days of tax accrual.
Co-Chair Stoltze agreed with the need for clarity. He
recollected the floor debate on the original bill and
stated that there was not debate about the legislation
affecting leased North Slope vehicles.
Co-Chair Austerman expressed hesitancy regarding the
language. He requested clarity on Section 2.
MATT FONDER, DIRECTOR, TAX DIVISION, DEPARTMENT OF REVENUE
(via teleconference), relayed the departments
interpretation that if the vehicle was initially rented for
at least 28 days all of the tax, including the initial
twenty-eight days was exempted. He understood that the
total exemption was the intent of the bill.
Co-Chair Austerman asked whether a recreational vehicle
(RV) that was rented for thirty days was exempted from the
tax.
Mr. Fonder replied in the affirmative.
Representative Gara stated that many tourists rent vehicles
for time periods of thirty days or more. He suggesting
adding the following language to the provision on page 1,
line 11: "…starting on the 29th rental day." The tax for
the initial twenty-eight day period would not be exempted.
Representative Thompson stated that the suggested language
defeated the purpose of the legislation. He voiced that the
bill was modeled after the bed tax collected in the state.
The bed tax was waived if the visitor stayed over 30 days
and was not collected for the first thirty days. He
believed that the provision "would change the whole picture
of the bill."
Representative Holmes asked why the ninety day period from
the initial bill was shorted to twenty-eight days.
Co-Chair Stoltze interjected that the twenty-eight day
period was chosen due to the fear of unintended
consequences.
Ms. Pierson clarified that the twenty-eight day period
attempted to address the Alaska businesses leasing vehicles
to other Alaska businesses rental issue but capture the
original intent of the bill aimed at tourism. She indicated
that the Alaska business vehicle rentals were mostly long-
term contracts and that the shortest business leases were
28 days long based on the shortest month of the year. The
language in the bill was taken directly from DOR's
regulations. She would welcome committee suggestions to
find "a better way" to write the bill.
9:08:11 AM
Representative Holmes understood the issue and wasn't
suggesting that the initial twenty-eight day period should
be taxed, but she expressed concern that the twenty-eight
day period was too short. She noted the statutes cited in
Section 1: AS 43.52.010 and Section 2: AS 43.52.010 and
reported the lack of subsection (a), which did not conform
to the original statute. She asked for clarity.
Ms. Pierson deduced that the omission was probably a
drafting error.
Representative Guttenberg relayed personal rental
experience regarding taxation. He believed that "there
wasn't any way around… the difference between extensions of
a few days versus not having to pay any of the tax." He
wondered whether the intent of the bill could be met under
any situation.
Ms. Pierson stated that she was open to suggestions for
solutions.
Co-Chair Stoltze understood that a considerable amount of
vetting occurred between the sponsor and DOR. He suggested
that Commissioner Rodell testify on the issue. He wanted to
avoid any further "unintended consequences" with any
proposed solutions.
Representative Munoz asked what the amount of the business
to business tax collected annually was.
Ms. Pierson replied that the total annual rental car tax
collected was $7 million. She remarked that DOR had no way
to determine where the vehicles were located in the state,
which made it difficult to bracket the tax. She believed
that differences in the legislative intent affected
implementation of the tax throughout the years. She hoped
the original intent regarding passenger vehicle rental car
use on Alaska's roads could be accomplished with the
legislation.
Representative Munoz suggested deleting the word
"passenger" and focus on recreational vehicles.
Ms. Pierson stated that deletion of "passenger" would
exempt every single rental car. She referred to AS
43.52.099 that defined passenger vehicle and read:
(2) "passenger vehicle" means a motor vehicle as
defined in AS 28.90.990 that is driven or moved on a
highway or other public right-of-way in the state, but
does not include…
Ms. Pierson stated that the sponsor could not find proper
language for an additional exclusion.
Co-Chair Stoltze wanted the discussion to focus on the
equity issue, intended purpose, and whether it was good
policy.
Co-Chair Austerman expressed similar concern about the
legislation opening a loophole in the law allowing a person
renting RV's to avoid paying taxes. The leasee would merely
have to extend the contract before the twenty-eight day
period expired.
Ms. Pierson suggested dividing the sections and keeping the
recreational vehicles in a separate category. She would
confer with DOR on the language.
Co-Chair Austerman understood the issue, but felt that the
bill did not meet the intention of the legislation.
Representative Gara addressed the underlying purpose of the
legislation. He commented that most of the real Alaskan
businesses bought its own vehicles. If the legislation was
focused on the oil industry, he did not believe the
industry needed another tax break. The legislature spent a
lot of time debating oil tax breaks last year. He voiced
that the "state was in the red" and he was not comfortable
with that aspect of the bill.
HB 314 was HEARD and HELD in committee for further
consideration.
Co-Chair Stoltze commented that the leasing agencies were
the "broader concern" of the legislation. Alaskan
businesses were in a "precarious" state with the
uncertainty of the law pertaining to lack of enforcement
and collection.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 314 - Correspondence between BP and DOR.pdf |
HFIN 4/7/2014 8:30:00 AM |
HB 314 |
| HB 314 - HB 271 Sponsor Statement 23rd legislature.pdf |
HFIN 4/7/2014 8:30:00 AM |
HB 314 |
| HB 314 - Letter of Support AOGA 3.11.14.pdf |
HFIN 4/7/2014 8:30:00 AM |
HB 314 |
| HB 314 - NSLP Map.pdf |
HFIN 4/7/2014 8:30:00 AM |
HB 314 |
| HB 314 - Relevant Excerpts from the Legislative History.pdf |
HFIN 4/7/2014 8:30:00 AM |
HB 314 |
| HB 314 - Sectional Analysis 4.4.14.pdf |
HFIN 4/7/2014 8:30:00 AM |
HB 314 |
| HB 314 - Sponsor Statement ver. O 4.4.14.pdf |
HFIN 4/7/2014 8:30:00 AM |
HB 314 |
| 2013AnnualReportFINAL.pdf |
HFIN 4/7/2014 8:30:00 AM |
HB 376 |
| AHCC audit rpt-2013.pdf |
HFIN 4/7/2014 8:30:00 AM |
HB 376 |
| HB 376 Sponsors Statement.pdf |
HFIN 4/7/2014 8:30:00 AM |
HB 376 |
| Resolution.pdf |
HFIN 4/7/2014 8:30:00 AM |
HB 376 |