Legislature(1993 - 1994)
03/12/1994 10:05 AM Senate FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SENATE BILL NO. 261
An Act relating to municipal sales and use taxes
involving air carriers; and providing for an effective
date.
Co-chair Pearce directed that SB 261 be brought on for
discussion and referenced the Senate Community and Regional
Affairs Committee Substitute; sponsor statement; fiscal
notes; opposition papers from the Alaska Municipal League,
Haines Borough, and City of St. Mary's; a position paper by
the air carriers in support of the bill; and information
from both the FAA and U.S. Dept. of Transportation. The Co-
chair further directed attention to a work draft committee
substitute (8-LS156\R, Cook, 3/11/94), proposed by Senator
Sharp, as well as a proposed letter of intent.
Senator Sharp MOVED for adoption of CSSB 261 (Fin), "R"
version, for discussion purposes. No objection having been
raised, the "R" version of CSSB 261 (Fin) was ADOPTED.
Senator Sharp explained that CSSB 261 (Fin) adds the word
"air" before transportation in title language at page 1,
line 1, and within the body of the bill at line 10. That
ensures that the legislation addresses air transportation
rather than auxiliary transportation provided by an air
carrier on the ground. The new draft also adds subsection
(b) to the previously included (e) under 49 U.S.C. App 1513.
That section reassures that municipalities may continue to
charge property taxes, income taxes, franchise taxes, and
sales and use taxes on the sale of associated goods and
services provided by air carriers. It further reassures
that the right of municipalities or other political
subdivisions that own or operate airports to levy or collect
reasonable rental charges, landing fees, or other service
charges from aircraft operators is not infringed upon.
The Senator spoke to past efforts to tax passenger fares and
freight in intrastate commerce. The intent of federal
legislation, as evidenced in recent court rulings, is that
that is not allowable. The proposed bill clarifies federal
law.
Senator Sharp further noted deletion of the retroactive
clause from previous versions of the bill and advised that
CSSB 261 (Fin) would become effective immediately.
Senator Kelly referenced information from the Haines Borough
indicating that the borough applies a sales tax on
intrastate freight. He then asked if the bill would impact
ability to continue to collect the tax. Senator Sharp
concurred that it would. He reiterated that the purpose of
federal legislation is to ensure that regional areas do not
add costs within their particular area that would be
transferred outside the region in terms of freight and
passenger service. Senator Kelly pointed to language within
the position paper stating that the FAA Act of 1958 does not
prohibit municipalities from assessing the sales tax.
Senator Sharp advised that federal law is clear. He
suggested that if the Haines sale tax is challenged, the
borough might face return of tax moneys. Such a tax tips
the economic balance of shipping freight and passengers
between locales on federally certificated airlines. Senator
Kelly voiced discomfort over "stripping" the tax from the
borough.
CRYSTAL SMITH, Alaska Municipal League, came before
committee in opposition to the bill. She refuted comments
that the bill merely clarifies federal law. Statements
embodied in correspondence from general counsel, U.S.
Department of Transportation, and court rulings indicate
that the proposed bill would go beyond federal law in
prohibiting municipalities from levying a sales tax on the
carriage of freight. Ms. Smith directed attention to
language within the League position paper and noted comments
by Alaska Superior Court Judge Jonathan M. Link in Homer Air
vs. Kenai Peninsula Borough et al. The preliminary ruling
indicates that Section 1513 of the Federal Aviation Act does
not prohibit sales tax on the transportation of freight.
Ms. Smith noted instances where municipalities have
attempted to impose such a tax and were told by air carriers
that the tax was contrary to federal law. Given the
financial resources of a small municipality versus the air
carriers, the municipalities have, in most cases, backed
down. However, the Haines Borough is successfully levying a
tax, based on opinions from city attorneys, per information
from the FAA, that the tax is allowed under federal law.
The situation at St. Mary's whereby the city seeks to place
a sales tax on shipments of raw fish through the local
airport brought this issue to the fore. Air carriers are
fighting the tax which would provide approximately $100.0 in
revenue to the city. The city is presently negotiating with
air carriers. Passage of the proposed bill would render the
issue moot.
Ms. Smith reiterated opposition to the bill, advised that
issues surrounding freight are not clear, and requested that
the matter remain open. She acknowledged that fiscal notes
evidence little impact. The proposed bill involves "one of
those prospective things where you're cutting off an option
for municipalities to impose a tax that might help them in
times of other declining resource situations."
Senator Sharp asked if information from the Alaska Municipal
League was made known to House members furthering similar
legislation. He also asked that he be provided information
from the FAA (evidencing that the Haines tax is legal) and
inquired concerning how much revenue had been collected up
to this time. Ms. Smith explained that she spoke with the
city clerk and treasurer prior to consideration of the bill
in the House. She acknowledged that she did not, at that
time, have anything in writing from the Haines Borough. She
further referenced correspondence from the FAA to the City
of Yakutat and from the U.S. Department of Transportation to
counsel for a number of small municipalities indicating that
"taxes on the intrastate air carriage of property are
permissible."
Senator Rieger asked if all commercial air carriers are
federally certificated. Senator Sharp voiced his
understanding that federal law applies to all federally
certificated airlines and those operating under FAA
regulations. That would include "everybody that has a
commercial license."
HAROLD JONES, City Council Member, next testified via
teleconference from Bethel. He voiced opposition to the
bill and support for the position taken by the Alaska
Municipal League. Bethel is considering an ordinance for a
use tax on alcohol. Air freight is the only means by which
alcohol, sold in Anchorage and elsewhere, is brought into
Bethel. While the tax will be upon the consumer, the city
is reviewing the possibility of having the air carrier
collect the tax for remission to the city.
Bethel spends approximately $1.4 million on its police
department each year. The town of 5,000 is the hub village
for 25,000 people. The tax base consists of a 5% sales tax.
The proposed use tax would help offset some of the losses in
revenue from the state. The city is looking specifically at
a use tax on alcohol because it is the cause of many
problems. Since the airlines are bringing alcohol into
Bethel, it seems logical to have them collect the tax on
those who ship it.
Senator Rieger asked if the city assesses dockage fees for
water transportation into Bethel. Mr. Jones advised that
the port is a state facility. He added that the city
imposes wharfage and dockage fees. Senator Rieger suggested
that a similar fee be levied at the airport. Mr. Jones said
the city intends to tax the product rather than the freight.
There is concern that the proposed bill will prevent
collection of the use tax. Mr. Jones noted that the state
has "complete jurisdiction over our airport;" the city is
not involved.
Senator Sharp voiced concern over selective taxation of a
particular commodity. He then asked what would prevent
other communities from levying a similar tax. As an
example, he asked what would happen should Anchorage levy a
5% sales tax on all freight leaving the municipality. The
prime purpose of the bill is to prevent one region from
jeopardizing the economic shipment of freight to another
region within the state or between states. That is the
thrust of federal legislation.
CARRIE WILLIAMS, former City Manager of St. Mary's, next
spoke via teleconference from Anchorage. She voiced concern
over lost revenues to bush communities resulting from
prohibiting sales and use taxes. Speaking specifically on
behalf of St. Mary's, Ms. Williams noted past receipt of raw
fish taxes from fisheries in the area. Those revenues have
now been lost. Rural communities have had to maintain
police departments and roads and have nominal revenues. St.
Mary's has a $2.5 million budget. Loss of ability to tax
freight service on the 5,200 tons of raw fish shipped out of
the community would total $88.0. The contention is that use
of the airport for shipment is a basic service of the
community. A small roadhouse, restaurant, and lodging
facility pay a sales tax. Airlines derive a benefit from
revenues. Just as ground taxi service is a taxable entity
in St. Mary's, air taxi operations and freight should also
be taxed. There is no distinction between that and wharfage
fees for use of the dock.
Ms. Williams observed that in discussion with air carriers,
the carriers are not able to adequately defend the fact that
intrastate trade is tax exempt. City attorneys have not
found referenced cases particularly adequate in defense of
carrier contentions. Bush communities are asking that they
be allowed to tax, at local rates, sales of services out of
their communities. The tax at St. Mary's is intended to
recoup lost raw fish tax revenues and cover the impact on
airports and community services.
TIM TROLL, City Administrator/City Attorney, Sand Point,
Alaska, next testified via teleconference from Anchorage.
He voiced support for the position of the Alaska Municipal
League. He reference a recent Anchorage Daily News article
which indicates need for the proposed legislation to avoid
potential litigation brought by the fact that city
administrators "are always looking at this area as a
possible source of new revenue." Mr. Troll suggested that
the legislation would lead to more litigation because it
will create a "whole new area of state jurisprudence as to
exactly what was meant and how extensive this particular
provision would go." Will it prohibit Bethel from levying a
use tax on alcohol imported into the community?
Mr. Troll suggested that if the position of air carriers is
that the proposed bill merely makes clear what is already
clear in federal law that freight service is exempt, perhaps
the bill should simply state:
Notwithstanding other provisions of law, a municipality
may not levy or collect a tax or fee on the
transportation of individuals or goods by a federally
certificated air carrier, except to the extent allowed
by 49 U.S.C., Sec. 1513 (b).
Subsection (b) is the language communities claim authorizes
state and political subdivisions to "at least look at the
area of freight as a possible source of taxation."
Mr. Troll suggested that action on CSSB 261 (Fin) would
result in passage of bad law and special interest
legislation. It would further restrict municipalities that
are receiving less from the state and being told to be more
responsible locally. Mr. Toll suggested that the
legislature review methods to even the tax load rather than
pass bad legislation. He noted that most states have a
state sales tax which alleviates the problem of intrastate
taxes among communities. A level playing field might
include a state tax that is shared back with municipalities.
That would be precluded if the proposed bill is passed.
End: SFC-94, #30, Side 1
Begin: SFC-94, #30, Side 2
REED STOOPS next came before committee on behalf of the
Alaska Air Carriers Association. He voiced support for the
legislation. He explained that while federal law is clear
as to what is and is not taxable in commercial aviation, the
benefit of the proposed bill is to avoid additional
litigation.
Mr. Stoops directed attention to correspondence to and from
the U.S. Department of Transportation. He noted language in
October 2, 1986, correspondence from the department
indicating that taxes on passengers and interstate freight
are not permissible. That is intended to prohibit
regulation of interstate commerce--a normal federal
preemption. Further, federal taxes on those services accrue
to the federal airport trust fund, and trust funds are
returned to states for airport improvements. Alaska is a
beneficiary of the system. The state actually collects more
in trust funds than it pays in taxes.
The only area that general counsel indicated might be
eligible for taxation is intrastate air freight. Subsequent
to the correspondence, the circuit court in Florida ruled
that intrastate air cargo is also exempt from taxation.
Federal law is clear. Litigation costs for both
municipalities and air carriers should be avoided. The
proposed bill would be beneficial to that end.
Speaking to the situation at Haines, Mr. Stoops observed
that the fiscal note from the Dept. of Community and
Regional Affairs indicates nominal collection of tax. The
air cargo tax is not being paid by one or two of the three
carriers into Haines. By virtue of the Florida decision,
the tax could easily be overturned.
Mr. Stoops voiced his understanding that the City of Bethel
seeks to levy a tax on alcohol coming into the community.
He noted that Anchorage sales taxes would cover the sale at
the point of origin, and air freight taxes are prohibited by
law. It would thus not be appropriate for the air carrier
to collect the proposed tax.
Addressing comments by the city administer of Sand Point,
Mr. Stoops suggested that the bill is written as suggested.
It specifically references municipal taxation under
"113(b)." That was at the suggestion of the Alaska
Municipal League. Federal Code section "113(b)" speaks to
areas in which municipal or state taxes can be collected.
It is not the intent to deny municipal collection of legal
taxes such as landing fees, fuel flowage fees, fees on
airline meals, or fees on indirect services. Mr. Stoops
reiterated that it is not the intent to deprive
municipalities of collection of legal taxes under federal
law.
Mr. Stoops advised that federal certificates referred to in
the legislation encompass Part 101 certificates for
scheduled air carriers and Part 135 certificates for air
charter operations.
Crystal Smith again came before committee on behalf of the
Alaska Municipal League. She referenced February 5, 1993,
correspondence from general counsel at the U.S. Department
of Transportation and noted that it was issued subsequent to
the Florida decision. It reiterates the position that a
state tax and, by extension, a municipal tax may be levied
on intrastate transportation of air property. The issue is
not as clear cut as air carriers would have one believe.
Senators Rieger and Kerttula requested copies of the 1993
correspondence.
Co-chair Pearce called for additional discussion of the
bill. None was forthcoming. She then queried members
regarding disposition. Senator Sharp MOVED for adoption of
the proposed letter of intent, advising that it clarifies
that the intent of the bill is to "make state law exemptions
for what the federal law states." No objection having been
raised, the letter of intent was ADOPTED. Senator Sharp then
MOVED that CSSB 261 (Fin) pass from committee with
individual recommendations, accompanied by the letter of
intent and three fiscal notes. Co-chair Pearce called for a
show of hands. The motion carried with only Senator Jacko
objecting. CSSB 261 (Fin) was REPORTED OUT of committee
with the Senate Finance letter of intent, zero fiscal notes
from the Dept. of Transportation and Public Facilities and
Dept. of Community and Regional Affairs, and a municipal
fiscal note from the Dept. of Community and Regional Affairs
indicating minimal loss. Senator Sharp signed the committee
report with a "do pass" recommendation. Co-chairs Pearce
and Frank and Senators Kelly, Kerttula, and Rieger signed
"no rec." Senator Jacko signed "Do not pass."
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