Legislature(1997 - 1998)
04/02/1997 01:40 PM House FIN
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE BILL 63
"An Act extending the motor fuel tax exemption for fuel
sold for use in jet propulsion aircraft to fuel used in
those aircraft for flights that continue from a foreign
country; and providing for an effective date."
Co-Chair Therriault informed members that work draft #0-
LS0262\L, Chenoweth, 3/11/97, had been adopted at a previous
meeting.
Representative G. Davis MOVED to adopt Amendment #1. [Copy
on file]. Co-Chair Therriault OBJECTED for the purpose of
discussion.
Representative G. Davis explained that Amendment #1 would
delete the reference to passenger "water craft", which would
change the intent and would increase sales of bunker fuel.
Usage of "passenger" restricts sales to cruise ships who
utilize bunker fuel.
BOB BARTHOLOMEW, DEPUTY DIRECTOR, INCOME & EXCISE AUDIT
DIVISION, DEPARTMENT OF REVENUE, spoke to the fiscal impact
of the amendment. He noted that currently, the marine motor
fuel tax is collected by the Department of Revenue and does
not provide a report in which the information is separated
between the amount of bunker fuel used. There would be $600
thousand dollars of lost tax revenue with passage of
Amendment #1.
Representative J. Davies questioned if non-passenger water
craft was currently fueling in Alaska. Mr. Bartholomew
understood that the tax would be placed on fuel purchased or
used by the company that actually produces it, selling it
then to others who export.
He continued, in 1994, a provision was adopted by the
Legislature that charged a full marine fuel tax on purchases
up to four million gallons. At that threshold, the tax
would be dropped from five cents a gallon to one cent a
gallon to encourage bunker fuel business outside of Alaska.
That action created a revenue increase in the first couple
of years, although, to date it has "fallen off".
MARK NECESSARY, TESORO, ALASKA, KENAI, noted that the
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majority of the bunker fuel used was on ships transporting
oil throughout the states. He added, the oil industry hopes
to attract "takers" who are currently using other sources.
Representative J. Davies asked if the amendment would be
expanding the exemption to "all" water craft. He inquired
if there would be an incentive to the vessels currently
fueling outside the State. Mr. Necessary ascertained that
bunker fuel sells at a low cost and that the tax is a
substantial portion of that amount. From TESORO's
perspective, inclusion of the proposed language will provide
an opportunity to develop that business.
Representative Martin questioned if ship carriers paid taxes
in other states. Mr. Necessary understood that they do not
which then places Alaska at a disadvantage. The objective
is to price the fuel to be competitive with other markets on
the West coast. Representative Martin suggested that being
"competitive" would be at the State's lost revenue expense.
Co-Chair Therriault clarified that royalty oil contracts are
not "sweetheart" deals; fair market price is paid.
Representative G. Davis added that the bunker fuel that
TESORO produces is residual waste product, suggesting that
it could be beneficial to major industry. He urged the
Committee's support of the amendment. Co-Chair Therriault
WITHDREW his OBJECTION. Representative Martin OBJECTED.
A roll call vote was taken on the MOTION.
IN FAVOR: G. Davis, Foster, Kelly, Kohring,
Hanley, Therriault
OPPOSED: J. Davies, Martin
Representatives Grussendorf, Moses and Mulder were not
present for the vote.
The MOTION PASSED (6-2).
Representative Foster MOVED to adopt Amendment #2. [Copy on
file].
PETER ECKLUND, STAFF, REPRESENTATIVE TOM WILLIAMS, provided
a historical background, pointing out that since 1990, the
State has lost over 60% of the jobs in the Tongess National
Forest and the timber industry. He stated that pulp mills
used to be a good "source" for using low end boards for
milling. The amendment would allow for the State to
participate in a new and emerging technology which would
produce ethanol derived from wood and wood wastes.
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Amendment #2 would provide a more narrow focus, keeping the
tax incentive in place but only for ethanol that is produced
from wood. Mr. Ecklund spoke to the many benefits that a
biomass ethanol industry could bring to Alaska:
* Create jobs for Alaskans;
* Save about $1.5 million dollars per year by
decreasing support payments;
* Help sustain the Alaskan timber industry;
* Help abate pollution from vehicles;
* Introduce new ethanol export markets for
Alaska to the Lower 48 and Japan; and
* Increase corporate taxes going into the
Alaskan treasury from the new industry.
Representative Martin asked if this would "wipe-out" the
ethanol made from other products. Mr. Ecklund replied that
corn, barley and other sources of ethanol would not qualify
for the tax exemption. Representative Martin questioned if
such a restriction would be legal. Mr. Ecklund understood
that it would be legal.
Co-Chair Hanley pointed out that the 10% ethanol is
currently being shipped from out-of-state; Alaska is loosing
all that revenue. He voiced concern for the future,
suggesting that at some point, producers in Alaska would
like to have that advantage. Co-Chair Hanley commented that
his preference was to either repeal such an incentive or use
a 1.5 cents credit for ethanol, which would be well over the
25% credit incentive. His concern was that with a 100%
credit, there would never be an incentive to raise taxes to
dedicate a fund. Co-Chair Hanley OBJECTED to adoption of
Amendment #2.
Ms. Bartholomew spoke to the fiscal impact of Amendment #2.
He pointed out that the Department is not opposed to
business incentives, although, he stressed the "magnitude"
of the incentive provided through Amendment #2. A complete
exemption would delete $6 to $8 million dollars annual
revenue for the State. The unknown issue is the size of the
plant being considered. A feasibility study was provided on
eight million gallons, which would meet about 80% of the
Anchorage market consumption. That would equate to 100
million gallons of tax free gas. Mr. Bartholomew indicated
that the Department did not know at this time, if there
would be an incentive to go statewide. He concluded that
the State should not loose one of the most standard tax
base.
Representative J. Davies asked what corporate taxes could be
realized through the amendment. Mr. Bartholomew noted that
the Department has not looked into that issue. At this
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time, there are 13,000 corporations in Alaska, although, the
largest proportion of revenue tax is provided from a few
companies.
Representative J. Davies commented that he was uncomfortable
with the approach proposed because of the impact on State
revenue. He believed that the State must maintain roads.
He suggested a 5 year "tax holiday" as an incentive to
establish the new business. Mr. Ecklund pointed out that
50-100 direct jobs would result from creating an ethanol
wood plant.
JACK SHAY, MAYOR, KETCHIKAN BOROUGH, KETCHIKAN, noted that
Ketchikan is currently in the throws of restructuring with
the close of the mill. Mayors throughout Southeast Alaska
have been pleading for the release of the Tongess Land Use
Management Plan. When that plan is released, it will
demonstrate that there is ample timber to operate any type
of producing ethanol facility. He urged the Committee to
seriously consider the usage of ethanol from wood products.
Representative J. Davies reiterated his support to the
Ketchikan community and proposed that by creating some sort
of direct "tax holiday" could provide the same incentive
that the amendment would. Mr. Shay requested that Ketchikan
be aided by the State in any capacity to initiate a
methodology to create the facility and eliminate competition
from other interests out side of the State.
Co-Chair Therriault charged that the State was being
requested to provide a "complete" exemption from the State's
tax base before the Borough Assembly of Ketchikan had even
made a determination if "they" would be willing to
contribute an incentive.
(Tape Change HFC 97-86, Side 2).
A roll call vote was taken on the MOTION.
IN FAVOR: G. Davis, Foster
OPPOSED: Kelly, Kohring, Martin, J. Davies,
Therriault, Hanley
Representatives Mulder, Moses and Grussendorf were not
present for the vote.
The MOTION FAILED (2-6).
Representative Martin asked if passage of the bill would
bring a gas increase to consumers in Anchorage. Mr.
Bartholomew replied that he did not know that market or the
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dynamics that affect it. People in the industry have
testified previously on those effects. Co-Chair Therriault
commented that there currently exists a 5.4 cents per gallon
tax break offered by the federal government.
Co-Chair Hanley MOVED to report CS HB 63 (FIN) out of
Committee with individual recommendations and the new
Revenue fiscal note. There being NO OBJECTION, it was so
ordered.
CS HB 63 (FIN) was reported out of Committee with a "do
pass" recommendation and with a new fiscal note by the
Department of Revenue.
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