Legislature(2003 - 2004)
04/29/2003 01:46 PM House FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE BILL NO. 216
"An Act relating to municipal taxation of refined fuel
products."
REPRESENTATIVE TOM ANDERSON, SPONSOR, provided information
about the bill. He read from the sponsor statement as
follows:
House Bill 216 clarifies local taxing authority for
refined fuels sold both within and outside of a local
jurisdiction.
CS HB 216(CRA) clarifies that local governments have
the right to tax any fuel consumed within their
governmental boundaries, but do not have taxing
authority on fuel used in turbine-powered aircraft
(except fuel that his transferred into an aircraft at a
municipal or private airport) or wholesale sales or
transfers of any refined petroleum product.
This type of taxation would also result in residents
from other parts of the State paying local governments
costs in municipalities where they do not reside.
The clarification contained in HB 216 will also benefit
local governments. There is some uncertainty now in
state law about the authority to tax fuel, and HB 216
will clarify the authority to tax locally consumed
fuels.
Finally, one addition has been made to this bill.
Section 4 contains language designed to increase the
maximum amount of loans from the bulk fuel revolving
loan fund from the current $200,000 to $300,000. This
change is necessary due to the rise in fuel prices
nationwide, especially in rural Alaska.
And here in the audience and online are members of
industry including Jeff Cook of Williams Alaska
Petroleum who can give some perspective on the history
of this idea and the need for this legislation.
Co-Chair Harris clarified that the Committee was discussing
the Community and Regional Affairs version of the bill.
JUSTIN CHARON, YUKON FUEL, testified via teleconference in
support of the bill. He stated that his company would like
to increase the [AEA administered] Bulk Fuel Revolving Loan
Fund from $200 to $300 thousand as a result of increases
experienced in the fuel markets over the past several
months. He noted that volatility in the market eroded
buying power of western Alaskan consumers. He pointed out
that infrastructure was available in new villages through
the Denali Commission, which was allowing them to buy enough
fuel for the winter without flying it in. He explained that
flying fuel could cost as much as 100 percent more than fuel
from barges, but stressed that consumers sometimes could not
afford to purchase barged fuel, and had no choice but to pay
the higher prices of flown fuel. He recommended that the
loan program could alleviate this problem.
TIM BECK, FAIRBANKS, testified via teleconference in
opposition to the bill. He maintained that this was a
special interest tax, and stated that it was a result of a
similar initiative in the North Star Borough pertaining to a
fuel transfer tax on certain refined fuel products. He
claimed that a fuel transfer tax he had sponsored had been
removed from the agenda due to its similarity to the
initiative, thereby curtailing public discussion on the tax.
He referred to a February 3, 03 letter from Jeff Cook at
William Alaska validating the alleged misinformation put
forth by the initiative sponsors. He noted that a
resolution was to have been forwarded to the Alaska
Municipal League for discussion. He maintained that the
legislation constituted an "end run" around the process that
includes the states, boroughs, cities and municipalities and
directly removes a local revenue generator from already
limited taxing authorities. He read from the 2003
municipalities' handbook, under Revenue and Finance, and
emphasized that the League would oppose limitations to
taxing authority. He noted that several communities already
had fuel transfer taxes on the books. He asked for an
opportunity for the Alaska Municipal League to address this
issue at their fall meeting as originally intended.
MERRICK PIERCE, FAIRBANKS testified via teleconference in
opposition to the bill. He maintained that the legislation
supported special interest groups and subordinated community
interests. He suggested that the Williams Company had
approached the North Pole City Council to pass a resolution
asking the legislature to change state law and exempt
Williams Alaska from taxation of jet fuel. This resolution
was rejected by the Council, who then sent the resolution to
the AML for study. He claimed that the Corporation had then
approached the legislature directly, which resulted in HB
216. He offered an example of how wealthy corporations
"played by different rules" and manipulate the legislative
system: when the borough tax assessors in Fairbanks asses
property value they are required to assess fair market
value, resulting in property tax rates, but they are not
allowed to assess the pipeline system lands since local
officials had that authority taken from them, resulting in a
dramatic drop in the pipeline property valuation. He
maintained that other residents of the borough pay more in
property taxes due to that under valuation. He stressed
that a rule in business was not to give away something
valuable for free, and questioned the return for Alaskans on
this legislation. He maintained that nothing was gained,
but diversification of the local tax base, needed in the
community to offset the high cost of living, was lost. He
noted that the rate of delinquency of property taxes in the
borough had exceeded 10 percent, indicating the heavy tax
burden. He stated that the Fairbanks North Star Borough
Assembly had not given its position on the legislation, and
the North Pole City Council had voted against the
resolution, but asked the AML to consider the issue.
Co-Chair Harris asked if the Alaska Municipal League or the
communities of Anchorage and Fairbanks had provided
information. Representative Anderson responded that the
Executive Director of the Alaska Municipal League had
initially expressed concern about whether language in the
bill prevented taxes on other refined fuel and petroleum
products, which he stated might generate a future amendment.
He added that the Municipal League was supportive of the
amended legislation. In response to a question by Co-Chair
Harris, he noted that Tim Rogers from the City of Anchorage
presented the same initial concerns, which were also allayed
by the amendment. He stated that the city of Fairbanks had
not been present at that meeting, but stated that the
Fairbanks Chamber of Commerce endorsed the legislation.
Mr. Pierce stressed, via teleconference, that the issue was
never brought before the Fairbanks Assembly.
PAUL BARRETT, FAIRBANKS testified via teleconference in
opposition to the legislation. He concurred that the bill
represented special interests, and maintained that while
Fairbanks should be enjoying the lowest fuel prices in the
country, in fact the pricing was among the highest, since
the Alaska market was smaller and instate refineries
experience extreme economic advantage. He submitted that
the purpose of the legislation was to preserve an economic
advantage by maintaining a price advantage. He suggested
that the legislature should not act according to business
needs. He noted that Williams Alaska was concerned with
facilitating a sale of their refinery.
TAPE HFC 03 - 70, Side A
Mr. Barret continued his testimony. He maintained that the
Supreme Court had upheld tax plans innovated by
municipalities. He suggested that before the legislature
acted preemptively in this area that they await the AML
analysis scheduled for the fall. He concluded that should
the legislature choose to act preemptively, the state impose
a statewide excise tax on instate refiners. He maintained
that as long as the tax was restricted to instate refiners,
the cost would not be passed on to Alaskans, and that this
would mitigate the extreme prices currently paid by Alaskans
for petroleum products.
JEFF COOK WILLIAMS, VICE PRESIDENT, WILLIAMS ALASKA
PETROLIUM testified in support of the bill. He stated that
Williams operates Alaska's largest refinery, located at
North Pole near Fairbanks. They also own product terminals
in Fairbanks and Anchorage, 29 convenience stores located in
seven Alaskan communities, and a three percent interest in
the Trans Alaskan Pipeline, which he pointed out that they
did not acquire until after the TAPS settlement agreement.
He noted that since the refinery began 25 years ago, the
company has purchased 300 million barrels of crude oil from
the state of Alaska, in addition to oil purchased from
producers.
Mr. Cook stated that in June 25, 2002 a special election was
held in the Fairbanks/North Star Borough to determine
whether a two-cent per gallon transfer tax should be
enacted. He stated that after much public debate the voters
denied the tax by 62 to 32 percent. He maintained that the
issue was that the tax would have cost Williams and
Petrostar in excess of $20 million per year. Williams would
not have passed the tax on to customers since they had
alternative sources of supply. He noted that they refine 70
thousand barrels per day of product, 60 percent is jet fuel,
of which over 90 percent is shipped by railcar to Anchorage.
He noted that in addition they supply fuels to rural Alaska
by barge and other means to support airports and diesel fuel
needs. He emphasized that the air cargo industry is a
competitive market, and that even a penny per gallon made a
big difference. They also export to Japan from Anchorage.
Mr. Cook explained that by the time the product leaves the
refinery, it goes through eight potential taxing
jurisdictions. If the transfer tax was added, they product
could be priced out of competition. He maintained that
their product was a value added service for interior Alaska.
He also pointed out that the promoters of the tax were
asking producers to pay for the municipal government and
suggested that this was unfair. He noted that prior to the
election, the North Start Borough hired former Attorney
General Avrum Gross to analyze the effects of such a tax.
He stated that Mr. Gross had determined [letter dated May
29, 2002, COPY ON FILE] that the tax would be a source of
confusion and an unreliable means of revenue for the
Assembly.
Mr. Williams concluded that within the boundaries of a
municipality, any excise taxes were fair, but to tax
exported products to pay for local government was
inappropriate.
Representative Foster commented that in 1993 a village in
his district began taxing all the by-pass coming through
their airport. He concluded that if each municipality added
excise taxes, the eventual cost of products being
transported to the villages would be prohibitive. He
stressed his support for the legislation.
Mr. Williams added that some members had expressed concern
for small plants in the North Slope that transfer diesel to
run machinery and wanted to make sure that this would not be
taxable. He stated that their company understood the
concern, and it would be addressed in the bill at a later
time.
Co-Chair Harris clarified that Co-Chair Williams did not
intend to move the bill at this time, indicating that a new
Committee Substitute was forthcoming.
CSHB 216 (CRA) was heard AND HELD in Committee for further
consideration.
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