Legislature(2007 - 2008)HOUSE FINANCE 519
07/28/2008 09:00 AM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB4004 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB4004 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE BILL NO. 4004
An Act suspending the motor fuel tax; and providing for
an effective date.
9:19:15 AM
RANDALL RUARO, SPECIAL ASSISTANT, OFFICE OF THE GOVERNOR,
explained that the proposed legislation would suspend the
motor fuel tax for one year, helping a broad range of
Alaskans. He stated that this help would not create a new
bureaucracy, and would benefit nearly every Alaskan, as most
consumer goods are shipped by plane, boat, barge, or truck.
The tax suspension applies to the fuel necessary to ship
goods.
Mr. Ruaro explained that the fuel tax suspension benefits
three major industries: the fishing industry (commercial and
charter,) the aviation industry, and the transportation
industry. He added that the bill is one of several efforts
to assist fishermen at state and federal levels. The State
Division of Investments is also offering low-interest loans
to fishermen to install fuel-efficient engines. He felt the
bill would provide a significant benefit to coastal
communities. He stated that airports would also benefit
from the suspension. Regionally, there are a number of
rural communities that can only be reached by air. He added
that the trucking industry and barge lines would also
benefit.
Mr. Ruaro acknowledged that the bill is not perfect, but
predicted that with the competitive market moving to mass
transit, the tax suspension would be passed onto consumers.
He hoped that there could be additional language allowing
consumers to benefit from the suspension.
9:24:24 AM
Representative Hawker pointed out the lack of assurance that
the reduction would be passed on to the consumers. He
argued that the competitive market place would not pass it
on. He wanted assurance that the relief would be passed on
to the consumers.
Mr. Ruaro referenced a study from the Massachusetts
Institute of Technology (MIT), stating that in the year
2000, a six month fuel tax suspension by Indiana and
Illinois provided 60% - 80% savings for the consumers. He
recounted a conversation with one large Anchorage retailer
who believes that the savings will absolutely be passed on
to the consumers. He recommended working with the
Department of Law to determine ways to pass on the suspended
tax. He stated that there were a range of options, which
could include consumer protection and civil fines.
9:27:09 AM
Representative Hawker countered that the state could see 20%
- 40% inefficiency or waste factor if the MIT study was
correct. Mr. Ruaro acknowledged that the MIT study did
indicate a potential waste.
Representative Hawker stated that the original bill was a
twelve month suspension. He observed that CSHB 4004 (L&C)
only discusses 12 consecutive calendar months immediately
following the month of the effective date. He wanted to see
a definitive calendar end. Mr. Ruaro agreed that the
language change in the House Labor and Commerce committee
substitute made sense, because it allows flexibility as to
when the tax suspension will actually start. Mr. Ruaro
stated that the administration was generally comfortable
with the H(L&C) language.
9:29:09 AM
Representative Hawker asked if the bill were effective
immediately, was there enough time for vendors to
accommodate the change. Mr. Ruaro did not know for sure. He
understood that vendors would have until the end of the
month to make the change. Representative Hawker worried
about the date. He informed that his experience as an
accountant working with fuel excise accounting, taught him
that "government had caused problems for fuel vendors with
the unintended consequences of otherwise well meaning
actions."
Mr. Ruaro offered to coordinate with the speaker on the
transmittal timing of the bill, if it passes, so that the
coordination is most useful to the vendors. Representative
Hawker observed that coordination Mr. Ruaro spoke of would
place the responsibility onto the legislature.
9:30:48 AM
Representative Hawker asked why all motor fuel sales
invoices in the state were necessary.
JOHANNA BALES, DEPUTY DIRECTOR, TAX DIVISION, DEPARTMENT OF
REVENUE testified via teleconference. She stated that the
reason for the required sales invoices deals with the tax
division's reporting requirements for the Federal Highway
Administration. She informed that she is required to report
the amount of fuel used on the highway in order to maintain
the funds that the federal government provides to the state
of Alaska. As part of the motor fuel program, there are
sales of motor fuel and there are claims for refunds. The
Department of Revenue would need to know who the gasoline
was sold to in order to determine how much fuel was actually
used on the highway. The sales invoices provide the ability
to make an estimate.
9:32:43 AM
Representative Hawker pointed out that, historically, the
vendor submits sales invoices only on "use conversion and
tax exempt sales." Ms. Bales responded that vendors place
all the information together in a report for the purpose of
claiming a refund. She continued that a claim for refund
requires all documentation including all original invoices.
The invoices will now come from the distributors, since
there won't be a need to file a refund claim if there is no
motor fuel tax.
Representative Hawker clarified that the statute requires
every person in the fiscal year that precedes the suspension
to submit a monthly report showing all sales or transfers of
gasoline, diesel, and aviation fuel. He thought that the
gathering of this information would be difficult for the
small independent retailer. Ms. Bales responded that
retailers are not required to provide the information
because they are not qualified dealers; only at the
distributor level, are invoices necessary. She agreed that
it does appear onerous; however, the information would
satisfy the federal highway requirement.
Representative Hawker understood, but pointed out the
ambiguity of the term "qualified dealer" within statute.
Ms. Bales clarified that the provision states that the
person subject to AS 43.40.10(c) is only the qualified
dealer meaning that a retail establishment was not subject
to that statute. Representative Hawker felt that there must
be a better way to accomplish the goal.
9:37:47 AM
Co-Chair Chenault asked for clarification on who collects
the tax. Ms. Bales explained that the tax is collected by
the distributor from the retailer.
Co-Chair Chenault expressed concerns about the legal
ramification of dropping the tax and the effect on federal
highway funds. Ms. Bales informed that the change would
have no effect on the federal highway funds, if the state
provides the estimated amount of fuel used on the highway.
Co-Chair Chenault asked if distributors and wholesalers are
required to provide the state information on fuel sales that
were not required in the past. Ms. Bales replied that yes,
they would have to attach their invoices to the returns,
which would be a change for the distributors.
Co-Chair Chenault warned about the increased labor costs to
wholesalers and distributors. Ms. Bales acknowledged the
change for distributors, but stressed that claimants would
no longer have the same reporting requirement in order to
get the tax back from the state.
Co-Chair Chenault asked about potential political
ramifications, on the federal level, concerning the
viewpoint of Alaska's decision. Mr. Ruaro answered that
while the potential for judgment exists, the legislation
might also be viewed as Alaska helping itself, as opposed to
seeking federal relief from the high fuel taxes.
9:43:02 AM
Co-Chair Meyer asked if other states were reducing the
amount of fuel tax collected. Mr. Ruaro affirmed, thirteen
other states have suspended the motor fuel tax.
9:43:58 AM
Vice-Chair Stoltze mentioned the proposed amendment to
prohibit local governments from adding on to the fuel costs
during the time of the proposed fuel tax suspension. He
hoped to also add language for the home heating fuel
legislation.
Mr. Ruaro commented that the concept of state taxes set at a
certain rate versus a percent tax that grows as the price
grows was something that he had run across in his research.
He agreed that the percent tax could have a larger impact.
Vice-Chair Stoltze thought it could be an extra 15-30
gallons on a bulk fuel purchase. He stated that the issue
is serious. He asked if there an increase would be passed
to the consumer with the eight cent tax. Ms. Bales
explained that distributors have stated that the mark up
included the tax. She expected that without the tax, but
with a particular percent markup by the retailer, the amount
passed through to the consumer should be more than eight
cents per gallon.
9:49:59 AM
Co-Chair Meyer asked how the eight cents would be passed on
to the consumer. He understood that the intent of the
legislation with the motor fuel tax suspension was that the
benefit would be communicated to the consumer.
CLYDE (ED) SNIFFEN JR., ASSISTANT ATTORNEY GENERAL, CIVIL
DIVISION, DEPARTMENT OF LAW testified via teleconference. He
pointed out one idea, which required retailers to put a
sticker on the pump notifying consumers about the eight cent
fuel tax suspension. He continued that a failure to post the
sticker would be a violation of the state's unfair trade
practice act, which would result in a $5,000 fine. Illinois
adopted this requirement, and as referenced by the MIT
study, 60% -80% of the savings was passed on. He thought
that the solution was to put pressure on the retail gasoline
station owners to pass the savings on, and if they don't
they could have potential class action lawsuits. He supposed
it could be difficult to verify that the savings is passed
on to the consumer, without a very expensive investigation
and audit. He recommended spot checking the retailer's
records, but noted potential problems. Another idea was to
provide positive media publishing of those retailers who
made a pledge to pass on the savings, encouraging them from
a marketing standpoint.
9:55:07 AM
Co-Chair Meyer asked if these potential
requirements/incentives should be included in the bill
itself, or would it be done by regulation. Mr. Sniffen
pointed out that regulations always take time and that
inclusion would be the best way. He noted that amendments
have been drafted that incorporate the ideas.
Representative Hawker did not agree that a sticker on a pump
would work to control the price. Vice-Chair Stoltz expressed
belief that it would work.
Co-Chair Meyer stated that in the more competitive markets,
like Anchorage, it could happen. However, he questioned the
effectiveness of the sticker in the rural areas. Mr. Ruaro
agreed.
Co-Chair Meyer commented that the urban areas are where the
bulk of people in the state live. Vice-Chair Stoltze
pointed out that there are vendors who will absolutely pass
the savings on because of their own social consciousness.
He thought that market forces will drive the costs.
9:59:03 AM
Representative Kelly stated that the reduction of tax is one
of the easiest things that the state can offer. He did not
agree, however, with requiring the display of a sticker
communicating the tax suspension. He concurred that the
books will not be audited, due to cost and time. He felt
that there are many retailers that are sensitive to the
increased fuel costs.
Co-Chair Meyer was concerned with taxing when the funds are
not needed by the state. He wondered about the effect on
rural Alaska. He asked if the tax is currently paid when
the fuel was purchased. Ms. Bales clarified that the
retailer pays the tax when they make purchases from the
wholesaler. Ms. Bales pointed out that the largest fuel use
in rural Alaska is for home heating, which is exempt from
tax. Rural communities have other issues with the high cost
of fuels. The tax suspension is focused on the large urban
communities.
10:04:45 AM
Co-Chair Meyer referenced the difficulty of auditing for the
sake of ensuring that the tax savings is passed on. Ms.
Bales agreed that it would be difficult because when the
retailers purchase the fuel, they receive an invoice with
the total cost of the fuel in addition to the tax add-on.
She continued that whatever mark up they used would indicate
whether or not they passed the savings on. She argued that
the retailers could in fact have some other costs associated
with the mark up. The Tax Division would have to make
assumptions as to why the savings was not passed on to the
consumer. She stated that at the retail level, the tax is
not an additional mark on; as it is with sales tax where the
consumer is always aware of the tax add on.
Mr. Ruaro commented on the benefits to rural Alaska in the
form of reduced marine fuel costs for fishermen as well as
airline services.
10:07:28 AM
Co-Chair Meyer asked about the mark up on motor fuel at the
retail level. Mr. Ruaro had "read some articles indicating
that the margin is pretty slim" and that they work off a
volume basis.
Co-Chair Chenault asked if there had been calculations on
the actual savings to an individual consumer. Ms. Bales
responded that the savings would be around $100 dollars per
year for her personally.
Co-Chair Meyer thought it would help the trucking companies
who purchase a lot of fuel, by lowering the price for
shipping goods and services statewide.
Vice-Chair Stoltze referenced the transportation costs and
thought that the consumers had not yet absorbed those
increased costs, due to long term government contracts. Mr.
Ruaro agreed, pointing out that there are a number of
independent truckers that will see the benefits from tax
suspension right away.
Vice-Chair Stoltze asked Mr. Ruaro, regarding the marine
fuel, if his interest was prompted by the petition from
fishing groups. Mr. Ruaro stated he had been researching
the potential benefits to the fishing industry and charter
fisherman before the petition.
Vice-Chair Stoltze requested a response to his fishing
petitions. He stated that the petitions were not seeking
money, but instead sought fair treatment.
10:12:24 AM
Co-Chair Chenault acknowledged that heating fuel in rural
Alaska was not taxed and asked if fuel for electric
generation was taxed. Ms. Bales said it was not taxed.
Representative Hawker stated concern that the state will be
sacrificing "good policy for bad politics".
HB 4004 was HEARD & HELD in Committee for further
consideration.
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