Legislature(1993 - 1994)
03/15/1994 03:00 PM House L&C
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 453 - TAX ON RESIDUAL MARINE FUEL OIL Number 070 REP. GARY DAVIS, Prime Sponsor of HB 453, presented the following sponsor statement on HB 453: House Bill 453 is simple, straight forward legislation. House Bill 453 will attempt to create an equal playing field between Alaska's residual fuel oil industry and their counterparts in the Lower 48 and Canada. Residual fuel oil is the residue from crude oil after the light oils, gasoline, naphtha, kerosine, and mid- distillates, are extracted in the refining process. The only applications for residual fuel oil in Alaska are asphalt, cruise ship fuel and reinjection into the pipeline. This product is subject to the state's motor fuel tax. The tax rate for residual fuel oil is five cents per gallon. As a result of the current rate of taxation on this product, Alaska's residual fuel oil is automatically noncompetitive with the same product available elsewhere. The cruise ship industry is the prime potential market for this fuel oil. However, even though many ships cruise Alaska waters during the summer, minimal quantities of this extremely tax sensitive fuel oil are purchased in Alaska. Consequently, the state receives minimal revenue from the tax. House Bill 453 will reduce the tax rate levied on the sale of residual fuel oil, which will stimulate sales of residual fuel oil and benefit Alaska's economy. This legislation will increase job opportunities in the trucking and fuel industries. Simultaneously, state revenues will likely remain consistent and possibly increase. Number 170 REP. GREEN asked if the market would grow if the tax is lowered. Number 180 REP. DAVIS replied that he expected the market to grow as the cruise lines want to do business in Alaska. Number 220 REP. PORTER asked if it would be an advantage to the state to get commitments from the cruise lines. Number 232 REP. DAVIS replied that it would be to the advantage of the state to get commitments, but the cruise lines have been resistent to that. Number 238 REP. PORTER answered that the legislature could be resistent to lowering prices also. Number 240 REP. DAVIS stated that the statute does provide for a sunset provision. Number 247 C.J. ZANE, Director of Government and Community Relations for Holland America Lines/West Tours, Inc., testified via teleconference in support of HB 453. Mr. Zane stated that Holland America Lines supported the concept of the bill, which is to make Alaska products competitive on the world market. MR. ZANE stated that it is understandable that the committee would want some commitment from the cruise lines regarding amounts of fuel purchased, but that would be difficult because price is not the only consideration in deciding whether or not to purchase in Alaska. Another consideration is the time the cruise line has for bunkering in the various ports. An additional consideration is the availability of supply which can be affected by weather. Number 330 BERNIE SMITH, Tesoro, testified via teleconference in support of HB 453. Mr. Smith stated that last year Tesoro had over 6.5 million barrels of No. 6 fuel oil that had to be shipped out. He said that currently only about 1-1/2 percent of that is being sold to the cruise ship industry. MR. SMITH stated that HB 453 would produce a number of jobs and revenue for the Kenai Peninsula. Number 355 REP. GREEN commented that Tesoro will be saving money since they won't have to ship out the large amounts of No. 6 oil if HB 453 passed, so the state and Tesoro should share the cost. Number 367 MR. SMITH responded that Tesoro's residual is already a loss that they couldn't lower their price any more. He added that they do not have the option of putting their fuel back into the pipeline. Number 377 CHAIRMAN HUDSON asked Mr. Smith if Tesoro paid any tax on residual fuel that was being shipped out. Number 382 MR. SMITH responded no. Number 385 CHAIRMAN HUDSON asked how many jobs this decrease in tax would result in. Number 389 MR. SMITH answered twelve jobs. Number 394 JAMES BURNS, Senior Vice President, Petro Marine, testified in support of HB 453. Mr. Burns explained the process of making No. 6 oil and the costs involved. MR. BURNS noted that no other states levy a tax on this oil. Number 499 CHRIS GATES, Director, Division of Economic Development, testified in support of HB 453. Mr. Gates stated that when ships fuel up in either Sitka or Seward the local economy benefits as the ship stays in port longer and passengers spend more money. MR. GATES read two sentences from a letter from Gary Paxon, Administrator, Sitka: "HB 453 is a very important issue to the City and Borough of Sitka. If it passed we have a commitment from Pacific Northern Oil to refuel cruise ships in Sitka. This will create important jobs for our community and in the long term will give us significant opportunities as a change port." Number 521 REP. MULDER asked how long it takes to fuel up a ship. Number 525 MR. GATES responded that it depended on how empty the ship was. It could take anywhere from four hours to eight hours. Number 528 ROBERT ERICKSON, Teamsters Union, testified in support of HB 453. He stated it is estimated that if this bill passes it could mean up to fourteen new trucking jobs. Number 550 KENT DAWSON, Princess Tours, testified in support of HB 453. He stated that Princess Lines has stated in writing that at least 1/3 of its fuel will be bought in Seward if this bill is passed. Number 569 REP. PORTER moved the "O" committee substitute. No objections were heard; it was so ordered. CHAIRMAN HUDSON asked the committee to look at an amendment to tighten the definition of residual fuel oil. Number 580 MR. BURNS offered Amendment 1: page 2, line 3, after "oil" insert "otherwise known as No. 6 fuel oil" and on page 2, line 6 after "viscosity" insert "rated by kinematic units." TAPE 94-23, SIDE B Number 023 REP. MULDER moved adoption of Amendment 1. No objections were heard; it was so ordered. REP. PORTER moved to pass CSHB 453(L&C) as amended out of committee. No objections were heard; it was so ordered.
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