Legislature(2003 - 2004)
04/02/2004 03:35 PM House L&C
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* first hearing in first committee of referral
+ teleconferenced
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+ teleconferenced
= bill was previously heard/scheduled
HB 426-TOURISM & RECREATION ASSESSMENT/CAR TAX VICE CHAIR GATTO announced that the first order of business would be HOUSE BILL NO. 426, "An Act relating to the levy and collection of an assessment on certain tourism-related and recreation-related goods and services, to tourism marketing contracts, and to vehicle rental taxes; and providing for an effective date." Number 0078 SUE STANCLIFF, Staff to Speaker of the House Pete Kott, Alaska State Legislature, presented HB 426 on behalf of Speaker Kott, sponsor of the bill. She noted that before the committee is CSHB 426(EDT). The bill provides for the levying and collection of an assessment on certain tourism-related and recreation- related goods and services, she explained. The bill would levy a 2 percent assessment on the tourism industry in order to raise the funds for tourism marketing and is a self-assessed tax, she said. It is at the request of the tourism industry, which has been asked many times previously by the legislature to come forward with a self-assessed mechanism to be able to fund tourism marketing, she noted. [CHAIR ANDERSON arrived.] MS. STANCLIFF mentioned that this modified version of the bill is a 2 percent tax, which does leave in the vehicle rental tax that the legislature passed last year. She said that several issues have been raised about the tax related to hotel taxes, especially seasonal rates. Ms. Stancliff noted that this tax is modeled after the Alaska Seafood Marketing Institute (ASMI) model, which has worked very successfully. MS. STANCLIFF said that she plans to offer several conceptual amendments and asked when the committee prefers to have her do that. CHAIR ANDERSON suggested that Ms. Stancliff decide when to offer them. MS. STANCLIFF said she prefers to offer them before the testimony. Number 0320 MS. STANCLIFF explained that Conceptual Amendment 1 would take the 2 percent assessment and reduce it to a 1 percent assessment, which is per the industry's request. Number 0400 REPRESENTATIVE GATTO moved to adopt Conceptual Amendment 1, which would, on page 3, line 10, change "two percent" to "one percent". REPRESENTATIVE LYNN objected in order to ask a question. He wondered why that change is being made. He stated that he is not opposed to it, just wondering why. MS. STANCLIFF replied that the industry requested that amount so that it would be more palatable across the board. REPRESENTATIVE GATTO asked if that amount is adequate to promote the travel industry association, and if it's not should it be kept at 2 percent. MS. STANCLIFF said Representative Gatto is right. The goal was set to raise $20 million and 1 percent would only bring in $10 million. She said she does not know if that amount will meet the needs of the travel industry and she deferred to someone from the Alaska Travel Industry Association (ATIA). REPRESENTATIVE GATTO reported that he has talked to ATIA on this issue and they said they needed $20 million. REPRESENTATIVE LYNN suggested hearing from an industry representative before acting on the amendment. Number 0607 CHAIR ANDERSON asked Representative Gatto to withdrawn Conceptual Amendment 1. REPRESENTATIVE GATTO withdrew Conceptual Amendment 1. Number 0620 MS. STANCLIFF continued her testimony, and explained that another amendment would reduce the industry match from 60 percent to 50 percent. Therefore, she requested that members from ATIA speak about their concerns before it is offered as an amendment. CHAIR ANDERSON asked if there are any further questions for Ms. Stancliff. REPRESENTATIVE GUTTENBERG asked if there are segments of the industry that aren't supporting this bill. MS. STANCLIFF replied yes, and specified that many hotels and some small recreation companies oppose [HB 426]. She said that she has heard from other states that when there is a tax such as a hotel tax, the hotel will report the rate as, "$75, plus tax" and that has been an issue for some folks. "Tourism is down and now we're going to saddle our visitors with more of a burden," is a concern she has heard, she reported. She said she has a request into Legislative Legal and Research Services to find out if it is true that Alaska is the only state that does not have a tourism tax. REPRESENTATIVE GUTTENBERG asked if there is an analysis of hotel taxes in Alaska compared to other states in the Pacific Northwest. MS. STANCLIFF said she did not know, but offered to find out. REPRESENTATIVE GATTO asked if ferry and airplane tickets are taxable. Number 0828 MS. STANCLIFF said that was addressed in the House Special Committee on Economic Development, International Trade and Tourism. One of the concerns is that a lot of people in Southeast Alaska use the Alaska Marine Highway System (AMHS) as their main mode of transportation. There was a conceptual amendment adopted to exempt Alaska residents, but there was a constitutional issue, so it was agreed that AMHS could offer a 2 percent discount to Alaska residents. As far as airlines, Ms. Stancliff opined that because of federal regulations a discount cannot be offered, except on small aircraft. Number 0907 REPRESENTATIVE LYNN inquired as to the kind of recreation business with which Ms. Stancliff is involved. MS. STANCLIFF replied that in her private life she has a backcountry excursion business. REPRESENTATIVE LYNN asked if the money from the tax would go to market the tourism industry. MS. STANCLIFF said yes. REPRESENTATIVE LYNN suggested that by going too far with marketing, a diminishing return results. MS. STANCLIFF responded that if this does not work there is a mechanism built into the bill that would turn off the self- assessment tax. REPRESENTATIVE LYNN noted that it is a balance between spending money on marketing and on having reasonable prices for [tourism packages]. MS. STANCLIFF agreed, and added that it's dependent on effective marketing, which has been the case so far. Number 1016 CHIP THOMA testified in opposition to HB 426. His testimony is as follows: Imagine being told by the government that you must advertise your product, even if you don't want to. That's the issue before us today. So, consequently, I maintain my opposition to HB 426 on constitutional grounds; the effect of this bill is to compel those being assessed a tourism tax to subsidize speech with which they may disagree. According to very well-documented, federal case law, this bill violates the First Amendment, which both prevents government from prohibiting individuals from speaking, and also prevents government from requiring them to speak. MR. THOMA provided examples of many cases from the Supreme Court and the 9th Circuit Court of Appeals in his written testimony. He said it comes down to, "We can't have government collecting taxes and going to an industry-sponsored group that's going to be advertising." He pointed out that it does not jeopardize ASMI because no one has ever filed suit against it, but that "this kind of a group that's just being formulated right now, though, will be challenged and it will probably be brought to summary judgment." He said he wanted to bring that to the committee's attention. Number 1145 REPRESENTATIVE GATTO asked if Mr. Thoma is representing any specific group. MR. THOMA replied that he is testifying as an individual. REPRESENTATIVE GATTO asked if Mr. Thoma has any vested interest in this legislation. MR. THOMA replied that he does not. REPRESENTATIVE LYNN said that there are certain social issues that the government favors, but that he opposes, and yet he still pays taxes. He asked if this issue is not the same thing. MR. THOMA said it is a hybrid of that. "You're taxing a select group of people and you're taking that money and you're using it for speech, so it's government-supported speech." He maintained that so far the court has come down against it. REPRESENTATIVE LYNN said that the government is collecting a lot of taxes in areas with which he disagrees. REPRESENTATIVE GUTTENBERG asked if the program was challenged, would it be challenged from someone inside or outside the program. MR. THOMA said outside. REPRESENTATIVE GUTTENBERG asked if anyone inside ATIA disagrees with this or if it speaks as one voice. MR. THOMA said he did not know if he wanted to make that assumption and suggested that there would be testimony today from members of ATIA. He added that he does not plan on it being Thoma vs. the State of Alaska. Number 1258 JOSHUA ADAMS, Manager, Alaska Hotel and Bar, said that he and his staff will be victimized by this legislation, not represented. He said that his advertising budget is minimal and local as 75 percent of his clientele are Alaska residents. He opined that [HB 426] is philosophically wrong because he is being forced to speak and to pay someone else to speak for him, which is contrary to the First Amendment. He called it regressive to force this class of people, mostly "weekly" working people, to pay the tax. CHAIR ANDERSON asked how much hotel tax is in Juneau. MR. ADAMS said 12 percent; 5 percent sales tax and 7 percent hotel tax. REPRESENTATIVE GATTO stated that he has to think about what Mr. Adams said. He guessed that this tax would do very well for Anchorage and the [Matanuska-Susitna Valley], that don't have tourists arriving on a cruise ship. He suggested that Mr. Adams would be paying a tax to promote tourism in the remainder of the state. He asked if that is the way Mr. Adams sees it. MR. ADAMS replied that is the way he sees it. He questioned the benefit of advertising hotels in Juneau when the cruise ships do not stay overnight. CHAIR ANDERSON surmised that Mr. Adams' point is that he is opposed to the tax because the hotel clients are already paying enough tax, and he would not be getting any direct benefit from the advertisement it purchases compared to larger companies in different cities. MR. ADAMS said he also personally opposes it because it is regressive, it punishes the small businesses and forces them to pay for the big businesses, and it is constitutionally wrong. REPRESENTATIVE GUTTENBERG asked if Mr. Adams' hotel is a member of the trade association. MR. ADAMS replied yes. REPRESENTATIVE GUTTENBERG asked if he feels that he has a voice in that organization. Number 1448 BETTYE ADAMS, Owner, Alaska Hotel and Bar, opined that [HB 426] is a "big Trojan horse." She pointed out that the industry did not ask for this; ATIA, which is an organization that only some in the industry can afford to be a member of, asked for it. She noted that she is a member of ATIA, but has no impact in it. Ms. Adams pointed out that she was not notified that this legislation was coming up, and she was told that a majority of the people at the convention agreed to this. She opined that ATIA represents the cruise industry, big business, and people who do not have to pay the tax. MS. ADAMS characterized the bill as "taxation without representation," and noted that it would help the Railbelt, not Southeast. She wondered what the administrative costs will be and opined that 1 percent is only a way [for the cruise industry] to get its the "a foot in the door." MS. ADAMS questioned the dedication of state funds for a specific purpose and the surrendering of the power of taxation contained in this bill. She referred to a memo from Legislative Legal and Research Services. Number 1767 CHAIR ANDERSON clarified the description of dedicating funds and having no direct accountability for them. MS. ADAMS maintained that ASMI's model is not constitutional, either, and it will come to the court. REPRESENTATIVE DAHLSTROM requested a copy of the memo from Legislative Legal and Research Services to which Ms. Adams referred. Number 1837 REPRESENTATIVE GUTTENBERG asked for clarification about the state not being able to give away its authority to tax. MS. ADAMS replied that is in the Legislative Legal and Research Services' memo that is being duplicated for the committee. She explained that if ATIA's board assesses the 1 percent tax, and then says, "Oh, it went into the general fund and not to us." And then if they stop assessing the tax, or change it, that is the legislature delegating its right to tax to someone else, which is unconstitutional, she opined. REPRESENTATIVE GATTO asked if it's Ms. Adams' impression that would happen. MS. ADAMS replied yes. There is a clause that if the money should somehow go into the general fund, the tax would be stopped. She called that "legislating." REPRESENTATIVE GATTO pointed out that all taxes are typically regressive. He asked if Ms. Adams would be so concerned if the tax was based on the exact amount of benefit obtained. Restating the question he asked, "If you got a fair deal, would you object?" MS. ADAMS replied that she does not think a fair deal is possible because the private sector can do a better job than government can. She pointed out that the tax is also regressive toward the people who stay in her hotel, which are mostly Alaskans and people who work for the tourist industry. REPRESENTATIVE GATTO noted that the Railbelt is not tax-free. Number 1992 MIKE WINDRED, Director of Operations, Alaska Travel Adventures (ATA), said that one of the reasons the change was made from 1 percent to 2 percent is because Juneau has a fairly high bed and sales tax combination already. He reported that most bed taxes already work exactly as this assessment would, to bring in marketing dollars. He maintained that the ATIA board is representative of a good cross section of businesses. He spoke in favor of HB 426, saying it would be a good opportunity for business to fund marketing. Number 2178 REPRESENTATIVE GATTO pointed out that the cruise industry is not paying much in taxes at all. He asked if they are exempt from this tax. MR. WINDRED replied that they are exempt for the portion of the cruise. He said there is a commitment from the cruise industry to help with the match for this tax. CHAIR ANDERSON asked if ATIA had polled its membership on issues. MR. WINDRED said that it depends on the issue. This issue has gone through different phases as to what it is going to be, and it was brought up at the convention and everyone got a chance to speak on it. There wasn't a vote, and the ability to stay flexible has been important, he said. CHAIR ANDERSON spoke about his parents who own an RV rental company in Anchorage, who, along with other car rental agencies, make up a large group that opposes the city rental tax. He related that there is a fear that any tax would be the start of the "slippery slope." The hope that any advertising as a result of the tax would come back to help the company, although the concern is that it might not. MR. WINDRED highlighted that the bill is written so that the board has control over what happens, so that if the money went away from the marketing into the general fund, a 51 percent vote could change that. REPRESENTATIVE GUTTENBERG asked about the legality of what Mr. Windred just said and if anyone could address it. CHAIR ANDERSON named the witnesses and determined that none are able to discuss the legal aspects of the issue. TAPE 04-38, SIDE B REPRESENTATIVE LYNN asked Mr. Windred which RV park ATA owns in Anchorage. MR. WINDRED replied Ship Creek Landing RV Park. REPRESENTATIVE LYNN asked what it costs to belong to ATIA. MR. WINDRED said $350 and up, depending on the size of the business. Number 2364 MR. WINDRED suggested changing "two percent" to "one percent" on page 3, line 14 of the bill, to agree with Conceptual Amendment 1. Number 2325 DENNIS McDONNELL, ERA Helicopters, related that he has had a lot of experience in the tourist industry. He said it has been increasingly difficult to market to foreign countries because of the expense, an area in which ATIA can help, especially for smaller businesses. He said he feels the 1 percent tax is good for aviation businesses. He pointed out that even though the cruise industry does not pay the tax, it brings up all of the people who do. He spoke strongly in favor of the 1 percent tax, but not the 5 percent tax listed in another bill. Number 2198 SCOTT REISLAND, Owner, Denali Grizzly Bear Park, reported that business has not been good for the independent traveler. In the past three years there has been a 13-17 percent decline in occupation rate, which is representative of campgrounds around the state, and is of major concern, he said. He noted that he, as a small business owner, has a limited marketing budget and depends on ATIA to help out with marketing needs such as the German tourist market. He reported that in the Lower 48 the campground business is booming, whereas Alaska's market needs help. He said he would be happy to collect an additional 1 percent tax if it goes toward tourism marketing. Number 1964 REPRESENTATIVE LYNN noted that in the Lower 48 there are few places where it is safe or advisable to "boon dock" without going to an established park. In Alaska there are a lot of places to camp. He wondered if that could be a reason why the campgrounds and RV parks are not as full here as they are in the Lower 48. MR. REISLAND replied that boon docking has been an issue, and currently 16 percent of independent campers who come to Alaska boon dock, which does have an impact on occupancy rate. He said that problem was closed down in Denali National Park and Preserve by putting up signs. He attributed the decline of 13- 17 percent as a result of people not coming to Alaska. REPRESENTATIVE GUTTENBERG asked what Mr. Reisland's budget for advertising would be if ATIA was not in existence. MR. REISLAND said his family took a 50 percent cut in salary and was making less than a first year teacher. He said his marketing budget is about $4,000. The price for one nice ad in the Lower 48 is $45,000, he added. Number 1757 RON PECK, President and Chief Executive Officer, Alaska Travel Industry Association (ATIA), reported that ATIA has been working very closely recently with various travel organizations and visitors' bureaus around the state to jointly craft a compromise to bring before the legislature, which has garnered broader industry support. The modified recommendations call for a 1 percent assessment on the following tourism-related sales: sale of land and water transportation services such as same day scenic and sightseeing tours, sale of recreation and adventure services including guided rafting, kayaking, canoeing, hiking, walking tours, and fishing charters, lease rentals of passenger RV vehicles, accommodations including hotels, motels, and B & Bs, sale of marine highway and railroad passenger fares, lodging, and tourism-related gifts. MR. PECK continued to say that this revenue would be supplemented by continuing contributions that are already received, but at a lesser amount from the following: matching funding from the state, domestic marketing in organizations such as conventions and visitors' bureaus, ATIA cooperative marketing program revenues raised by advertising and marketing, and the cruise industry. The ATIA board supports this approach for several reasons: it makes Alaska's market more competitive; it is less burdensome on small businesses; and it is broad-based, he said. Mr. Peck concluded by saying that the revenue collected will stay with the industry for marketing support. Number 1624 REPRESENTATIVE ROKEBERG said that one of his concerns is that he has been told by members of ATIA that a surcharge would not be workable. He asked Mr. Peck to respond. MR. PECK said he does not understand the question. REPRESENTATIVE ROKEBERG pointed out that the bill provides for taxation through the Department of Revenue and it seems to him that the legislature could authorize ATIA to provide for a surcharge and have it collected by ATIA and made voluntary. Therefore, the state would not have to be involved with collecting the tax and would not have to pay $2.4 - $2.6 million in order to collect $4.8 million. He called that crazy. MR. PECK related his belief that people won't pay a voluntary surcharge. Number 1541 ERIC DOWNEY, Member, Board of Directors, Alaska Wilderness Recreation & Tourism Association (AWRTA), noted that although he is also the Vice President of Marketing for Denali Lodges, he is representing AWRTA today. He informed the committee that AWRTA is an association of almost 200 small tourism business, most of which are wilderness dependent. Mr. Downey said that AWRTA supports the revised 1 percent assessment as proposed by ATIA. However, AWTRA would prefer that this existing legislation include a vote to turn on and off the assessment. Furthermore, AWRTA would prefer the vote to be based on one vote per business rather than one vote per dollar. Mr. Downey related that although AWRTA doesn't believe that it's fair that the cruise industry isn't subject to this assessment, the assessment is too critical for the industry as a whole to be delayed by the cruise industry's exemption. He further related that AWRTA is pleased that the cruise industry has volunteered to contribute $1 million annually, but AWRTA urges the legislature to consider a separate but similar 1 percent tax on the cruise industry, which would generate about $5 million annually. Number 1468 DAVE KARP, Vice President and Chief Operating Officer, Hawaiian Vacations, informed the committee that he is a lifetime Alaskan and the former executive director of Alaska Tourism Marketing Council, the predecessor organization to the ATIA. With regard to the compromise that has taken the legislation from 2 percent to 1 percent, Mr. Karp specified that the compromise happened over the last 10 days and through the efforts of many different organizations coming together and having constructive dialogue. "It is ... fairly rare that we all come to the table in agreement on something, and I think that it's representative of a good-faith effort that was put forth," he said. This legislation is about the tourism industry paying it's own marketing costs. He noted that this year, his company will bring 13 airplane loads of Japanese tourists to Alaska and each of those visitors will pay this new assessment. He submitted that this assessment is a step in the right direction. Number 1322 KAREN ROGINA, President/CEO, Alaska Hospitality Alliance (AHA), informed the committee that AHA includes the Alaska Hotel & Lodging Association and the Alaska Restaurant & Beverage Association. Ms. Rogina related support for the concept for a broad-based hospitality and visitor industry self-assessment to be used exclusively for tourism marketing. The aforementioned is accomplished by HB 426 at the 1 percent level. She noted that originally AHA opposed HB 426 at the 2 percent level. This 1 percent assessment and other anticipated contributions from the industry, as mentioned by Mr. Peck, is viewed as the broad- based solution that has been sought. Over the last several years, the rate of growth of the visitor industry has declined commiserate with the amount of tourism marketing funding from the state. It has long been recognized that in order to compete in the national and international market place, a significant increase in advertising must occur. She acknowledged that any plan will have varying degrees of benefits for various businesses, the goal was to establish the most broad-based solution possible. As stated earlier, that seems to have been accomplished at the 1 percent level along with the other named funding sources from the industry groups. Number 1219 REPRESENTATIVE GUTTENBERG requested that Ms. Rogina explain the difference between the 1 percent and the 2 percent assessment and how divisive that is. MS. ROGINA explained that the 1 percent compromise occurred partly due to the fact that statewide hotels currently contribute over $46 million in bed tax, sales tax, and real property tax. In light of the aforementioned $46 million contribution, the 2 percent was viewed as too much of a contribution and thus led to a more broad-based solution. The legislation and the compromise, which includes the other contributions, made the 1 percent a fair broad-based solution. Number 1147 CHAIR ANDERSON announced that the public hearing on HB 426 would be held open and would be brought back before the committee next week. In response to Representative Guttenberg, Chair Anderson agreed to have staff request from Legislative Legal and Research Services information regarding taxes and distribution of the pending cases. [HB 426 was held over.]
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