Legislature(1997 - 1998)
04/22/1997 05:08 PM House RLS
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 63 - AVIATION FUEL TAX EXEMPTION Number 035 CHAIRMAN KOTT announced the committee would hear HB 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." He said a proposed committee substitute (CS) has been presented to all committee members. Number 049 REPRESENTATIVE BILL WILLIAMS made a motion to adopt CSHB 63(RLS), Version Q. Hearing no objection, CSHB 63(RLS) was before the committee. Number 111 REPRESENTATIVE TERRY MARTIN came before the committee to address the bill. He informed the committee there are a couple of section in the bill that he is very much concerned about. One section he has concern with is what is called the revenue neutral section. This section would allow the reimposition of tax credits on ethanol being used specifically in the city of Anchorage since Anchorage is the main city that is using ethanol year-round. He said he doesn't mind using ethanol year-round, especially if the corporation were passing that tax credit off to the citizens as lower gas prices. He said he has been unable to find out because it's proprietary information. However, at every gas pump in Anchorage your will see a sign saying, "All taxes included. Ethanol added." It doesn't make it clear if the citizens of Anchorage have been paying that 12 cents a gallon or if the corporation has been keeping that as more profit for themselves. He said, "I wish that question to be answered before we use that as a balancing act if we're going to give Mapco a free ride on 3 cents a gallon gas. And they said, `Well, we'll let them have that because we're competing with (indisc.) fuel that's coming into our foreign trade zone.' But in the meantime, what are the citizens of Anchorage paying for this ethanol?" Representative Martin asked if they are paying the taxes on it, how come they haven't been receiving the credit for it. He said if they haven't been paying taxes on it, will their gas price go up 8 cents or 12 cents a gallon. Representative Martin said he isn't willing to sell out to Mapco as revenue neutral thing so that they can use ethanol year-round. He noted even if it were a partial year, he would be somewhat satisfied. We may need to so that we can comply with the federal government's Clean Air Act. Representative Martin said if that part has been deleted from the CS, he would be a little more open minded. Number 304 CHAIRMAN KOTT indicated that part of the bill has not been deleted. The only thing the CS does is tighten the title. REPRESENTATIVE MARTIN said, "That is all the more important reason, sir, why we should evaluate this because I was going to bring up an amendment on floor. And I thought well being open-minded, maybe the sponsor - maybe Mapco realized that this is not the way to save taxes for a private corporation by charging the citizens more." Representative Martin said it is a very important question. He said he would like to see how much profit has been making off the citizens of Anchorage on ethanol, especially if they are not getting the tax credits. He said he has informed the sponsor that he would propose an amendment on the House floor and the sponsor responded to him that he would debate it with him. CHAIRMAN KOTT asked Representative Martin if he has an amendment he would like the committee to consider. REPRESENTATIVE MARTIN indicated he wasn't prepared for the Rules Committee meeting. He indicated the section he is referring to is on page 2, line 10 and 11, Section F, of the House Finance Committee version. CHAIRMAN KOTT pointed out for the information of the committee members it is on lines 19 and 20. Number 456 REPRESENTATIVE GENE THERRIAULT, sponsor of HB 63, came before the committee. He said he thinks that when it comes to discussing the issue of the 10 percent alcohol, he thinks the pertinent question that should be asked is, "When did the legislature vote to do away with the motor fuel tax in the state of Alaska, and the answer is we never did." Unfortunately, what the legislature did do sometime in the past is they put in an exemption for ethanol alcohol, any fuel that was 10 percent by volume. Representative Therriault said he believes that at the time that was put in there was the idea that Alaska would be growing quite a bit of grain and we'd be able to produce this product. At the time, there was no requirement that kind of fuel be utilized, so there was the thought that there had to be some sort of an exemption or incentive for people to actually purchase that fuel that would utilize that product that was produced in the state of Alaska. He said the production of that product in the state of Alaska never came to pass. So what we find ourselves doing is importing this additive from outside the state boundaries and basically giving up 100 percent of our state motor fuel tax for the fuel that utilizes that additive. Representative Therriault informed the committee that a number of years ago when the federal government came in and required that that oxygenated fuel be used in (indisc.) for four months of the year, Anchorage chose this particular additive or fuel (indisc.) as their choice to meet that federal government, but again, the requirement was only for four months of the year. He pointed out the refineries have started selling this product in the Anchorage bowl market year-round and the drain on our state treasury has absolutely ballooned. It is projected that were losing $8 million a year. He said he is a firm believer that when the people of Anchorage pull up to a pump and as they're squeezing the handle, they believe that they are making a contribution to the state tax revenues for the maintenance of our road system. They're not aware that they're buying a fuel that basically is 100 percent tax exempt. Representative Therriault informed the committee members there is the potential that utilization of this fuel will expand even further and we may get to the point where who knows what percentage of our motor fuel tax will be lost to this exemption. He said he believes that when that language was put into statute, there was never any intention or thought that the use of this fuel would expand like it has. Number 725 REPRESENTATIVE THERRIAULT referred to page 2, line 13, and said it deals with removing the tax from foreign flights that come from a foreign destination, touch down in one of our airports and then continue on. If they use fuel that's brought into the airport through a foreign trade zone, by federal law, we cannot tax it. He explained the situation is if it is fuel that's produced in the state of Alaska, it pays a higher tax than if it is a fuel that's brought in from offshore. Representative Therriault explained he is basically trying to level the playing field so that all fuel sales that go towards that consumption has the same tax regime imposed on them. REPRESENTATIVE THERRIAULT referred to page 2, lines 19 and 20, and said there is the alcohol issue. He referred to page 3 and said there is the addition of the bunker fuel. A couple of years ago, the legislature did try and put in a mechanism, which is actually repealed by Section 3 of the bill, that set a threshold. What they were trying to do was entice the curse ships that come to Alaska to buy bunker fuel in Alaska. Currently, we are taxing that sale in Alaska. If the ships fuel up in Canada or somewhere on the West Coast, they don't pay that tax. He informed the committee that bunker fuel is kind of like a tar or has honey type of a consistency. It has to be preheated before it can be burned. He said the taxation for bunker fuel is being taken out to hopefully spur sales or spur the refueling industry in Alaska. He noted Mr. Bartholomew, Department of Revenue, is in attendance if there are questions on the financial impacts of the bill. Number 887 REPRESENTATIVE MARTIN said "First, we had discussion and I was wonder if Mr. Bartholomew (indisc.--paper on microphone) did came to light that Mapco, at least on two occasions if not three occasions, brought in the fuel themselves. They contracted (indisc.) to come in. And why not? It would be a good way to see you can make money. They're in the business to make money or lose money. And we don't know for sure if they made money off the deal or if they lost money. And I would like to asked Mr. Bartholomew have they given any information with regards to taxes - if they made money or lost money. From your point of view, outside of the tax, is it cheaper? Can the company make money by importing it? Or is 3 cents that much of a difference?" Number 874 BOB BARTHOLOMEW, Deputy Director, Income and Excise Audit Division, Department of Revenue, came before the committee. He said the department has looked at the issue and had an economist look at the issue last year. Basically, the pricing mechanisms - the worldwide competition of jet fuel is a commodity. Everyone agrees that it is one price worldwide. There are tankers and refiners that produce excess capacity and that is the jet fuel that is available on the world market to purchase. Mr. Bartholomew explained that Alaska is currently a net importer. He said the department doesn't have the information and they don't receive information as to whether a company makes money on an individual tanker or not, but there is information that shows there is fuel available on the world markets that can be purchased. He noted the department doesn't know the specific profits of that. REPRESENTATIVE MARTIN said, "It's part of the problem that I brought up and a couple of others asked in the House Finance. Only because Mapco says that when they even the equal - the field and that people who did purchase the oil, they should be able to say they lost or they made money, but they don't want to say it - proprietary information. But they do ask us to relieve them of this tax burden." Representative Martin referred to bunker fuel and said he doesn't blame Tesoro at all to buy this because Tesoro does have an opportunity, through the Kenai refinery, to take to heavy fuel and use it for international shippers. It may be a plus (indisc.), but at whose cost. Representative Martin informed the committee he has been told that Mapco makes money because they get the fuel from our pipeline and the contracts are supposed to be more favorable than Tesoro pays. He said, "They got a more favorable contract. I don't know if Mr. Bartholomew can give us that or not compared to the last one Tesoro did two years ago, I guess. Still, again, if you want to even the market up, lets make all royalty contracts the same cost. But then this bunker fuel, the heavy fuel, it costs nothing for Mapco to just push it right back into the pipe and that they don't have to find a way to get rid of it. Is that basically what we're talking about there in the same differences between the two organizations (indisc.) what do you do with your heavy fuel." Number 1069 MR. BARTHOLOMEW responded that there are different ways that the industry handles it, but in the refineries at North Pole and Valdez, they do reinject back into the pipeline the residual crude oil. They pay what is called a penalty bank and that's negotiated as a part of the overall agreement that allows them to put it back in. They pay a quality bank penalty to reinject it. He noted he doesn't have the exact economics of how that compares to how bunker fuel sells on the market. He said we're asking the market forces to determine it and it is primarily the Department of Natural Resources that negotiates royalties and the oil for the pipeline. They determine what's in the best interest of the state. Mr. Bartholomew referred to the removing of the tax on bunker fuel and said it was something that was visited three years ago and it was deemed that an incentive should be provided. What they're asking for this year is to revisit that. They are asking for a different incentive. He referred to bunker fuel and said it is a low value product and he thinks that is why they're asking for the incentive. REPRESENTATIVE MARTIN said everything is not equal and especially the important part. He asked Mr. Bartholomew, "Has it been evaluated through the citizens of Anchorage, get the benefits of that tax relief from using ethanol or is it going to be an increase to the tax payer if we relive - repeal this statute?" MR. BARTHOLOMEW responded that the testimony on that in the House Transportation and the House Finance Committees from the industry is that they haven't made a decision on what's going to happen in Anchorage because they have the other competitive forces. There are some dealers in Anchorage that are not using ethanol in the nonrequired months. So there is a competitive market and there has been testimony that they don't know whether the price will go up or down and the price of oil is currently fluctuating and they have to evaluate what happens to consumption. If the price goes up, what's going to happen to consumption? They don't want consumption to go down. He said they have excess motor fuel. It is a competitive issue and for them to disclose their pricing strategy would put them at a disadvantage. Mr. Bartholomew said the department hasn't done any kind of an analysis to look into that. Number 1265 REPRESENTATIVE MARTIN said, "As our chief tax collector, if you saw on the gas pump the sign, `Contains ethanol, all taxes included,' would you assume as a person (indisc.) that your paying the taxes or that you're getting credit because the ethanol -- Mapco is being relieved of that tax burden?" MR. BARTHOLOMEW indicated he hasn't seen the sign. He said he doesn't know what the sign says when there isn't ethanol. Mr. Bartholomew said he thinks it says, "Price includes all taxes." Now they're telling people that what they're buying includes ethanol. He indicated he doesn't know how if there are any other taxes that are included. REPRESENTATIVE MARTIN asked Mr. Bartholomew if he could tell the committee if they're receiving the 12 cent credit. MR. BARTHOLOMEW said he can tell the committee that the tax collections into the state of Alaska has decreased equivalent to the consumption of ethanol based fuel. REPRESENTATIVE MARTIN said Mr. Bartholomew can't tell the committee if they're passing the tax credit off to the consumer. Number 1332 REPRESENTATIVE BRIAN PORTER said the discussion is very interesting, but the merits of the bill have been discussed in the Transportation Committee and the Finance Committee. He said he doesn't think the answers to the questions that Representative Martin has asked are available and it is obvious at this point. He said he is prepared to deal with the title. Number 1352 REPRESENTATIVE THERRIAULT said in regards to the two refineries in his district, both Mapco and Petrostar, the do reinject into the pipeline and they pay a price for that. He said the price for Mapco last year was between $25 million and $30 million dollars. To say that they can reinject and get rid of the low-end value of the oil stream cheaply is a misstatement. In trying to compare Tesoro with Mapco, Mapco doesn't produce the petrochemicals. They've foregone that and it might be because of location. Tesoro is located on the water where they can get that product shipped via water. Representative Therriault stated it is difficult to compare the refineries because of geographic location. Number 1402 REPRESENTATIVE THERRIAULT referred to the signs "All taxes included," and said he thinks that is basically a reference to all applicable taxes which means that even though there is a 5.4 cent, per gallon, exemption from the federal motor fuel tax, that leaves 12 or 13 cents that is collected for the federal tax. He said he thinks that is all that the signs indicate. Representative Therriault said it is his gut feeling that the allowance on this loophole has added to margin for the refiners. He said, "So by closing this loophole off, does the price have to go up to offset the 8 cents now that will be paid to the state? I don't believe so, but I can't tell you definitely how the individual refiner's profits have -- margins have been effected." Number 1439 CHAIRMAN KOTT asked the members to review the committee minutes of the previous two committees extensively because he is sure there will be a lot of discussion and debate on the floor. REPRESENTATIVE WILLIAMS made a motion to move CSHB 63(RLS) out of committee with individual recommendations and the accompanying fiscal notes. REPRESENTATIVE WILLIAMS then asked for a brief at ease. Number 1470 REPRESENTATIVE PORTER objected. He said in discussing the bill with Representative Williams, there was a proposal that the committee might want to make an accommodation for a prospective business in Ketchikan. He said, "I think it would be appropriate to put on the record that I and other members that I have spoken to would stand ready to consider a proposal for that kind of a business and look at that in perspective of what the proposal is and what could the legislature do to promote that kind of a business in a area that obviously is direly in need of some economic development and some jobs. I don't think an amendment to this bill is a good mechanism to do that, but I'm sure that the legislature would look very positively at a firm proposal from any investor that wanted to look at that kind of a business of creating a pulp ethanol producing plant. With that, I would remove my objection." Number 1526 REPRESENTATIVE GAIL PHILLIPS said when this was discussed earlier, rather than including the issue regarding the plant in Ketchikan or anywhere else in Alaska, Representative Therriault had talked about intent language to recommend that be done. REPRESENTATIVE THERRIAULT said when he had further discussions with Representative Williams, he indicated he felt comfortable dealing with this through the introduction of a separate bill that would prompt that discussion. He said he would be willing to look at that. He said he thinks financial details are lacking that would be needed to evaluate such a proposal. REPRESENTATIVE KIM ELTON asked Representative Williams if there are any decisions that need to be made by the current owners of the plant or are people who may be interested in the plant. He also asked if any decisions need to be made prior to end of next session. Number 1599 REPRESENTATIVE WILLIAMS said, "Hopefully, in talking with the people around the table here at different times and to the people of Ketchikan, I think that we do have time, hopefully before this time next year, that we have a bill through both the House and Senate." Number 1615 CHAIRMAN KOTT said there is a motion to move CSHB 63 out of committee with individual recommendations and accompanying fiscal note. Hearing no objection, CSHB 63(RLS) moved out of the House Rules Standing Committee.
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