Legislature(1995 - 1996)
01/31/1996 01:42 PM House TRA
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 362 AVIATION FUEL TAX EXEMPTION CHAIRMAN GARY DAVIS said HB 362 was a carry over from last week. He added that there seems to be agreement on the policy issue, a great deal of concern on the funding issue. He requested that this committee focus on the policy issue and let the finance committee be concerned about the funding issue. At the last meeting all parties presented their case including the Department of Revenue and the in-state refineries. Number 304 M. CLYDE STOLTZFUS, Special Assistant, Office of the Commissioner, Department of Transportation and Public Facilities (DOT/PF) was first to testify. He said DOT/PF has had discussions with the municipality of Anchorage within the last week to share information. Another meeting between DOT/PF and Anchorage is scheduled this afternoon at 3:00 p.m. to deal with issues around Foreign Trade Zone (FTZ). He said, to reiterate his point from last weeks meeting, he would like to share joint management between the state of Alaska and the municipality of Anchorage of the FTZ within the International Airport. He said he had information gathered from Anchorage and the DOT/PF and would share information regarding the development of the FTZ. MR. STOLTZFUS said DOT/PF believes the FTZ is a good concept and one of the tools you want to have in your economic development arsenal. The issue presented in HB 362 is whether, in terms of costs and benefits, the FTZ is being properly utilized. The DOT/PF is able to quantify what the costs have been, but are not sure what the benefits have been. Anchorage referenced the FTZ as an economic development issue in the letters Mr. Stoltzfus presented to the committee. MR. STOLTZFUS said in 1994, the state relinquished a landing tax at rural airports and replaced those revenues with an aviation fuel tax. The proposed elimination of the aviation fuel tax now raises the problem of how to collect that revenue. He said he would not know more until after the 3:00 p.m. meeting. Number 569 REPRESENTATIVE JERRY SANDERS asked if there were any fuel purchases covered by this currently in Fairbanks. If this is the case, does the Anchorage FTZ have any affect on those fuel purchases. Number 602 MR. STOLTZFUS said there are no fuel purchases in Fairbanks that are affected by this situation. He added that one of the policy issues of a FTZ is that fuel can't leave the premises of the FTZ without losing the power of the FTZ. If you were going to have tax-free aviation fuel bought in Fairbanks, you would have to have a FTZ corridor. Number 626 REPRESENTATIVE SANDERS asked and received confirmation that there was fuel being purchased in Fairbanks under which this aviation fuel tax was applicable. He then asked if this was the case, why would you want to give up that tax revenue. Number 659 MR. STOLTZFUS said the DOT/PF's position was clear, they do not want to give up that tax. REPRESENTATIVE SANDERS asked if they could limit HB 362 to the FTZ or does it have to be applied statewide. He also asked, if HB 362 was applicable to only Anchorage, would jet fuel consumers purchase all their fuel from Anchorage. REPRESENTATIVE TOM BRICE said HB 362 represents a large loss of revenue. He said a tax can not be levied in the FTZ. He said by limiting HB 362 to the Anchorage International Airport, a significant amount of revenue would not be gained from other airports. Number 692 MR. STOLTZFUS said Fairbanks represents between 5 percent and 10 percent market for AvJet sold, so it is a small amount of revenue. Number 797 CHAIRMAN GARY DAVIS said there is construction of a fuel tank facility at the Anchorage airport which is being done to replace an outdated storage facility. Number 850 MR. STOLTZFUS confirmed this and added that the storage facility is not currently part of the FTZ. In response to CHAIRMAN GARY DAVIS question, he said the state would like to have authority in the FTZ. Number 888 BOB BARTHOLOMEW, Deputy Director, Income and Excise Audit Division, Department of Revenue (DOR) was next to testify. He said DOR did another exchange of numbers with representatives of the refineries. He said he did not wish to go into the details because the agreement seemed to be that there should be disagreement. The DOR is continuing to look at it and are comfortable in the position that it will not be economically sound to import fuel and because of this large importations will not happen. Number 963 CHAIRMAN GARY DAVIS asked if the position of the DOR was also derived from assurances by the consortium of aviation fuel purchasers. Number 1033 MR. BARTHOLOMEW said the position was derived by looking at how the aviation fuel and petroleum industry work. The consortium is going to buy the most economic product. Alaska's refineries can not meet the aviation fuel needed in the state of Alaska, based on the last five year average, so fuel will need to be imported despite expansions to capacity to refine and expansions for the usage. The commissioner communicated with the experts in the petroleum issues from other states and has verified that the numbers he used were reasonable. They said the numbers were not that far off how the world market works and what people will be paying for jet fuel. Number 1057 CHAIRMAN GARY DAVIS referred to the letters from the major air carriers and suggested that they might not want to go to outside sources, but that they might depending on prices of jet fuel. He then said according to the numbers presented last week by DOR, it appeared that the in-state refineries could remain competitive. Number 1109 REPRESENTATIVE JEANNETTE JAMES referred to the price differentials in the refinery costs of in-state refineries as compared to imported fuel refinery costs. She asked if DOR was still maintaining that they were the same. Number 1262 MR. BARTHOLOMEW said DOR did not ask the petroleum experts to verify the individual components of what it costs to refine in state rather than out of state. In these discussions, one of the factors that was verified was that the spot market price is a solid price on which to base numbers. The spot price does move up and down, but it is what the market revolves around. The cost of transportation of imported fuel raises the price of the fuel to a higher cost than what can be produced by the in-state refineries. Number 1320 REPRESENTATIVE JAMES wished for clarification that the position DOR was offering was that in-state refineries could remain competitive with the fuel tax. Number 1381 MR. BARTHOLOMEW said that this was the position. Number 1407 REPRESENTATIVE JAMES said there would be no harm to the in-state producers if you were to pass HB 362. MR. BARTHOLOMEW reiterated DOR's position and said that removing the aviation fuel tax would be additionally helpful. REPRESENTATIVE JAMES said that is where she agreed to disagree. Number 1432 JEFF COOK, Vice-President, Mapco Alaska Petroleum, was next to testify. He said that the jet fuel industry is competitive and contracts would be lost as a result of tenths of a penny price differentials. He said Mapco was not able to give detailed costs in a public forum in front of competitors. He said Mapco, Tesoro, and PetroStar are in agreement that the FTZ is an unfair situation that they did not create. He said the aviation fuel tax is paid by the buyers of the jet fuel not the refineries. Mapco would, of course, have to absorb the cost of the tax if they wanted their fuel to remain competitive, but stated on an equity issue, Mapco should not have to absorb that tax. He mentioned the benefits that Mapco provides to the state, such as the purchase of North Slope fuel and employment. He cited high safety standards in the in- state refineries as well as the wages being paid which limits its competitive advantage. MR. COOK said that buyers have already chosen to purchase imported fuel. The buyers have stated their position in the letters from FedEx and NorthWest Airlines. He cited the declines in services, that have occurred at the Anchorage airport which have been lost to Seattle, as an example of how competitive the market is. He said he had a letter from Steve Lewis of PetroStar in which he reiterates his testimony from last week. Number 1667 MR. COOK said in regards to the Fairbanks issue, eliminating the jet fuel tax in the FTZ would reroute airline traffic because jet fuel consumers will look for the 3.2 cents savings. He encouraged the support of HB 362 and concluded that this issue did not have the luxury of waiting around to see what will happen. Changing the status of the FTZ will take some time. The tax revenues lost have already been lost because it is clear that airline fuel buyers will purchase the cheapest fuel which will be imported fuel. Number 1735 REPRESENTATIVE JAMES received confirmation that some imported fuel had been purchased to meet demand. Prior to the tankers that came in last year, she asked where that imported fuel had come from. Number 1765 MR. COOK said it had come from BP, the ARCO Cherry Point refinery, and other west coast refineries. In most cases, it is jet fuel derived from North Slope crude. REPRESENTATIVE JAMES asked if that fuel was subject to tax. MR. COOK said that fuel, because it was domestic fuel, was taxable. Number 1780 REPRESENTATIVE JAMES expressed concern over possible lost railroad revenue. Number 1802 CHAIRMAN GARY DAVIS said this was a difficult situation in lieu of the current revenue situation. Number 1822 REPRESENTATIVE BRICE made a motion to move HB 362 with the accompanying fiscal note. Hearing no objections, HB 362 was moved out of the House Standing Committee on Transportation. CHAIRMAN GARY DAVIS said, despite the decision, the committee is sensitive to the issue of lost revenues and the position of the DOR.
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