Legislature(1997 - 1998)
02/24/1997 01:08 PM House TRA
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
HB 63 - AVIATION FUEL TAX EXEMPTION Number 1743 CHAIRMAN WILLIAMS said 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 stated that it was not his intention to move this bill out of committee today. Number 1763 RICHARD CURTIN, General Counsel, Petrostar, Inc., stated that probably the committee is familiar with the issues that this bill seeks to address. There are major changes from last year. The first and most important was that last year, Trent Carbaugh, the Director of Jet Fuel Sales, forecast that there would be a steady and significant movement from air carriers towards buying foreign manufactured fuel and away from buying fuel manufactured in Alaska. Half a year later, he stated they are in a position to see that this has happened and approximately one-half of the fuel that's being sold to these foreign originated continuing flights is refined outside of the United States. He stated that the source of the problem, the Foreign Trade Zone (FTZ), established in Anchorage, made it possible for carriers to buy fuel tax free. This action created a choice that hadn't existed before. Fuel can be bought that doesn't have a tax on it or fuel can be bought that does have a 3.2 cent tax on it. He stated that this is the discrimination that Petrostar is fighting against because as things stand now and as they will stand in the future, fuel made in the United States is subject to the tax, while fuel not made in the United States is not. He stated that this is discrimination. It's discrimination that's unfair and unwise, as a matter of policy, for a state to discriminate against its own industry. The second part of the equation is that, besides being unfair, it is unwise, but also pointless. Its only impact is that people will go elsewhere and all three of the Alaskan refiners will be seriously injured. He indicated his belief that everybody in Alaska, save for a few, are optimistic about the future of the Anchorage airport developing as an industrial hub. He stated that the market for foreign originated fuel is going to grow. Leaving this tax on the books discriminates against Alaskan industry. It means that the industry will grow but that we as Alaskan refiners will be shut out from the growth. Number 1963 REPRESENTATIVE COWDERY asked who they look at as the other suppliers of jet fuel in the state as major competitors. Number 1983 TRENT CARBAUGH, Director, Aviation Marketing, Petrostar, Inc. stated major competitors are Mapco and Tesoro. Number 1994 REPRESENTATIVE COWDERY asked if it was his opinion that MAPCO and Tesoro would want this market without the forgiveness of the tax. Number 2024 MR. CARBAUGH stated that he couldn't speak for other refineries but for Petrostar he stated that the tax was something they couldn't pass through because it is an immense expense from their point of view. Number 2040 REPRESENTATIVE COWDERY asked if the shipping fees of the foreign refiners are comparable to Petrostar's shipping fees from Fairbanks down. Number 2063 MR. CARBAUGH replied that with all of their costs including shipping, refining costs, labor costs, capital costs of building their plants, crude oil costs that they are able to beat Petrostar out of the market with this tax in place. Because that is what's happened. Number 2076 REPRESENTATIVE COWDERY asked about the costs of crude oil and the theory that crude costs the same all over the world. MR. CARBAUGH stated that there has been no answer even in litigation to that question. Number 2083 REPRESENTATIVE COWDERY asked what impact would this have on the landing fees if the state decided to forgive the tax. Number 2104 MR. CARBAUGH explained that it was his understanding that it would have no affect. Mr. Carbaugh stated that his hope was the same and that Petrostar would be willing to stand shoulder to shoulder with the Alaska Air Carriers Association to fight it. There shouldn't be any affect. If there is going to be one it should occur just by the revenue going away which is going to happen in any event. He stated that it would be total injustice to penalize the air carriers as we are being penalized because of the existence of the FTZ. Number 2127 REPRESENTATIVE HUDSON asked if we took no action and didn't consider this at all, would we see a continued growth of the importation of foreign produced oil, in their capacity, in their production, in jobs and wherever they're coming from. He stated that since this is such a large part of Petrostar's market, no action, would portend less production but not only no growth in your operations but perhaps a decline, affecting jobs and associated transport jobs and things of that nature. Representative Hudson asked is this was a fair assessment. Number 2158 MR. CARBAUGH stated yes, that was true. Number 2163 REPRESENTATIVE HUDSON further asked if we do agree to the elimination or the reduction of a tax we may be encouraging expanded growth, because you may have a greater share of the market and maybe stem some of the foreign oil, you may be able to compete effectively with the foreign produced oil. He asked if that was a fair assessment. Number 2178 MR. CARBAUGH stated yes, what that would mean is that as the market grows, we, rather than the foreign refiners, would participate in that growth. Number 2184 REPRESENTATIVE HUDSON then stated that he assumed that it probably would have some bearing on jobs, the economy and money washed into the Alaska economy. Number 2189 MR. CARBAUGH agreed. Number 2192 CHAIRMAN WILLIAMS asked how many tankers had Petrostar brought into the FTZ last year and this year. Number 2203 MR. CARBAUGH responded that Petrostar has not brought in tankers with foreign fuel. Petrostar's barge arrives at the port of Anchorage at least twice every month. Sometimes, they, as well as Mapco and Tesoro, in order to meet the influx, do bring in product from outside the state, many times from the lower 48. He stated that at this time, Petrostar does not participate in bringing in foreign fuel into the port of Anchorage.
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