Legislature(2003 - 2004)
05/20/2003 10:38 AM Senate FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
CS FOR HOUSE BILL NO. 271(FIN)(efd am)
"An Act levying and providing for the collection and
administration of excise taxes on the rental of passenger and
recreational vehicles usable on highways and vehicular ways;
and providing for an effective date."
This was the first hearing for this bill in the Senate Finance
Committee.
Co-Chair Wilken stated that this bill, relating to a "personal and
recreational vehicle rental tax", "imposes a ten-percent State tax
on rental or lease of passenger vehicles and a three-percent State
tax on lease or rental of recreational vehicles. Commercial
vehicles and farm equipment are exempt and vehicles leased for more
than 90 consecutive days are also exempt."
KRIS KNAUSS, Staff to Representative Pete Kott, testified that this
bill was introduced at the request of the Governor with the intent
to generate approximately $6 million in revenue with a ten percent
tax on rental cars and three percent tax on recreational vehicles
(RVs). He remarked that with over 1.6 million visitors to Alaska,
the Administration determined "it would be good to get something
back from the tourism industry." He informed that approximately 100
businesses would be impacted and that government employees
conducting government business would be exempt from the tax. He
noted an amendment adopted by the House of Representatives changed
the effective date from July 2003 to January 2004.
LARRY PERSILY, Deputy Commissioner, Department of Revenue,
testified he was available to answer questions.
Amendment #1: This amendment deletes the following language from
page 1 line 14 and page 2 lines 1 - 3 in Section 1.
Sec. 43.52.030. Levy of recreational vehicle rental tax.
There is imposed an excise tax on the charge for the lease or
rental of a recreational vehicle in this state if the lease or
rental of the recreational vehicle does not exceed a period of
90 consecutive days.
Senator Bunde moved for adoption.
Co-Chair Wilken objected for an explanation.
Senator Bunde remarked that the majority of RV rentals occur within
the Municipality of Anchorage, which already imposes an eight-
percent tax. He calculated that another three-percent tax would
"undoubtedly be burdensome on the industry". He informed that
because of the current eight percent tax, customers are renting RVs
in Canada for travel in Alaska.
Senator Bunde reported that an RV typically rents for $200 per day
or $4,200 for a two-week rental. He calculated the current eight
percent tax for this rental is $338 and the proposed additional tax
would be $126, totaling $464 total tax.
Co-Chair Wilken expressed these figures are "compelling" and that
business should not be directed to Whitehouse, Yukon Territory. He
removed his objection to the adoption of the amendment.
Co-Chair Green objected.
A roll call was taken on the motion.
IN FAVOR: Senator Taylor, Senator Bunde, and Co-Chair Wilken
OPPOSED: Senator Hoffman, Senator Olson, Senator B. Stevens, and
Co-Chair Green
The motion FAILED (3-4)
The amendment FAILED to be adopted.
Amendment #2: This amendment changes the proposed tax rate on
rental cars from ten percent to seven percent on page 1 line 12 of
Section 1.
Senator Bunde moved for adoption.
Co-Chair Wilken objected for an explanation.
Senator Taylor relayed the national average is approximately 5.9
percent. He commented that although "everything costs more in
Alaska" "nearly doubling the tax is probably not appropriate". He
surmised that collecting a seven percent tax would generate revenue
from this source without becoming burdensome to the industry. He
added that some rental car companies are "economically stressed".
Senator Taylor estimated he pays a higher taxation rate when
renting vehicles in Seattle, Washington and that he definitely pays
a higher rate in the State of Hawaii.
Senator Bunde pointed out that many airports impose drop-off and
pick-up fees separate from the tax.
Co-Chair Wilken directed attention to a chart compiled by the
Montana Department of Revenue and provided by Representative Kott
titled, "Table 2, Rental Car Tax, State-by-State Comparison" [copy
on file.] This chart, Co-Chair Wilken pointed out, indicates the
State of Illinois levies the highest rental car tax combination in
the nation at 31.7 percent, the State of Washington levies the
th
sixth highest tax at 21.5 percent, and Alaska ranks 47at
approximately six percent.
Co-Chair Wilken maintained his objection to the adoption of the
amendment.
GARY ZIMMERMAN, General Manager, Avis Rental Car of Alaska,
testified via teleconference from an offnet location to challenge
the six percent total rental car tax in Alaska. He cited the eight
percent Municipality of Anchorage tax as well as a ten-percent of
gross fee paid to the State as an airport concession fee, which is
passed along to the consumer. He stated that rental agreements
currently list the total tax paid by the lessee at 18 percent. This
legislation, he calculated, plus a proposed statewide sales tax
would make the total rental car tax 30 percent. He expressed this
would be detrimental to business operations in Alaska. He spoke to
the seasonality of the visitor industry in Alaska that does not
occur in other states.
Co-Chair Wilken requested Mr. Persily reconcile the witness's
testimony with the information contained in the aforementioned
chart.
Mr. Persily explained that the chart does not include airport
concession fees or municipal car rental taxes. He stated the chart
reflects the highest sales tax six percent levied in Sitka for
rental cars in Alaska. He agreed that the total current tax for car
rentals in Anchorage is 18 percent. He noted that the airport
concession fee could be avoided by renting vehicles off site.
Senator Bunde directed attention to the column on the chart titled
"state sales tax" and suggested that if a seven percent State sales
tax were imposed, Alaska would be equal to the highest tax.
Mr. Persily informed that several states impose a flat fee per
rental, rather than a tax percentage. He stated that the chart
calculated the flat fee as a percentage of the average $50 daily
car rental rate, and therefore varies based on the actual price of
each car rental.
Senator Taylor recalled discussions on other tax proposals, such as
a tax on pull tab operations where it was debated whether the State
should exercise exclusive taxation authority. He suggested an
alternative amendment to Amendment #2 to limit tax authority on car
rentals to the State.
Co-Chair Wilken requested the witness continue with testimony on
the legislation.
Mr. Zimmerman reported the car rental agencies operating in
Anchorage and Fairbanks currently pay over $4.5 million to the
State in the form of a percentage of revenues. In addition, he
estimated $1.5 million is paid to the Division of Motor Vehicles in
the form of vehicle registration and another $.25 million for
"coveted parking spaces" at the two airports. He challenged the
assertion that the car rental industry or its customers do not
contribute to the State economy. He opined that the proposal is a
"very targeted tax" and that "a certain fairness issue is at
state".
Mr. Zimmerman found it "inconceivable" that a customer renting an
RV at $200 per day would pay less tax than a customer renting a car
for $70 per day. He furthered those travelers who rent cars would
stay at hotels and pay local bed taxes, as opposed to travelers who
rent RVs and do not stay at hotels. He noted Senator Bunde's
comments regarding the burden of the proposed tax on the RV rental
industry and stressed that the burden would also exist for the car
rental industry. He compared the percentage of the total vehicle
rental charges on a two-week RV rental to that of a two-week car
rental.
Mr. Zimmerman described the impacts, informing that 90 percent of
transactions involve credit cards, in which the bank collects a
percentage of the total charge. He stated that the rental companies
therefore pay an amount equal to a portion of the tax to the bank,
thus increasing operating expenses. He pointed out that this bill
contains no provisions to help offset that cost to the car rental
and motor home rental businesses.
Mr. Zimmerman cautioned that the vehicle rental industry is "facing
very bleak market conditions", noting that deplanements in
Anchorage has only increased four percent in the past six years. In
Fairbanks, he furthered, the number of deplanements has been
unchanged in the past six years and in the current year, Juneau and
Kenai are experiencing decreased numbers of deplanements over the
previous year. He stated that the situation is not expected to
improve and relayed general concerns relating to tourism as well as
the "general business climate"
Mr. Zimmerman addressed discussions held amongst members of the car
rental industry several years prior about developing an offsite
rental facility in Anchorage. However, he stated that customers
would have to pay for construction of such a facility through a
"pass through fee". He expressed that the proposed tax in this bill
is poorly timed, given the current economic situation.
BOB DINDINGER, President and Chief Executive Officer, Alaska Travel
Adventures, testified via teleconference from an offnet location
about RV rental facilities located in Anchorage, Skagway and
Seattle. He informed that the bulk of this business has been
primarily in European travelers but has not fared well in recent
years due to travel conditions. He agreed with Senator Bunde that a
"major shift" of business has occurred from Anchorage to
Whitehouse, Yukon Territory, caused by the passage of the
Municipality of Anchorage rental tax. Mr. Dindinger also explained
that it is more economical for travelers to fly from Germany to
Whitehorse and tour Alaska, returning to Whitehorse to return to
Germany.
Mr. Dindinger stated that four of his competitors have gone out of
business and he listed the changing numbers of rentals in
Whitehorse and in Alaska. He furthered that his company has
downsized its fleet. He expressed concern that a State tax would
provide an additional disincentive for renting RVs in Alaska.
TERRY PARKS, Dollar Rental Car, testified via teleconference from
an offnet location about the negative impacts on the industry since
the events of September 11, 2001 and the more recent outbreaks of
the Severe Acute Respiratory Syndrome (SARS). He stated that
national rate reductions, despite no changes to fixed costs, have
also impacted the Alaska businesses. He spoke to the difficulty in
keeping employees employed and the need to increase the fleet.
Mr. Park assured that he was willing to contribute to the State and
to pay taxes, as he attributed this as a responsibility.
Mr. Parks noted the cruise industries are owned outside of the
United States and although they pay port fees, they pay no State
taxes. He asserted that the cruise industry earnings are spend by
the companies and it employees out of State, in comparison to
locally owned business in which the earnings are reinvested in
Alaska.
Mr. Parks emphasized the burden on rental industries to collect the
funds and process the taxes, reiterating that the companies are not
reimbursed for the additional credit card transaction charges. He
also pointed out that some computer systems do not account multiple
taxes.
ANDREW HALCRO, President, Alaska Rental Car, testified via
teleconference from offnet location about the 100 employees of the
company located in nine communities in Alaska. He spoke to the
economic development at the Ted Stevens Anchorage International
Airport and reminded that three years prior the State authorized
the sale of bonds to finance the $230 million expansion. He relayed
that the car rental industry was not included in this process and
identified problems with the project. As a result, he stated that
the car rental industry formed a consortium to design and propose
the construction of a four-story parking garage with two stories
occupied by rental companies and financed by the rental industry.
Mr. Halcro calculated a State tax coupled with existing taxes and
fees would total 28 percent. He estimated the proposed parking
garage would cost $40 million and would require a customer facility
charge of approximately $3.50 per day for each rental agreement.
The market, he stressed could not support this combination and
therefore the parking garage project would not be constructed. He
warned that the consequence of not proceeding with the private
parking facility would be the rental industry and customers would
be "at the mercy of the State at an airport that is now $150
million over budget and really no solution in sight."
Mr. Halcro also spoke to the fairness issue, telling the co-chair
that a Fairbanks resident traveling to Anchorage and renting a car
for one day would pay a 20 percent State tax, plus an 8 percent
local tax. He compared this to a traveler from out of State renting
an RV, impacting the parks, highways and other State
infrastructure, and paying only three percent in tax. He suggested
that if the intent is to generate revenue from those who impact
roadways and the State's infrastructure, the proposed tax should be
implemented equally to all vehicle rentals.
SFC 03 # 106, Side B 11:26 AM
Mr. Halcro contended that the RV industry concern the business
would "bleed" to Canada is no different than his concern that
business would be lost to taxi cabs, shuttle buses and car rentals
located away from airports.
Mr. Halcro expressed he understood the State's fiscal gap and as a
result the car rental industry should "take full responsibility and
my customers to take full responsibility in getting the State on a
straight and narrow." He stated that in the previous year, the car
rental businesses located at the Ted Stevens Anchorage
International Airport paid over $3.7 million in direct taxes to the
Department of Transportation and Public Facilities.
Mr. Halcro told of recent purchase of land in Fairbanks by his
company off airport property and the intention to construct a state
of the art service facility. He stated that a new tax would be
factored into any capital investment decisions.
Senator Olson asked former State Representative Halcro's opinion on
Amendment #2.
It was determined Mr. Halcro had disconnected from the
teleconference network.
Senator Bunde speculated on Mr. Halcro's position surmising that,
"seven percent is better than ten percent."
A roll call was taken on the motion to adopt Amendment #2.
IN FAVOR: Senator Olson, Senator Bunde and Senator Hoffman
OPPOSED: Senator B. Stevens, Senator Taylor, Co-Chair Green and Co-
Chair Wilken
The motion FAILED (3-4)
The amendment FAILED to be adopted.
Amendment #3: This conceptual amendment limits authority to levy a
tax on car rentals to the State; clarifying that airport
authorities and municipalities are not authorized to impose such a
tax.
Senator Taylor moved for adoption and stated that varying tax rates
and user fees exist in Anchorage and Fairbanks and subsequently
this legislation would impact communities differently. He clarified
this amendment provides that municipalities would be precluded from
imposing taxes and fees on car rental businesses.
Senator Taylor spoke to various taxes imposed on alcohol and the
confusion it creates. He talked about different taxing entities
that do not communicate with each other and the eventual situation
whereby a business could no longer operate due to excessive
taxation. He characterized this amendment as a policy call. He
suggested that more revenue could be generated for the State and
that in some communities the overall tax rate would be reduced.
Senator B. Stevens moved to amend the amendment to include cruise
ship destinations.
It was established that the amendment includes all communities,
local governments and taxing authorities.
Mr. Persily asked if this would abolish those existing taxes
currently imposed by local governments and airport authorities or
instead "freeze" the current taxes.
Senator Taylor answered that all taxes would be eliminated, thus
granting the State sole authority to impose taxes on vehicle
rentals.
Mr. Persily noted the Municipality of Anchorage would lose
approximately $4.5 million in revenues beginning at the effective
date of this bill. He asked if the intent is to also eliminate
airport concession fees paid to the Department of Transportation
and Public Facilities.
Senator Taylor responded that State-imposed fees would not be
affected. He remarked that revenues collected by airport
authorities are deposited to the State general fund, although the
legislature always "chooses" to appropriate the funds to the
authorities.
Co-Chair Wilken maintained his objection to the adoption of the
amendment.
A roll call was taken on the motion.
IN FAVOR: Senator Taylor and Senator Hoffman
OPPOSED: Senator B. Stevens, Senator Bunde, Senator Olson, Co-Chair
Green and Co-Chair Wilken
The motion FAILED (2-5)
The amendment FAILED to be adopted.
Senator Taylor offered a motion to report the bill from Committee
with individual recommendations and new fiscal note.
There was no objection and CS HB 271 (FIN)(efd am) MOVED from
Committee with a $96,500 fiscal noted dated 5/20/03 from the
Department of Revenue.
AT EASE 11:36 AM / 11:43 AM
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