Legislature(2017 - 2018)BARNES 124

04/03/2018 11:30 AM ARCTIC POLICY, ECONOMIC DEV., & TOURISM

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Audio Topic
11:31:47 AM Start
11:32:37 AM HB383
01:02:49 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= HB 383 TOURISM MARKETING:BOARD;ASSESSMENT;FUND TELECONFERENCED
Moved CSHB 383(AET) Out of Committee
-- Public Testimony <Time Limit May Be Set> --
+ Bills Previously Heard/Scheduled TELECONFERENCED
                    ALASKA STATE LEGISLATURE                                                                                  
           HOUSE SPECIAL COMMITTEE ON ARCTIC POLICY,                                                                          
               ECONOMIC DEVELOPMENT, AND TOURISM                                                                              
                         April 3, 2018                                                                                          
                           11:31 a.m.                                                                                           
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative John Lincoln, Chair                                                                                              
Representative Bryce Edgmon                                                                                                     
Representative Andy Josephson                                                                                                   
Representative Chris Tuck                                                                                                       
Representative Gary Knopp                                                                                                       
Representative Mark Neuman                                                                                                      
Representative David Talerico                                                                                                   
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
All members present                                                                                                             
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
HOUSE BILL NO. 383                                                                                                              
"An Act establishing the Travel Alaska Board; relating to a                                                                     
tourism marketing assessment; and establishing a tourism                                                                        
marketing fund."                                                                                                                
                                                                                                                                
     - MOVED CSHB 383(AET) OUT OF COMMITTEE                                                                                     
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
BILL: HB 383                                                                                                                  
SHORT TITLE: TOURISM MARKETING:BOARD;ASSESSMENT;FUND                                                                            
SPONSOR(s): REPRESENTATIVE(s) GRENN                                                                                             
                                                                                                                                
02/21/18       (H)       READ THE FIRST TIME - REFERRALS                                                                        
02/21/18       (H)       AET, FIN                                                                                               
02/27/18       (H)       AET AT 11:30 AM BARNES 124                                                                             
02/27/18       (H)       Heard & Held                                                                                           
02/27/18       (H)       MINUTE(AET)                                                                                            
03/06/18       (H)       AET AT 11:30 AM BARNES 124                                                                             
03/06/18       (H)       Heard & Held                                                                                           
03/06/18       (H)       MINUTE(AET)                                                                                            
03/15/18       (H)       AET AT 11:30 AM BARNES 124                                                                             
03/15/18       (H)       -- MEETING CANCELED --                                                                                 
03/20/18       (H)       AET AT 11:30 AM BARNES 124                                                                             
03/20/18       (H)       -- Meeting Postponed to 3/22/18 at                                                                     
                         11:35 am --                                                                                            
03/22/18       (H)       AET AT 11:35 AM BARNES 124                                                                             
03/22/18       (H)       -- MEETING CANCELED --                                                                                 
03/29/18       (H)       AET AT 11:35 AM BARNES 124                                                                             
03/29/18       (H)       -- Meeting Rescheduled from 03/27/18 --                                                                
04/03/18       (H)       AET AT 11:30 AM BARNES 124                                                                             
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
BROOKE IVY, Staff                                                                                                               
Representative Jason Grenn                                                                                                      
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Answered questions during the hearing on HB
383, on behalf of Representative Grenn, prime sponsor.                                                                          
                                                                                                                                
REPRESENTATIVE JASON GRENN                                                                                                      
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  As prime sponsor, answered questions on the                                                              
proposed committee substitute (CS) for HB 383, Version 30-                                                                      
LS1214\R, Nauman, 3/21/18.                                                                                                      
                                                                                                                                
JUDITH WHITE                                                                                                                    
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified in opposition to HB 383.                                                                       
                                                                                                                                
DAN OBERLATZ, Owner                                                                                                             
Alaska Alpine Adventures                                                                                                        
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified in support of HB 383.                                                                          
                                                                                                                                
JOHN WHITE, President                                                                                                           
Nenana Raft Adventures                                                                                                          
Denali Borough, Alaska                                                                                                          
POSITION STATEMENT:  Testified in opposition to HB 383.                                                                       
                                                                                                                                
MATTHEW ATKINSON                                                                                                                
Northern Alaska Tour Company                                                                                                    
Fairbanks, Alaska                                                                                                               
POSITION STATEMENT:  Testified in support of HB 383.                                                                          
                                                                                                                                
ROARK BROWN                                                                                                                     
Homer Ocean Charters                                                                                                            
Homer, Alaska                                                                                                                   
POSITION STATEMENT:  Testified in support of HB 383.                                                                          
                                                                                                                                
SARA LEONARD, President and Chief Executive Officer                                                                             
Alaska Travel Industry Association (ATIA)                                                                                       
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified in support of HB 383.                                                                          
                                                                                                                                
ERIC FULLERTON, VP and Director of Marketing                                                                                    
Alyeska Resort                                                                                                                  
Girdwood, Alaska                                                                                                                
POSITION STATEMENT:  Testified in opposition to HB 383.                                                                       
                                                                                                                                
JOHN LAMBETH, Industry Consultant                                                                                               
Alaska Travel Industry Association (ATIA)                                                                                       
Sacramento, California                                                                                                          
POSITION STATEMENT:  Testified during the discussion of HB 383.                                                               
                                                                                                                                
BRETT CARLSON                                                                                                                   
Coldfoot, Alaska                                                                                                                
POSITION STATEMENT:  Testified in support of HB 383.                                                                          
                                                                                                                                
EMILY NAUMAN, Deputy Director                                                                                                   
Office of the Director                                                                                                          
Legislative Legal Services                                                                                                      
Legislative Affairs Agency (LAA)                                                                                                
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Answered questions during the discussion of                                                              
HB 383, Version R.                                                                                                              
                                                                                                                                
KEN ALPER, Director                                                                                                             
Tax Division                                                                                                                    
Department of Revenue (DOR)                                                                                                     
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Answered questions during the discussion of                                                              
HB 383, Version R.                                                                                                              
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
11:31:47 AM                                                                                                                   
                                                                                                                                
CHAIR  LINCOLN  called  the House  Special  Committee  on  Arctic                                                             
Policy,  Economic Development,  and Tourism  meeting to  order at                                                               
11:31  a.m.   Representatives Lincoln,  Edgmon, Tuck,  Josephson,                                                               
Neuman,  and   Knopp  were   present  at   the  call   to  order.                                                               
Representative Talerico arrived as the meeting was in progress.                                                               
                                                                                                                                
         HB 383-TOURISM MARKETING:BOARD;ASSESSMENT;FUND                                                                     
                                                                                                                                
11:32:37 AM                                                                                                                   
                                                                                                                                
CHAIR LINCOLN  announced that the  first order of  business would                                                               
be HOUSE  BILL NO.  383, "An Act  establishing the  Travel Alaska                                                               
Board;   relating  to   a  tourism   marketing  assessment;   and                                                               
establishing a  tourism marketing fund."   [Before the committee,                                                               
adopted  as  a working  document  on  3/29/18, was  the  proposed                                                               
committee  substitute  (CS)  for  HB  383,  Version  30-LS1214\R,                                                               
Nauman, 3/21/18.]                                                                                                               
                                                                                                                                
11:33:30 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE TUCK  directed attention  to language on  page 10,                                                               
of Version R,  lines 18-21, regarding weighted  votes, which read                                                               
as follows:                                                                                                                     
                                                                                                                                
     Votes   shall  be   weighted  in   proportion  to   the                                                                    
     assessment  that   each  voting  tourism   business  is                                                                    
     estimated  to pay  for  the  calendar year  immediately                                                                    
     following   the  election,   as  determined   under  AS                                                                    
     44.25.260.                                                                                                                 
                                                                                                                                
REPRESENTATIVE TUCK  then referred  to subsection (b),  lines 25-                                                               
28, which read as follows:                                                                                                      
                                                                                                                                
          (b)  The  department  shall adopt  regulations  to                                                                    
     establish the  method for determining weighted  vote of                                                                    
     a  tourism  business  for   which  the  department  has                                                                    
     insufficient  information to  determine the  assessment                                                                    
     that  business is  estimated to  pay  for the  calendar                                                                    
     year immediately following the election.                                                                                   
                                                                                                                                
REPRESENTATIVE  TUCK  said it  looks  like  there would  be  some                                                               
conditions  in which  the weighted  vote would  be determined  by                                                               
looking  forward while  other  times it  would  be determined  by                                                               
looking  backward.   He asked,  "When do  we use  one versus  the                                                               
other?"                                                                                                                         
                                                                                                                                
11:35:06 AM                                                                                                                   
                                                                                                                                
BROOKE  IVY,  Staff,  Representative Jason  Grenn,  Alaska  State                                                               
Legislature, on behalf of Representative  Grenn, prime sponsor of                                                               
HB  383, explained  that those  [tourism businesses]  new to  the                                                               
weighted  vote process  would be  weighted on  the estimation  of                                                               
what they  would pay in  the calendar year  immediately following                                                               
the initial election.  She  continued, "After the first year, ...                                                               
if there  was an  amendment vote or  something along  those lines                                                               
where  they would  need  to  make sure  the  votes were  weighted                                                               
properly,  they  could  look  back  to  previously  assessed  ...                                                               
revenues   and   assessment   payments  to   weight   that   vote                                                               
accordingly."  She  said under subsection (b),  the Department of                                                               
Revenue  (DOR)  would be  given  authority  to determine  how  to                                                               
weight a  vote without sufficient  information or for  a business                                                               
that has  yet to pay  into an  assessment, thus DOR  would ensure                                                               
that the business gets to participate.                                                                                          
                                                                                                                                
11:36:23 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE TUCK  summarized that the two  circumstances under                                                               
which the  weighted vote  would be done  by "looking  forward" is                                                               
"initially" and "any time a new business comes into the market."                                                                
                                                                                                                                
REPRESENTATIVE NEUMAN  said Version R would  create different tax                                                               
levels against different tourism  marketing industries.  He asked                                                               
the bill sponsor if he could  remark upon the amount of taxes and                                                               
the structures.                                                                                                                 
                                                                                                                                
11:37:10 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE JASON  GRENN, Alaska  State Legislature,  as prime                                                               
sponsor of  HB 383, answered  that different segments  would have                                                               
different  taxes;   there  would   be  varying  tax   levels  and                                                               
assessments voted on, which he opined is appropriate.                                                                           
                                                                                                                                
REPRESENTATIVE NEUMAN  said he  was trying  to figure  out "where                                                               
we're  going with  this  bill."   He  asked Representative  Grenn                                                               
whether  he had,  since  the last  hearing on  HB  383, held  any                                                               
discussions with the  industry about the amount of  the tax rates                                                               
and whether they would be based off  of gross or net.  He asked -                                                               
since this  has to do with  credits against vehicle rental  tax -                                                               
what would happen "if they don't rent vehicles."                                                                                
                                                                                                                                
REPRESENTATIVE  GRENN  suggested  that some  of  the  information                                                               
Representative Neuman  was looking for  could be found on  page 6                                                               
of Version R,  regarding "different levels of the  percent of the                                                               
gross  revenue related  to the  assessed segment"  and how  those                                                               
could be "the different percentages that they could vote on."                                                                   
                                                                                                                                
11:38:25 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE   JOSEPHSON,  regarding   Representative  Neuman's                                                               
question,  offered his  understanding that  under Version  R, the                                                               
formula  for paying  the  vehicle  rental car  tax  would not  be                                                               
changed;  Version D  would simply  offer a  credit for  those who                                                               
wish to "forward  their revenue to the new  tourism marketing ...                                                               
board."  There would be  interfacing with DOR and the legislature                                                               
"may" appropriate the  funds.  He added, "It's  believed that the                                                               
legislature would do that, because  the intent of this is written                                                               
over every document."                                                                                                           
                                                                                                                                
REPRESENTATIVE GRENN  answered that  is correct.   He  noted that                                                               
Section  1 of  Version  R, [on  page 1,  beginning  on line  10],                                                               
offers  more   information  regarding  the  unused   credits,  as                                                               
follows:                                                                                                                        
                                                                                                                                
     An unused credit or portion  of a credit not used under                                                                    
     this section  for a tax  year may not be  sold, traded,                                                                    
     transferred, or applied in a subsequent tax year.                                                                          
                                                                                                                                
11:39:52 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE NEUMAN stated:                                                                                                   
                                                                                                                                
     Basically what we're doing is  we have a vehicle rental                                                                    
     tax  now that  already  goes in;  the legislature  uses                                                                    
     that  against  needs  within  the  administration,  ...                                                                    
     because  particularly this  year, funds  generated have                                                                    
     been a determination  [in] quite a few  budgets, and if                                                                    
     the  funds   were  generated  within   that  particular                                                                    
     department, they  have to go  back to  designated funds                                                                    
     within  that department.   So,  now  we're taking  what                                                                    
     would be  designated funds for this  tourism credit tax                                                                    
     ..., and then we're moving  them, but ... they're still                                                                    
     going  to  have to  be  supplemented  or replaced  with                                                                    
     general fund dollars  ....  Why wouldn't  you just give                                                                    
     the  tourism  marketing   board  general  fund  dollars                                                                    
     instead of replacing it from  general fund dollars that                                                                    
     are already there?                                                                                                         
                                                                                                                                
11:40:48 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  GRENN  told   Representative  Neuman,  "Obviously                                                               
you're well aware  of ... the intent language a  few years ago in                                                               
Finance that  asked ...  the tourism industry  to move  away from                                                               
using  [general   funds  (GFs)]  specifically   towards,  towards                                                               
marketing efforts."   He said there  is a policy call  to be made                                                               
whether  to put  the vehicle  rental tax  (VRT) into  the tourism                                                               
fund "and those efforts."   He said there could be  a loss to the                                                               
undesignated  general fund  (UGF) of  the departments.   He  said                                                               
Version  R proposes  "to fulfill  the intent  of the  language of                                                               
what the  VRT should be used  for," which he said  he believes is                                                               
tourism  marketing  efforts.   He  indicated  that those  efforts                                                               
benefit  local economies,  as  well  as the  state  economy.   He                                                               
asked, "As we've told the  industry that they should stop relying                                                               
on general funds, how do we  show to be good partners to maximize                                                               
dollars that are  generated through tourists and  continue to ...                                                               
increase  our  economy ...?"    He  said Representative  Neuman's                                                               
question  is  legitimate, and  the  sponsor  has considered  that                                                               
question and  thinks the funds could  be used "in a  more aligned                                                               
focus of what the intent language is regarding the VRT."                                                                        
                                                                                                                                
11:42:33 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  NEUMAN   explained  the  prior  version   of  the                                                               
proposal  was going  to take  another tax  on vehicle  rentals to                                                               
cover the costs of running parks  and ferries.  He said he thinks                                                               
it's been  determined it is not  a good idea because  the general                                                               
fund (GF) dollars would have to be replaced anyway.                                                                             
                                                                                                                                
11:43:15 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE TUCK  directed attention to  pages 4 through  6 of                                                               
the bill  and noted the board  would be able to  acquire property                                                               
necessary  to  the  administrative   functioning  of  the  board;                                                               
however,  board  expenditures may  not  be  spent on  capital  or                                                               
infrastructure  improvement  projects.    He  asked  whether  any                                                               
improvements to properties  held by the board would  "come out of                                                               
the, just the regular membership fees that the board would get."                                                                
                                                                                                                                
11:44:37 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE GRENN  answered the  intent of the  marketing fund                                                               
is to  narrow the efforts  of marketing, such as  advertising and                                                               
promotion.   He  added he  thinks  it is  appropriate to  exclude                                                               
capital projects.                                                                                                               
                                                                                                                                
MS. IVY  answered that the language  in Version R, page  4, lines                                                               
23-25,  was  taken directly  from  the  Alaska Seafood  Marketing                                                               
Institute (ASMI)  statute.  She specified  that Legislative Legal                                                               
Services,  Legislative Affairs  Agency  did  not express  concern                                                               
with the language.   She added that [the language  in proposed AS                                                               
44.25.250, [paragraph]  2, would ensure  the funds would  be used                                                               
strictly for tourism improvement and marketing.                                                                                 
                                                                                                                                
REPRESENTATIVE TUCK said his interpretation  is it would come out                                                               
of membership fees.                                                                                                             
                                                                                                                                
11:46:56 AM                                                                                                                   
                                                                                                                                
CHAIR LINCOLN opened public testimony on HB 383.                                                                                
                                                                                                                                
11:47:18 AM                                                                                                                   
                                                                                                                                
JUDITH WHITE  testified in opposition  to HB 383.   She suggested                                                               
the bill  would add duties  to the Division of  Elections, Office                                                               
of  Lieutenant Governor.    She said  that "it  is  not one  vote                                                               
equals  one vote"  as votes  would have  to be  "weighted."   She                                                               
stated the bill  would create expensive new  bureaucracies in the                                                               
Division  of Elections  and in  the Department  of Revenue.   She                                                               
highlighted  "there   would  be  thousands  and   thousands"  [of                                                               
quarterly reports]  that would require  the hiring  of additional                                                               
state workers.                                                                                                                  
                                                                                                                                
REPRESENTATIVE JOSEPHSON  said the legislature used  to give [the                                                               
tourism]  industry a  grant of  $16 million  and in  the previous                                                               
year around  $1 million.  He  asked Ms. White how  the bill would                                                               
affect her directly.                                                                                                            
                                                                                                                                
MS. WHITE said that many people  save for years to take "the trip                                                               
of a lifetime"  to Alaska.  She indicated that  money for the tax                                                               
is money  taken away from their  trip.  She restated  her concern                                                               
about unnecessary bureaucracy in state agencies.                                                                                
                                                                                                                                
REPRESENTATIVE NEUMAN asked Ms.  White whether her business earns                                                               
enough to get a corporate tax credit.                                                                                           
                                                                                                                                
MS. WHITE answered no.                                                                                                          
                                                                                                                                
11:53:28 AM                                                                                                                   
                                                                                                                                
DAN  OBERLATZ,  Owner,  Alaska Alpine  Adventures,  testified  in                                                               
support  of HB  383.   He said  Alaska can't  compete with  other                                                               
destinations  in   terms  of  growing  economic   benefits.    He                                                               
suggested  Alaska would  lose market  share  to competitors  from                                                               
around  the  world.    He spoke  to  advertisements  in  national                                                               
magazines  for other  states.   He  suggested  the proposed  bill                                                               
would create  a funding plan  for tourism based on  a time-tested                                                               
model.  He  reminded committee members that  tourism returns $100                                                               
million  to Alaska's  general fund  and contributes  to city  and                                                               
local budgets.  He remarked the  proposal would place the fate of                                                               
the  tourism industry  in  its own  hands, as  well  as free  the                                                               
legislature from "having to consider  yet another annual industry                                                               
ask."                                                                                                                           
                                                                                                                                
11:55:56 AM                                                                                                                   
                                                                                                                                
JOHN  WHITE,  President,  Nenana Raft  Adventures,  testified  in                                                               
opposition to  HB 383.  He  shared he does not  agree that Alaska                                                               
cannot  compete  with  other destinations.    He  suggested  that                                                               
tourism  marketing  being a  function  of  government is  "a  bad                                                               
idea."   He opined  the proposed bill  is unconstitutional  as it                                                               
would  create  a  dedicated  fund.     He  remarked  that  taxing                                                               
authority cannot  be delegated to  an executive agency.   He said                                                               
the Alaska Travel Industry Association  (ATIA) is a "yellow pages                                                               
organization in the age of Amazon and Google."                                                                                  
                                                                                                                                
11:58:55 AM                                                                                                                   
                                                                                                                                
MATTHEW  ATKINSON, Northern  Alaska  Tour  Company, testified  in                                                               
support of  HB 383.  He  described his operation.   He added that                                                               
in order to "get the message  out,  it is important to have state                                                               
backing.    He mentioned other global competitors  for his aurora                                                               
borealis viewing operations.                                                                                                    
                                                                                                                                
REPRESENTATIVE KNOPP  asked Mr.  Atkinson whether  his is  a Part                                                               
135 [14  CFR Part 135  - Operating requirements: commuter  and on                                                               
demand  operations  and rules  governing  persons  on board  such                                                               
aircraft] business.     He suggested his  business may  be exempt                                                               
from the tax.                                                                                                                   
                                                                                                                                
MR. ATKINSON  answered that it is  a Part 135 operation  but that                                                               
he is unsure whether he would  be exempt.  He remarked that every                                                               
Part 135  business is different  and that there is  a distinction                                                               
between commuter and on-demand operations.                                                                                      
                                                                                                                                
12:02:46 PM                                                                                                                   
                                                                                                                                
ROARK BROWN,  Homer Ocean  Charters, testified  in support  of HB
383.    He remarked  that  targeted  marketing can  increase  the                                                               
quality  of  visitors.     He  reviewed  the   history  of  state                                                               
involvement in the tourism marketing  budget.  He underlined that                                                               
"marketing works."                                                                                                              
                                                                                                                                
12:04:59 PM                                                                                                                   
                                                                                                                                
SARA  LEONARD,  President  and Chief  Executive  Officer,  Alaska                                                               
Travel Industry  Association (ATIA),  testified in support  of HB
383.   She  said ATIA  appreciates the  conversation regarding  a                                                               
competitive [tourism] marketing budget.                                                                                         
                                                                                                                                
12:06:17 PM                                                                                                                   
                                                                                                                                
ERIC  FULLERTON, VP  and Director  of Marketing,  Alyeska Resort,                                                               
testified  in opposition  to HB  383.   He  paraphrased from  his                                                               
written statement [included in the  committee packet], which read                                                               
as follows [original punctuation provided]:                                                                                     
                                                                                                                                
     Dear Representative Lincoln:                                                                                               
                                                                                                                                
     We are writing  to express our strong  opposition to HB
     383 and SB 110. While  we appreciate the efforts of the                                                                    
     sponsors to  support the tourism industry,  as a member                                                                    
     of the  Alaska Tourism Industry Association  (ATIA) and                                                                    
     its   pending   Tourism  Improvement   District   (TID)                                                                    
     committee, we  are writing to  voice our  opposition to                                                                    
     this legislation. A review of  the CS recently released                                                                    
     in  the House  indicates  the bill  remains too  deeply                                                                    
     flawed to fix.                                                                                                             
                                                                                                                                
     Given  the state's  budget  situation,  we believe  the                                                                    
     Legislature  and  Governor   have  acted  prudently  in                                                                    
     recent  years   making  reductions  in   state  general                                                                    
     funding  for  tourism  marketing. State  subsidies  for                                                                    
     tourism marketing were an amenity  when the state had a                                                                    
     budget  surplus. As  elected  officials,  you have  all                                                                    
     faced  hard  budget  choices.  In  the  current  budget                                                                    
     situation,   state  funding   should   be  focused   on                                                                    
     essential services like public safety and education.                                                                       
                                                                                                                                
     With regard  to the HB 383  and SB 110, we  are opposed                                                                    
     to these tax increases for the following                                                                                   
     reasons:                                                                                                                   
  1. These new taxes will overly burden the targeted, but                                                                       
     undefined, estimated 2000 businesses large and small                                                                       
     who will pay the new taxes. The vast majority of these                                                                     
     businesses are unaware that these taxes are even being                                                                     
     considered, and despite statements made in last week's                                                                     
     House hearing, these nebulous and as yet undefined                                                                         
     taxes will hit the gross revenues of these businesses                                                                      
     and largely cannot just be "passed on to the                                                                               
     customers" due to the complexities of previously                                                                           
     committed future contracts, commissions charged by 3rd                                                                     
     party package providers, and integrated product                                                                            
     offerings for tourism experiences                                                                                          
  2. The DOR considers this to be a tax, pure and simple,                                                                       
     on those 2000 businesses. Hence their large fiscal                                                                         
     note, which includes the following explanation:                                                                            
     "If the  bill becomes law,  the tax division  will need                                                                    
     to  build  a  substantial  new module  within  the  Tax                                                                    
     Revenue  Management System  (TRMS).  The $900,000  one-                                                                    
     time capital                                                                                                               
     appropriation  is for  this purpose.  To implement  and                                                                    
     run the program, we envision  three new staff: a senior                                                                    
     auditor  or  audit  supervisor,  a  tax  technician  to                                                                    
     engage with registration  of what could be  up to 2,000                                                                    
     new  taxpayers, and  an economist  to provide  research                                                                    
     support,  pre-election  levy  estimates,  and  drafting                                                                    
     assistance with the annual report."                                                                                        
                                                                                                                                
  12:08:09 PM                                                                                                                 
                                                                                                                                
  3. The tax assessment model in HB 383 and SB 110 is based                                                                     
     on California's chaotic model, one that is a poor fit                                                                      
     for Alaska. Alaska's economy as a whole, and our                                                                           
     tourism industry, are vastly different. Alaska is not                                                                      
     California. Unlike in Alaska, TID funds in California                                                                      
     cannot be diverted by the government for other public                                                                      
     purposes.                                                                                                                  
  4. These bills would outsource the state's powers of                                                                          
     taxation and appropriation. This is both poor policy,                                                                      
     legally unsound, and unconstitutional.                                                                                     
  5. Funds designated for tourism marketing have been                                                                           
     collected from the Vehicle Rental Tax (VRT), but in                                                                        
     the current budget situation those funds were used for                                                                     
     other purposes. Alaska should use the money it has                                                                         
     already collected from the VRT rather than create a                                                                        
     new tax for the exact same purpose.                                                                                        
  6. Additional statewide tourism marketing funds are not                                                                       
     needed. Despite reductions in state subsidies for                                                                          
     tourism marketing in recent years, tourism in Alaska                                                                       
     has grown in the exact same time period. That growth                                                                       
     is projected to continue for the next several years:                                                                       
                                                                                                                                
     See  Visitor Traffic  Trends 2007-2016,  Total Spending                                                                    
     2016 and  Total Visitor  Spending by  Category attached                                                                    
     hereto.                                                                                                                    
     Alaska Visitors  Statistics Program (AVSP) VII  shows a                                                                    
     4% growth  in visitation to Alaska  in 2016. Additional                                                                    
     data can be found here:                                                                                                    
     http://www.alaskatia.org/marketing/alaska-visitors                                                                         
     statistics-program-avsp-vii.                                                                                               
     The number  of cruise  ship passengers  visiting Alaska                                                                    
     has increased from 810,000                                                                                                 
     passengers in  2010 to 1.1 million  passengers in 2017.                                                                    
     The Alaska Cruise Association projects  a 12% growth in                                                                    
     passengers  from 2018  to  2019. Additional  statistics                                                                    
     regarding cruise  passenger spend  can be found  on the                                                                    
     Cruise   Lines   International   Association   Alaska's                                                                    
     website   at  http://www.cliaalaska.org/economy/alaska-                                                                    
     cruisehistory                                       and                                                                    
     http://www.cliaalaska.org/economy/alaska-at-a-glance/.                                                                   
                                                                                                                                
     All this growth  has occurred during an  era of reduced                                                                    
     state   funding  for   tourism  marketing.   Additional                                                                    
     statewide tourism  marketing funds are  unnecessary and                                                                    
     will not likely have a  positive impact. The need for 3                                                                    
     additional  full-time   positions  to   administer  and                                                                    
     collect this  tax will negate  the savings made  by the                                                                    
     state when the decision was made                                                                                           
     to  eliminate  tourism  related  positions  for  budget                                                                    
     reasons. This  effort also does  not take  into account                                                                    
     the costs related to  notifying via public ads/mailers,                                                                    
     voting on, and                                                                                                             
     administering  results  of  the votes  from  the  taxed                                                                    
     entities related  to changes in  the tax levels  by the                                                                    
     board.                                                                                                                     
                                                                                                                                
  7. The tax cannot be dedicated to statewide tourism                                                                           
     marketing. Despite ATIA's representations, the funds                                                                       
     collected via this tax cannot be dedicated to the                                                                          
     purpose for which they were collected and will go into                                                                     
     the general fund. These funds can be, and very likely                                                                      
     will be in this current budget crisis, reallocated for                                                                     
     another purpose, just as has happened with the Vehicle                                                                     
     Rental Tax (VRT).                                                                                                          
  8. The bill lacks performance metrics. There is no                                                                            
     mechanism to track the performance of the Travel                                                                           
     Alaska Board or the effectiveness of its marketing                                                                         
     plan (e.g., website, social media, room nights                                                                             
     generated, occupancy rate, sales generated via                                                                             
     referrals, etc.). There is no certainty about how the                                                                      
     funds will be allocated to market Alaska, especially                                                                       
     in the "off seasons" to support growth of tourism for                                                                      
     year-round sustainability. Efforts to market Alaska as                                                                     
     a winter destination to date have been almost                                                                              
     nonexistent. Although the bill contains a provision                                                                        
     that the marketing plan must promote all assessed                                                                          
     tourism segments, "tourism segment" is undefined and                                                                       
     there is no clarity on how funds will be allocated to                                                                      
     the various segments. One of the many flaws in ATIA's                                                                      
     approach is to push for legislation that lacks a                                                                           
     mechanism to track the effectiveness of the board's                                                                        
     marketing plan and does not assure accountability.                                                                         
                                                                                                                                
     Furthermore,   less  than   half   of  ATIA's   current                                                                    
     marketing  budget   is  spent  on  advertising   and  a                                                                    
     majority  of   the  budget  is  spent   on  the  ATIA's                                                                    
     overhead,  including  payroll, research  and  personnel                                                                    
     travel. If  the Travel Alaska Board  is not accountable                                                                    
     for marketing  performance, an  increase in  the amount                                                                    
     of funds allocated to  statewide tourism marketing will                                                                    
     not guarantee  additional, effective ad spend  as their                                                                    
     metrics  for success  are by  their own  admission, not                                                                    
     statistically significant  nor can be directly  tied to                                                                    
     economic impact of businesses that would be taxed.                                                                         
                                                                                                                                
  9. It is impossible to know which tourism businesses will                                                                     
     be assessed. There is no transparency about which                                                                          
     tourism businesses will be targeted and assessed.                                                                          
       ourism industry", "tourism business" and "tourism                                                                        
     segment" are undefined terms in the bill. The bill                                                                         
     proposes the Travel Alaska Board will propose                                                                              
     definitions for these terms for adoption by the                                                                            
     Department of Revenue and thus the Travel Alaska Board                                                                     
     has the power to determine which businesses will (or                                                                       
     will not) be taxed. However, the bill legislates that                                                                      
     an initial election will be held to nominate board                                                                         
     members and propose an assessment. It is not possible                                                                      
     to hold an election without knowing which "tourism                                                                         
     businesses" will vote, and which "tourism businesses"                                                                      
     and "tourism segments" will be assessed. Also, votes                                                                       
     cannot be weighted until an assessment is levied                                                                           
     because votes are weighted in proportion to the                                                                            
     assessment that each voting "tourism business" is                                                                          
     estimated to pay for the calendar year immediately                                                                         
     following the election (as determined under AS                                                                             
     44.25.260).                                                                                                                
                                                                                                                                
  10.  SB 110 and HB 383 focused on assessing only a                                                                            
     fraction of the tourism industry   vehicle rentals,                                                                        
     tour activities and attractions, and accommodations.                                                                       
     Other sectors of the tourism industry would not be                                                                         
     assessed. Transportation, airlines, cruise ships,                                                                          
     restaurant and retail, to name a few, were excluded.                                                                       
     It is unfair that only some of the tourism sectors                                                                         
     might be assessed. There is no clarity in HB 383 and                                                                       
     SB 110 about which businesses might be assessed, which                                                                     
     leads to a circular problem in establishing the Travel                                                                     
     Alaska Board to implement this legislation.                                                                                
                                                                                                                                
  12:08:57 PM                                                                                                                 
                                                                                                                                
  11.  The tax will hit certain Alaskan residents the                                                                           
     hardest. A large percentage of the tax will come from                                                                      
     Alaskan residents who would utilize the services of                                                                        
     the assessed businesses year-round. This burdens                                                                           
     Alaskan residents with funding Alaska's campaign to                                                                        
     market the state as a summer tourist destination.                                                                          
                                                                                                                                
     Alaskans  travelling  to  annual Alaska  Federation  of                                                                    
     Natives (AFN) convention would,  for example, likely be                                                                    
     one of  the largest payers of  this new tax. A  tax for                                                                    
     which  rural areas  would receive  little benefit.  The                                                                    
     same  would  hold  for travel  for  organizations  like                                                                    
     school boards and sports teams.  All would be taxed for                                                                    
     antiquated advertising  designed to market  tourists to                                                                    
     come visit  already full cruise ships  and urban hotels                                                                    
     in the summer months                                                                                                       
                                                                                                                                
     Despite  months of  deliberation  and  eleven weeks  of                                                                    
     this   legislative  session,   ATIA   still  has   many                                                                    
     questions  to  answer   about  an  effective  statewide                                                                    
     tourism   marketing  plan   and   how   it  should   be                                                                    
     implemented before members of  the tourism industry are                                                                    
     asked  to give  support  to a  new  assessment to  fund                                                                    
     statewide  tourism  marketing.  ATIA  and  its  members                                                                    
     should go  back to the  drawing board. As  you consider                                                                    
     this legislation, we ask you  obtain input from the all                                                                    
     parties impacted  by any  proposed assessment,  and not                                                                    
     just  ATIA whose  governance  is  too heavily  weighted                                                                    
     toward local  visitor bureaus,  which largely  live off                                                                    
     of hotel  bed taxes already.  With half of  the current                                                                    
     tourism  marketing  funds   controlled  by  ATIA  going                                                                    
     toward  its overhead,  administration and  staffing, it                                                                    
     would be  a step  in the wrong  direction to  give ATIA                                                                    
     more  money to  support  itself while  it continues  to                                                                    
     undertake   antiquated,   expensive   and   inefficient                                                                    
     marketing efforts.                                                                                                         
                                                                                                                                
12:09:23 PM                                                                                                                   
                                                                                                                                
REPRESENTATIVE JOSEPHSON spoke to Mr. Fullerton's remark that                                                                   
the proposal would hurt "Alaskan consumers the most."  He asked                                                                 
for  confirmation that  if he  currently  pays $100  for a  kayak                                                               
excursion, with the proposal he would pay $102.                                                                                 
                                                                                                                                
MR. FULLERTON replied that he believes that would be the case.                                                                  
                                                                                                                                
REPRESENTATIVE  NEUMAN  asked  Mr.  Fullerton  about  his  profit                                                               
margin.                                                                                                                         
                                                                                                                                
MR.  FULLERTON  answered that  profit  margins  are already  very                                                               
slim.  He  added that as a year-round resort  in Alaska, there is                                                               
a  need to  create sustainability  in  the off-peak  months.   He                                                               
explained that  a potential  gross tax would  send more  money to                                                               
ATIA than he spends on marketing year-round.                                                                                    
                                                                                                                                
REPRESENTATIVE   NEUMAN  reiterated   that   profit  margins   of                                                               
[tourism] companies are very slim.                                                                                              
                                                                                                                                
12:11:44 PM                                                                                                                   
                                                                                                                                
JOHN  LAMBETH,   Industry  Consultant,  Alaska   Travel  Industry                                                               
Association (ATIA), related his  understanding that the committee                                                               
appreciates the  importance of travel  and tourism to  the state,                                                               
noting  that  the  tourism industry  provides  a  tremendous  job                                                               
generator and economic engine for  Alaska.  He offered to briefly                                                               
discuss tourism  industry destination  marketing.   He identified                                                               
two compelling reasons  for destination marketing.   He said that                                                               
first, the  primary motivator for  a trip is the  destination but                                                               
not  for an  individual business;  and second,  the motivator  is                                                               
scale.  He attested that  no individual business can successfully                                                               
market the entire state so  businesses must band together.  Other                                                               
states have discovered  that a lack of marketing  results in lost                                                               
tourism dollars, which has been  supported and proven by studies.                                                               
He  acknowledged  that it  is  very  tempting for  businesses  to                                                               
consider  tourism marketing  as  an amenity;  however, what  they                                                               
have found  is that [absent  tourism marketing]  their businesses                                                               
will lose  market share.   He  cautioned that  tourism is  a very                                                               
competitive business and competitors  are eager to take customers                                                               
away from other businesses.  In  fact, competitors raise a lot of                                                               
money and work at a "feverish pace" to do so.                                                                                   
                                                                                                                                
MR.  LAMBETH offered  his belief  that the  mechanism before  the                                                               
committee  [in HB  383] is  proven and  not solely  based on  the                                                               
California model, noting  14 other states have  this model, which                                                               
is  a proven  tool that  has been  customized to  fit the  unique                                                               
nature  of Alaska.    Alaska has  unique  constraints and  unique                                                               
opportunities and [HB 383] reflects that, he said.                                                                              
                                                                                                                                
MR.   LAMBETH  addressed   the   essential  government   function                                                               
concerns, noting that the proposal  [in HB 383] reflects that the                                                               
industry has come  together.  In closing, he said  that if HB 383                                                               
is  defeated, those  who would  be the  happiest will  be [their]                                                               
competitors.                                                                                                                    
                                                                                                                                
12:14:31 PM                                                                                                                   
                                                                                                                                
BRETT CARLSON testified in support of HB  383.  He stated he is a                                                               
lifelong resident of  Alaska with 30-plus years  of experience in                                                               
the travel industry in the Healy  to Kaktovik areas of the state.                                                               
In response  to Chair Lincoln, he  said he works in  Cold Foot as                                                               
part of a family of  companies that operates tours throughout the                                                               
Interior and Arctic regions of Alaska.                                                                                          
                                                                                                                                
MR. CARLSON  highlighted the decision  the committee faces  is to                                                               
figure  out  how to  monetize  Alaska's  travel resource  in  the                                                               
decade ahead  to the maximum  benefit for Alaska.   The potential                                                               
associated  with Alaska's  travel resources  is immense,  and the                                                               
$4.17 billion  in travel resources currently  being exported from                                                               
Alaska is  "just the tip  of the iceberg,"  he said.   He pointed                                                               
out  that  Alaska   knows  from  its  North   Slope  natural  gas                                                               
experiences that  "potential" remains  as "potential"  unless the                                                               
specific resource can  be brought to market.  He  said the Alaska                                                               
travel experience represents a compelling  offering in the global                                                               
travel market,  as others  have stated, yet  the challenge  is to                                                               
bring the Alaska  travel resource to market - or  in this case to                                                               
bring the market  to the resources.  Alaska's  travel markets are                                                               
not next  door, so the  expense and  time for travelers  to reach                                                               
Alaska  as a  travel  destination is  significant.   This  market                                                               
access barrier can only be  addressed through marketing, he said.                                                               
Alaska's  true competitors  in the  global marketplace  are those                                                               
with long-haul  destinations who reinvest significant  funds into                                                               
tourism  marketing programs  in an  effort to  maintain and  grow                                                               
their market share.                                                                                                             
                                                                                                                                
12:16:23 PM                                                                                                                   
                                                                                                                                
MR. CARLSON stated that he  disagreed with the idea that Alaska's                                                               
travel  industry   will  not  grow  unless   the  state  robustly                                                               
reinvests in  Alaska's tourism  marketing effort,  since multiple                                                               
factors impact the travel industry's  growth rate.  He identified                                                               
other  factors, including  global  economic conditions,  exchange                                                               
rates, travel trends,  and geopolitical events.   He suggested it                                                               
was  reasonable  to assume  that  without  a well-funded  tourism                                                               
marketing program,  Alaska's travel industry could  stagger along                                                               
with a 1-2  percent growth rate.  However,  he questioned whether                                                               
accepting  slow  growth  would   be  responsible  stewardship  of                                                               
Alaska's travel  resources and Alaska's  economy as a whole.   He                                                               
felt  it  was accurate  to  state  that supporting  the  resource                                                               
development  initiative in  HB 383,  with robust  reinvestment of                                                               
travel  industry dollars  in the  tourism marketing  program will                                                               
result in an upward growth  curve of Alaska's travel industry and                                                               
generate new wealth for Alaskans.                                                                                               
                                                                                                                                
MR.  CARLSON closed  by stating  that with  an investment  of $20                                                               
million he felt  it was realistic to assume that  the growth rate                                                               
would double from 1-2 percent  to 3-4 percent, which would result                                                               
in  $4.1-$4.75  billion [at  3  percent]  to  $5.7 billion  at  4                                                               
percent.   This  would create  a new  billion-dollar industry  in                                                               
Alaska within  a decade, he  said.   For those who  are concerned                                                               
about the $10 million reinvestment  of the vehicle rental tax, he                                                               
emphasized  that investing  in marketing  would benefit,  but not                                                               
harm, the  budget.   He projected  that a  4 percent  growth rate                                                               
would result in  $22 million additional dollars to  the state one                                                               
decade from  now.  He  thanked the committee for  considering the                                                               
bill and urged them to pass [HB 383] to assist small businesses.                                                                
                                                                                                                                
12:18:57 PM                                                                                                                   
                                                                                                                                
CHAIR LINCOLN,  after first  ascertaining no  one else  wished to                                                               
testify, closed public testimony on HB 383.                                                                                     
                                                                                                                                
REPRESENTATIVE TUCK referred to  constitutional concerns about HB
383.    He  stated  that  one  concern  is  the  opportunity  for                                                               
assessments  to be  determined for  the future.   He  referred to                                                               
page 6,  lines 16-26, HB  383, and asked Ms.  Nauman, legislative                                                               
legal counsel, whether that language  would alleviate some of the                                                               
concern.    He  said  it   appeared  as  though  it  was  already                                                               
predetermined,  much as  the Alaska  Seafood Marketing  Institute                                                               
(ASMI)  statutes  provide,  since  ASMI's statutes  also  have  a                                                               
definition.                                                                                                                     
                                                                                                                                
12:21:07 PM                                                                                                                   
                                                                                                                                
EMILY   NAUMAN,  Deputy   Director,  Office   of  the   Director,                                                               
Legislative  Legal Services,  Legislative  Affairs Agency  (LAA),                                                               
acknowledged that  she understood Representative  Tuck's comment.                                                               
The set-out  assessment rates on page  6, lines 18-26 of  HB 383,                                                               
mirror the type  of taxing for assessment  structure that appears                                                               
in ASMI, she  said.  She highlighted that Version  R concerns her                                                               
a bit more than the statutory  structure for ASMI.  She said that                                                               
other portions  of the tax not  determined in Version R  would be                                                               
determined in  statute and would  affect who would be  taxed, and                                                               
if they would be taxed.   She pointed out it has been highlighted                                                               
in previous committee  discussions that the bill  does not define                                                               
the tourism  industry; for example, whether  the tourism industry                                                               
would  include  hotels  or  cruise  ships or  if  they  would  be                                                               
excluded.  She  characterized this as a huge  void in determining                                                               
who  would  be taxed,  noting  taxation  is  the purview  of  the                                                               
legislature, or  the executive branch via  regulation, but mainly                                                               
foundationally  by  the legislature.    She  related that  [under                                                               
Version R]  the legislature would  release that power to  a board                                                               
and  to the  department through  regulation; however,  it differs                                                               
and is very unlike the structure  in ASMI.  In statute pertaining                                                               
to ASMI, it is  very clear who is taxed and  on what product, she                                                               
said.                                                                                                                           
                                                                                                                                
12:22:58 PM                                                                                                                   
                                                                                                                                
REPRESENTATIVE JOSEPHSON,  following up on  Representative Tuck's                                                               
comments, acknowledged  Ms. Nauman's point.   He referred  to Ms.                                                               
Nauman's  legal memorandum  [to Representative  Chris Tuck  dated                                                               
March 22,  2018, in members' packets].   He referred [to  page 2,                                                               
paragraph  2],  which read,  "The  legal  theory underlying  this                                                               
approach was that the legislature  has imposed the tax contingent                                                               
upon  the happening  of  the  specified events."    He asked  for                                                               
further  clarification  that  in this  instance,  the  "specified                                                               
event" would be the election for an assessment.                                                                                 
                                                                                                                                
MS. NAUMAN answered that is correct.                                                                                            
                                                                                                                                
REPRESENTATIVE JOSEPHSON concurred  with Representative Tuck that                                                               
the authority is  expressed in language on page  6, lines [16]-26                                                               
[of proposed AS  44.55.255 (c)].  He stated that  the language is                                                               
clear in  paragraphs (1)-(9)  that there  can be  a "zero  to two                                                               
percent  assessment on  gross  revenue."   He  asked for  further                                                               
clarification  if   Ms.  Nauman's   concern  was  to   whom  [the                                                               
assessment would apply].                                                                                                        
                                                                                                                                
MS. NAUMAN clarified her concern and  stated it was twofold.  She                                                               
said  she has  a fundamental  underlying concern  that Version  R                                                               
goes too far into a constitutional  gray area just by setting out                                                               
tax  rates.   Secondly, she  expressed her  concern that  it goes                                                               
farther  than ASMI,  since the  amount  of authority  transferred                                                               
away from the legislature is  even broader than ASMI's structure.                                                               
She characterized this  as "constitutional creep."   She said she                                                               
worried  the  little things  could  grow  bigger and  bigger  and                                                               
eventually   turn  in   an  unconstitutional   direction.     She                                                               
reiterated that many things in [HB  383] would trigger a court to                                                               
fall  into the  "unconstitutional" realm  as compared  to leaning                                                               
toward the "constitutionality" of this bill.                                                                                    
                                                                                                                                
12:25:28 PM                                                                                                                   
                                                                                                                                
REPRESENTATIVE TUCK asked whether  Ms. Nauman had expressed these                                                               
concerns when she drafted [Version R].                                                                                          
                                                                                                                                
MS.  NAUMAN   stated  that   she  was   unable  to   discuss  any                                                               
communications she might have had with individual legislators.                                                                  
                                                                                                                                
REPRESENTATIVE  JOSEPHSON, referring  to earlier  testimony, said                                                               
that some  testifiers had expressed  concern that the  bill would                                                               
create an  illegal dedicated fund.   He asked whether  Ms. Nauman                                                               
disputed that  view, although he  understood she  [has expressed]                                                               
other constitutional concerns.                                                                                                  
                                                                                                                                
MS.   NAUMAN  opined   that   the  bill   does   not  create   an                                                               
unconstitutional  dedicated use  of  funds as  far  as she  could                                                               
tell.   She characterized it  as more of a  bookkeeping function.                                                               
She described the flow of  money, such that the department places                                                               
the funds into  an account and the legislature  receives a record                                                               
of  the amount  of  funds  deposited.   The  legislature has  the                                                               
authority  to  appropriate the  funds  for  whatever purposes  it                                                               
chooses.  She stated that  the bill suggests that the legislature                                                               
appropriate it for tourism marketing.                                                                                           
                                                                                                                                
12:27:13 PM                                                                                                                   
                                                                                                                                
REPRESENTATIVE    GRENN    commended   testifiers    today    for                                                               
demonstrating the  impact and  need for a  marketing fund  in the                                                               
state.   These  testifiers focused  on the  economic benefits  to                                                               
Alaskans  from   tourism  marketing  from  small   businesses  to                                                               
communities  off  the  road  system.    He  emphasized  that  the                                                               
proposed  legislation  was  brought forth  because  something  is                                                               
needed,  and  the tourism  industry  was  told  it needed  to  do                                                               
something.  He said Version R  is the industry's response and his                                                               
response to  that intent language  as the state moves  forward in                                                               
the next decade.  He  characterized tourism as the second largest                                                               
private sector in the state.   The bill before the committee asks                                                               
that the state partner with  the tourism industry as the industry                                                               
assesses  itself,  and the  industry  wants  to  be part  of  the                                                               
solution, he said.                                                                                                              
                                                                                                                                
REPRESENTATIVE GRENN  stated that lawmakers typically  identify a                                                               
problem and  are tasked to solve  it.  He stated  that during the                                                               
state's  fiscal crisis  the legislature  cannot fund  the tourism                                                               
effort as it  has done in the  past.  He offered  his belief that                                                               
everyone agrees  with that  view.   He stated  that the  bill has                                                               
raised some  constitutional concerns, which have  been brought up                                                               
several times before the committee.   He referred to Ms. Nauman's                                                               
memo [of  March 22,  2018, to  Representative Chris  Tuck), which                                                               
points out the  concerns that the Legislative  Legal Services has                                                               
with [HB  383].   He expressed hope  that the  conversation could                                                               
continue and find  a way to raise awareness of  this issue to all                                                               
legislators.  He acknowledged that  this [issue] is tricky but he                                                               
was confident that  [solutions could be found] with  more work on                                                               
the bill.   He highlighted  that the Department of  Revenue (DOR)                                                               
has a  task at hand  with this bill, and  it will fall  under the                                                               
purview of  the House Finance Committee  to find a solution.   He                                                               
emphasized that  he would like to  see the bill move  forward but                                                               
deferred  to   the  committee.    He   highlighted  that  tourism                                                               
marketing  needs a  solution.    He concluded  by  stating he  is                                                               
determined to  find a solution to  the problem, and he  will work                                                               
with the tourism industry and other legislators to do so.                                                                       
                                                                                                                                
12:30:13 PM                                                                                                                   
                                                                                                                                
REPRESENTATIVE NEUMAN  explained, as  a person  in charge  of the                                                               
[Fiscal Year 2017  (FY 17) operating budget  that included intent                                                               
language] such  "that the tourism  industry [has] to  become more                                                               
self-funded, it  was because of  the fact that  we have a  lot of                                                               
strains  in this  budget  right now."    As Representative  Grenn                                                               
offered, some people consider this  a crisis.  The legislature is                                                               
currently trying to fund education,  public safety, and adhere to                                                               
the requirements  mandated by  the Constitution  of the  State of                                                               
Alaska;  in fact,  funding the  FY 17  budget required  borrowing                                                               
billions  of dollars  and taking  it  out of  the permanent  fund                                                               
dividend.   Yet, he said, the  tourism industry came back  with a                                                               
solution to backfill  these funds with general fund  dollars.  He                                                               
emphasized the  importance of the tourism  industry and expressed                                                               
that the legislature let the industry  down by not putting a plan                                                               
forward to assist the industry.                                                                                                 
                                                                                                                                
REPRESENTATIVE  NEUMAN  reiterated  that tourism  is  the  second                                                               
largest  industry   in  this  state.     He  said  that   he  was                                                               
disappointed  in the  plans that  have come  forward and  that he                                                               
would do  everything he could  to assist business owners  who are                                                               
having difficulties.   He stated,  "The state cannot  just afford                                                               
to put money and give  private industry cash like this, basically                                                               
what we're doing.  Some companies  will be able to apply for this                                                               
or not;  it is very  unfair who would be  able to apply  for this                                                               
...."    He then  referred  to  Ms. White's  testimony  regarding                                                               
corporate  tax credits  against the  investments she  makes.   He                                                               
opined that the legislature should  continue to work on this with                                                               
public input at the meetings.                                                                                                   
                                                                                                                                
REPRESENTATIVE  GRENN   asked  Ms.  Ivy  to   provide  additional                                                               
information related to corporate tax credits.                                                                                   
                                                                                                                                
12:32:45 PM                                                                                                                   
                                                                                                                                
MS.  IVY   clarified  that  the   tax  credit  included   in  the                                                               
legislation regards  the vehicle rental  tax solely.   She opined                                                               
that  the  intention  of  the  industry is  not  to  include  the                                                               
entities subject to  the vehicle rental tax  currently under law,                                                               
as  those entities  are already  paying  a tax  and passing  that                                                               
through  to  their  visitor customers  when  renting  a  vehicle.                                                               
Therefore,  she explained,  the idea  is that  as a  part of  the                                                               
tourism industry that  is producing revenue and  given that under                                                               
statute the assessment is for  tourism development and marketing,                                                               
this simply  allows those entities to  participate toward tourism                                                               
marketing  in the  State  of  Alaska.   It  is  unrelated to  the                                                               
corporate income tax, she explained.                                                                                            
                                                                                                                                
REPRESENTATIVE TUCK  commented that, as this  bill moves forward,                                                               
a few  issues need to be  addressed, such as sidebars  on some of                                                               
the assessments,  and defining the assessments;  for example, who                                                               
is included under those segments, and  what the segments are.  He                                                               
recalled when the legislature prepared  the energy policy for the                                                               
State  of Alaska,  there were  numerous stakeholder  meetings and                                                               
the policy  then became "good  to go."   He offered  concern that                                                               
many businesses would  not "see this coming,"  and also expressed                                                               
concern about  the weighted votes.   Representative Tuck surmised                                                               
the  more money  someone makes  in the  industry, the  more power                                                               
they will have over "the little  guys."  He suggested the idea of                                                               
one vote for one person.                                                                                                        
                                                                                                                                
REPRESENTATIVE GRENN responded that  the weighted votes system is                                                               
used in  every TID model  throughout the previously  mentioned 14                                                               
states.   The philosophy  behind that, he  explained, is  that an                                                               
entity has more votes because  it ends up contributing more money                                                               
through the  assessment.  He said  if a certain entity  was going                                                               
to vote yes or no on an  assessment, it knows it will be impacted                                                               
to a larger degree through the bottom line.                                                                                     
                                                                                                                                
12:36:43 PM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  JOSEPHSON  commented  that the  above  system  is                                                               
similar  to the  United States  House of  Representatives wherein                                                               
votes are determined by population.   It is a policy call, and it                                                               
would  be  concerning if  the  big  players overwhelm  the  small                                                               
players  by   dictating  to  them   but,  he  pointed   out,  the                                                               
legislation requires public meetings prior to any assessment.                                                                   
                                                                                                                                
REPRESENTATIVE JOSEPHSON  explained that  Section 1 of  Version R                                                               
dictates that  credits cannot  be sold or  transferred.   He said                                                               
DOR would  retain the power  to adopt or amend  board definitions                                                               
of segments in tourism business  and industry.  He explained that                                                               
the assessment  could be  left to the  discretion of  the tourism                                                               
trade   and  fully   paid  for   by  the   customers,  which   is                                                               
theoretically  designed to  "hold  the business  harmless."   The                                                               
travel industry is willing to roll  the dice and, he opined, that                                                               
is a risk worth taking as  the industry knows this fund cannot be                                                               
dedicated and  may or may  not be  appropriated.  This  is taking                                                               
place with  the vehicle rental  tax where the  legislature, under                                                               
AS 43.52.080, stated  that the remaining balance of  the fund may                                                               
be appropriated for tourism development and marketing.                                                                          
                                                                                                                                
REPRESENTATIVE  JOSEPHSON offered  that he  shares Representative                                                               
Neuman's  concern  that  "those"  agencies  will  need  their  $9                                                               
million.   In  the event  this legislation  moves along,  the two                                                               
bodies would  have to  come together  to cover  those needs.   He                                                               
offered  that those  needs have  "pretty thoroughly  usurped this                                                               
fund" and  turned it  into something  that is  quasi-tourism, but                                                               
not truly tourism.   He explained that tourism  trades can appeal                                                               
under  AS  43.05,  and  the Alaska  Tourism  Marketing  Board  is                                                               
sunsetting,  so the  only connection  the executive  branch would                                                               
have to  tourism would be  "through this" unless  the legislature                                                               
reinvigorates the Alaska Tourism Marketing Board.                                                                               
                                                                                                                                
REPRESENTATIVE  JOSEPHSON  said  Version  R  of  HB  383  broadly                                                               
complies with  legislative intent,  and he  opined that  it makes                                                               
sense  that Representative  Grenn  would bring  the bill  forward                                                               
since  he  represents  the  House  "on the  travel  board."    He                                                               
referred to a previous testifier  who seemed to discount the idea                                                               
that HB 383 was  needed at all, and he opined  that "the other 48                                                               
states or  whatever," must know  what they are doing  with regard                                                               
to marketing.   There are issues  to iron out, but  the committee                                                               
understands the  bill and the  legislation is sufficient  to pass                                                               
muster, he said.                                                                                                                
                                                                                                                                
12:41:26 PM                                                                                                                   
                                                                                                                                
REPRESENTATIVE KNOPP referred to the  assessment and asked how to                                                               
make it  work, whether  it was actually  somewhat like  an income                                                               
tax but  called an  assessment.   He asked whether  it is  on the                                                               
honor system,  if they must file  a tax return, and  whether this                                                               
is bordering  on an income  tax that the  state does not  have at                                                               
the state  level.  The  gross revenue component concerns  him, he                                                               
said, and  net revenue is  substantially different at the  end of                                                               
the year than gross revenue.   He added that he is more concerned                                                               
about the collection of this revenue.                                                                                           
                                                                                                                                
12:42:58 PM                                                                                                                   
                                                                                                                                
KEN ALPER,  Director, Tax Division, Department  of Revenue (DOR),                                                               
explained that  under Version R,  DOR is charged  with collecting                                                               
and administrating  the assessment,  and from the  Tax Division's                                                               
perspective, it  is a  tax.   He described that  it would  not be                                                               
considered an  income tax, and  in many  ways, it is  a miniature                                                               
sales tax because it is at  the gross transaction level.  The Tax                                                               
Division would  perform certain  outreach to  the members  of the                                                               
industry to get them enrolled and  licensed, which is why the Tax                                                               
Division has  a relatively robust  [Fiscal Note Identifier:   DOR                                                               
TAX HB 383 version 1 (fiscal  note)].  The Tax Division envisions                                                               
the  necessity of  building  a module  onto  its overarching  tax                                                               
management software to be able to  take care of this.  The fiscal                                                               
note adds  three positions  that would be  running this  new tax,                                                               
thus giving  the Tax Division  the ability  to "take care  of the                                                               
people,"  communicate with  them,  make sure  everything is  done                                                               
right,  help  with  regulations, and  provide  possible  economic                                                               
analysis and reporting.   The scale of this is  more like some of                                                               
the   smaller  receipts-type   taxes,   for  example,   wholesale                                                               
cigarette merchants  or alcoholic  beverage distributors.   There                                                               
is an  online form through  which they make monthly  or quarterly                                                               
payments.  When the  system  flags anything  that  does not  look                                                               
right, the Tax Division will  put resources into auditing them to                                                               
make sure they pay correctly.                                                                                                   
                                                                                                                                
REPRESENTATIVE GRENN  opined that funds are  allowed through this                                                               
assessment  to  cover  the  cost  of  the  fiscal  note,  and  if                                                               
something  was already  in place,  this would  be easier  to roll                                                               
out.                                                                                                                            
                                                                                                                                
MR. ALPER agreed with the  sponsor and explained the changes made                                                               
in Version R  reacted to the fiscal note, which  came in based on                                                               
the original  bill version  and clarified  that the  Tax Division                                                               
could use some of those funds.   The revenue side of this bill is                                                               
indeterminate because  the rate is  not yet set and  the segments                                                               
that will be  taxed are not set, but the  industry is looking for                                                               
something in  the $10-$15 million  range.  The fiscal  note, once                                                               
the systems  are set  up, is  approximately $300,000  to $400,000                                                               
per  year  to  put  that  into  scale.    The  legislature  could                                                               
appropriate from  the fund the  amount the Tax  Division requires                                                               
for its  budgetary needs, and  the rest  would go to  the tourism                                                               
marketing entity.   In the  event the  state already had  a sales                                                               
tax, the Tax  Division would have already had  a tax relationship                                                               
with most of these businesses and  would be collecting the tax at                                                               
their point  of sale.  He  offered that the hardest  part for the                                                               
Tax Division  is not the  ongoing administration but  the initial                                                               
outreach  in locating  all of  these  businesses, making  initial                                                               
contact, and asking them to  estimate what their revenue might be                                                               
next year  for the purpose of  weighting the votes, so  that when                                                               
the vote  does occur, the Tax  Division can help the  Division of                                                               
Elections  count  and  determine  whether  it  was  a  successful                                                               
election.                                                                                                                       
                                                                                                                                
12:46:39 PM                                                                                                                   
                                                                                                                                
CHAIR LINCOLN inquired  as to the benefit of  using gross revenue                                                               
rather than net revenue.                                                                                                        
                                                                                                                                
MR. ALPER  responded the  sponsor may have  better insight  as to                                                               
why gross revenue  was selected.  He stated that  this is typical                                                               
for the TID, but  once it goes to a net-based  tax, a much deeper                                                               
set of information is required,  such as people's tax returns and                                                               
expenses. The  net-based tax would  require someone  to determine                                                               
what is and  what is not an allowable expense.   The Tax Division                                                               
has  a massive  track record  in  the subject  area of  corporate                                                               
income taxes  and oil and  gas production  taxes, and he  said he                                                               
would  not  like to  have  to  replicate  that for  an  industry-                                                               
specific tax such  as this; it just is not  big enough to warrant                                                               
the  effort.   He said  the intent  of multiple  assessment rates                                                               
within the bill  is the option of different rates,  it allows the                                                               
possibility  that  one  industry  segment  might  come  in  at  a                                                               
proposed rate  different from another industry  segment, and that                                                               
would be done to reflect  the inherent profitability differences.                                                               
For example,  someone who is a  tour vendor might have  a thinner                                                               
profit margin  than someone  who has  a hotel,  and if  that were                                                               
determined, the  board might  choose to try  to assess  hotels at                                                               
two percent  and tours at  one percent.  That  would be a  way to                                                               
compensate for those issues that  vary from industry to industry,                                                               
he explained.                                                                                                                   
                                                                                                                                
CHAIR LINCOLN stated  some of the concern may be  due to the fact                                                               
that even  within the same  industry, the cost of  doing business                                                               
is much greater  in some places in Alaska.   He added the margins                                                               
can vary as well.                                                                                                               
                                                                                                                                
MR. ALPER  agreed that  a retail purchase  in some  districts may                                                               
cost more than in  Anchorage.  He said the 2  percent tax will be                                                               
seen as  twice as  much, "but it's  still a 2  percent tax."   He                                                               
suggested that  once it  does not carve  into gross  revenue, the                                                               
customer absorbs it.  He said it would be a normal add-on cost.                                                                 
                                                                                                                                
12:49:48 PM                                                                                                                   
                                                                                                                                
REPRESENTATIVE KNOPP  spoke to gross revenue  versus net revenue.                                                               
He opined  it could  create a serious  hardship in  some [remote]                                                               
areas of the state.                                                                                                             
                                                                                                                                
MR. ALPER  pointed out that all  the competitors are in  the same                                                               
boat.   He said if  the fee cannot  be absorbed for  some reason,                                                               
there may  be more difficulty passing  it on.  He  reiterated the                                                               
fee cost would be passed on to the consumer.                                                                                    
                                                                                                                                
12:52:04 PM                                                                                                                   
                                                                                                                                
REPRESENTATIVE NEUMAN  addressed language in Section  1 regarding                                                               
corporate tax.   He said  he can  apply for corporate  tax credit                                                               
against the  corporate tax he owes  the state.  He  asked whether                                                               
it would be considered "double-dipping."                                                                                        
                                                                                                                                
MR. ALPER answered that Version  R does two separate and distinct                                                               
things.   All  the sections  proposed in  AS 44  concern the  new                                                               
assessment and  the Alaska Tourism  Marketing Board.   Section 1,                                                               
he  explained,  concerns the  vehicle  rental  tax which  already                                                               
exists  in [AS  43.52].   Section 1  provides that  a car  rental                                                               
company could  choose to  donate money  to the  tourism marketing                                                               
fund and credit its donation against their tax obligation.                                                                      
                                                                                                                                
REPRESENTATIVE  TALERICO  suggested  a "preassessment"  would  be                                                               
needed to seat the board established by the bill.                                                                               
                                                                                                                                
MR. ALPER  said the hardest  part is at the  start.  He  said the                                                               
state does not  currently have a taxpaying  relationship with the                                                               
tourism  industry.    He  gave  examples  of  possible  scenarios                                                               
related  to weighting  industry  sectors  through the  regulation                                                               
process.                                                                                                                        
                                                                                                                                
REPRESENTATIVE  TALERICO stated  he has  an issue  with the  term                                                               
"weighted  voting,"  in  particular  with regard  to  the  public                                                               
perception of  that term.   He described tourism growth  rates in                                                               
his  area and  shared his  concern  that "it  won't ever  balance                                                               
itself out ...."   He said the  rapid growth of hotels  is a good                                                               
example.                                                                                                                        
                                                                                                                                
MR. ALPER  agreed that the situation  described by Representative                                                               
Talerico is one  of the concerns that needs to  be addressed.  He                                                               
opined  the  bill  may  suffer  legal  challenges  and  noted  an                                                               
additional unsettled issue.                                                                                                     
                                                                                                                                
12:58:48 PM                                                                                                                   
                                                                                                                                
REPRESENTATIVE JOSEPHSON  moved to report the  proposed committee                                                               
substitute  (CS)   for  HB  383,  Version   30-LS1214\R,  Nauman,                                                               
3/21/18,  out of  committee with  individual recommendations  and                                                               
the accompanying fiscal notes.                                                                                                  
                                                                                                                                
REPRESENTATIVE  NEUMAN  objected.   He  expressed  disappointment                                                               
that  the  House Special  Committee  on  Arctic Policy,  Economic                                                               
Development, and Tourism did not  get more help drafting the bill                                                               
and  cautioned the  bill would  not pass  the legislature  in its                                                               
current form.   He said he  did not support moving  the bill from                                                               
committee before work on the bill is finished.                                                                                  
                                                                                                                                
REPRESENTATIVE KNOPP  stated he is  not in support of  moving the                                                               
bill  because the  sponsor should  complete further  work on  the                                                               
bill; he spoke in support of  the industry and of local marketing                                                               
through  trade   shows  and  other   mechanisms.     Further,  he                                                               
questioned the  efficacy of continuing marketing  the industry in                                                               
the same manner as the state has done in the past.                                                                              
                                                                                                                                
CHAIR LINCOLN  agreed with many comments  on HB 383.   He said he                                                               
has serious concerns  about the bill, but  that tourism marketing                                                               
is such  an important issue  it deserves  to be addressed  in the                                                               
House Finance Committee or in the next legislative session.                                                                     
                                                                                                                                
1:02:10 PM                                                                                                                    
                                                                                                                                
A roll call  vote was taken.   Representatives Edgmon, Josephson,                                                               
Tuck, and  Lincoln voted in favor  of the CS for  HB 383, Version                                                               
R.   Representatives  Talerico, Neuman,  and Knopp  voted against                                                               
it.   Therefore,  CSHB 383(AET)  was  reported out  of the  House                                                               
Special  Committee on  Arctic Policy,  Economic Development,  and                                                               
Tourism by a vote of 4-3.                                                                                                       
                                                                                                                                
1:02:49 PM                                                                                                                    
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no further business before the committee, the House                                                                 
Special Committee on Arctic Policy, Economic Development, and                                                                   
Tourism meeting was adjourned at 1:03 p.m.                                                                                      

Document Name Date/Time Subjects
HB383 Opposing Document - Letter of Opposition--4.3.2018.pdf HAET 4/3/2018 11:30:00 AM
HB 383