Legislature(2003 - 2004)
04/15/2003 09:06 AM House CRA
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ALASKA STATE LEGISLATURE
HOUSE COMMUNITY AND REGIONAL AFFAIRS
STANDING COMMITTEE
April 15, 2003
9:06 a.m.
MEMBERS PRESENT
Representative Carl Morgan, Chair
Representative Tom Anderson
Representative Ralph Samuels
Representative Sharon Cissna
MEMBERS ABSENT
Representative Kelly Wolf, Vice Chair
Representative Pete Kott
Representative Albert Kookesh
COMMITTEE CALENDAR
HOUSE BILL NO. 216
"An Act relating to municipal taxation of refined fuel
products."
- MOVED CSHB 216(CRA) OUT OF COMMITTEE
PREVIOUS ACTION
BILL: HB 216
SHORT TITLE:MUNI TAXATION OF REFINED FUEL PRODUCTS
SPONSOR(S): LABOR & COMMERCE
Jrn-Date Jrn-Page Action
03/26/03 0641 (H) READ THE FIRST TIME -
REFERRALS
03/26/03 0641 (H) CRA, FIN
04/08/03 (H) CRA AT 8:00 AM CAPITOL 124
04/08/03 (H) Heard & Held
MINUTE(CRA)
04/15/03 (H) CRA AT 9:00 AM CAPITOL 124
WITNESS REGISTER
MARCIA DAVIS, Vice President and General Counsel
ERA Aviation, Inc.
Anchorage, Alaska
POSITION STATEMENT: Spoke on the turbine-powered aircraft
exemption and proposed language that would specify the borough's
authority to collect a fee on fuel delivered or sold at a
borough-owned or operated airport.
MARK SMITH
Yukon Fuel Company
Anchorage, Alaska
POSITION STATEMENT: Expressed hope that [HB 216] will provide
AEA the flexibility to offer a higher loan fund amount to those
communities that need it.
ALLAN HEESE, Airport Manager
Juneau International Airport
Juneau, Alaska
POSITION STATEMENT: Expressed the need to include language that
wouldn't preclude the fuel flowage fee some airports charge.
KEVIN RITCHIE, Executive Director
Alaska Municipal League
Juneau, Alaska
POSITION STATEMENT: Testified on CSHB 216.
ACTION NARRATIVE
TAPE 03-15, SIDE A
Number 0001
CHAIR CARL MORGAN called the House Community and Regional
Affairs Standing Committee meeting to order at 9:06 a.m.
Representatives Morgan, Anderson, Samuels, and Cissna were
present at the call to order.
HB 216-MUNI TAXATION OF REFINED FUEL PRODUCTS
CHAIR MORGAN announced that the only order of business would be
HOUSE BILL NO. 216, "An Act relating to municipal taxation of
refined fuel products."
Number 0113
REPRESENTATIVE ANDERSON moved to adopt CSHB 216, Version 23-
LS0822\I, Cook, 4/14/03, as the working document. There being
no objection, Version I was before the committee.
REPRESENTATIVE ANDERSON, speaking as the sponsor of HB 216,
explained that initially HB 216 was written to prohibit any
property tax, sales tax, or other tax on refined fuel products
or constituents of fuel products. However, the language has
been narrowed considerably, narrowed such that it prohibits the
collection of wholesale sales or wholesale transfers of any
refined petroleum product. He noted that Representative Samuels
has an amendment that he will be offering to prohibit the levy
or collection of a sales transfer or use [fee] on fuel used in
turbine-powered aircraft.
REPRESENTATIVE ANDERSON highlighted the addition of Section 4 in
Version I. Section 4 is designed to increase the maximum amount
of loans from the bulk fuel revolving loan fund from the current
$200,000 to $300,000. This change is necessary due to the rise
in fuel prices nationwide and in particular in rural Alaska.
Representative Anderson noted his support of the addition of the
language in Section 4.
Number 0458
MARCIA DAVIS, Vice President and General Counsel, ERA Aviation,
Inc., said that she would speak to the turbine-powered aircraft
exemption. She informed the committee that she has spoken with
representatives from the Alaska Municipal League (AML) and some
municipalities. She related her understanding that the concern
is to not entirely cut off municipalities who own and operate
airports and have come to depend upon revenue from that source.
Ms. Davis stated that ERA isn't opposed to supporting the
airports; however, ERA's preference is to do so at the state
level. Because Anchorage is the primary hub where almost all of
the fueling operations for ERA take place and because of the
existing federal law, ERA doesn't see a limitation. As the law
is written Anchorage [would only] be able to impose a fuel tax
on aviation fuel within its boundaries and use those funds to
support the Merrill Field operation, the only legal use of those
funds. That isn't fair because there is no nexus between the
taxes collected in Anchorage and their support of Merrill Field.
She proposed that the solution may lay in what is known as fuel
flowage fees, which are necessarily tied to fuel that's
delivered or sold on the airport property. Ms. Davis informed
the committee that Juneau has a fuel flowage fee as do many
other municipalities that own or operate an airport. The fuel
flowage fees are used to generate revenue to support the airport
that the [municipalities] own or operate. This is done under
the federal law. However, when municipalities try to use sales
taxes on fuels or other devices not tied to the fuel flowing on
their airport, the municipalities are in legal trouble. Ms.
Davis suggested including language that would specify the
borough's authority to collect a fee on fuel delivered or sold
at a borough-owned or operated airport. Including the
aforementioned language would address ERA's concern while
leaving municipalities free to collect the costs associated with
the fuel flowing at their airports.
Number 0852
MS. DAVIS added that the airline industry is heavily taxed.
Currently, just looking at federal taxes and fees, 26 percent of
the average $200 roundtrip ticket is a federal tax and fee.
That 26 percent tax doesn't include the state charges, the state
fuel tax as well as any landing fees and other charges imposed
at the state-owned airports. She said she feels that adding a
local tax is dangerous because tourism is a state industry and
as such the state is in the best position to monitor it and
ensure its economic viability. Therefore, the crux of taxation
on commercial aviation fuel should reside with the state.
However, Ms. Davis said that [ERA] appreciates the conundrum
that municipalities are in when they own or operate an airport
within their boundaries and need to pay for those facilities.
She reiterated the need to restrict the municipal and borough
taxation on aviation fuel to a fuel flowage fee so that there is
a logical and geographical nexus between the funds paid and the
airport at which those funds are used.
REPRESENTATIVE CISSNA asked if the 26 percent of federal taxes
was that high before the terrorist attacks of September 11,
2001, tragedy.
MS. DAVIS answered that the statistics were from 2002 and thus
she assumed that it included some of the security changes
resulting from the terrorist attacks of September 11, 2001,
tragedy.
Number 1095
MARK SMITH, Yukon Fuel Company, announced that he would be
speaking to Section 4 of Version I. He informed the committee
that Yukon Fuel Company deals with a lot of western villages
that use the bulk fuel revolving loan fund. In February 2003,
the world fuel prices increased by about $.60 a gallon over
historical prices and prices for the summer of 2002. Mr. Smith
expressed concern that the users of the bulk fuel revolving loan
fund would experience diminished buying power. Furthermore,
there are many new Denali Commission farms coming on and these
farms are designed to take 13 months of fuel. This is
beneficial to the community, which can sometimes see efficiency
in potential reduction of prices by obtaining a single delivery.
Also, some villages are ill-prepared to deal with increased
consumption and the additional funds required to support
additional infrastructure. As more projects occur in [western
Alaska], there is more activity with the Denali Commission.
Therefore, the hope is that [this legislation] will provide the
Alaska Energy Authority (AEA) the flexibility to offer a higher
loan fund amount to those communities that need it. The bulk
fuel revolving loan fund is a good program that has experienced
good response and repayment. He recalled that there shouldn't
be a financial impact due to the $5 million in additional funds
that was included last year. "The fund should be well able to
handle this increased limit," he said.
Number 1325
ALLAN HEESE, Airport Manager, Juneau International Airport,
informed the committee that although he has spoken with city
representatives who have similar concerns regarding HB 216, he
can only represent the airport. Mr. Heese pointed out that
Juneau International Airport does have a fuel flowage fee and
the language in the legislation seems to preclude Juneau
International Airport from charging that fuel flowage fee.
Therefore, Mr. Heese expressed hope that there would be a change
in that area of the legislation. He explained that typically
airports have a very complex negotiation process in which they
try to develop finances that are equitable across a broad
spectrum of air carriers. For instance, Juneau International
Airport has air carriers ranging in size from Alaska Airlines to
smaller carriers and general aviation. Historically, the fuel
flowage fee is a way in which the finances are arranged, and
therefore it's a very important part of the airport's financial
picture. Mr. Heese acknowledged the concerns that
municipalities shouldn't be precluded from using this
traditional funding source and expressed the hope that the
language would support the aforementioned. He mentioned that he
had worked with Representative Samuels who he believes will be
offering some language that is acceptable.
Number 1425
KEVIN RITCHIE, Executive Director, Alaska Municipal League
(AML), began by thanking Representatives Morgan, Anderson, and
Samuels and their staff who engaged in problem-solving. Mr.
Ritchie related his belief that the language [to be offered]
won't negatively impact municipalities.
REPRESENTATIVE CISSNA asked if the term fuel flowage fee has to
be in the language or are there approximations that work.
MR. RITCHIE related his understanding that fuel flowage fee is
within the family of sales and transfer taxes.
REPRESENTATIVE SAMUELS remarked that the fuel flowage fee is a
specific term. He related his belief that after the amendment,
which leaves municipally-owned airports whole, is offered any
language necessary to move from the fuel flowage fee to sales
tax could be done. He characterized the aforementioned as a
semantics issue.
CHAIR MORGAN, upon determining no one else wished to testify,
announced that public testimony would be closed.
Number 1631
REPRESENTATIVE SAMUELS moved that the committee adopt Amendment
1, which read as follows:
Page 1, line 14, after "aircraft"
Insert ", except for fuel that is transferred
into an aircraft at a municipal or private airport,"
REPRESENTATIVE SAMUELS explained that Amendment 1 would allow
the municipally-owned airports to continue with their current
[practices]. As the legislation moves to the House Finance
Committee, the fuel flowage fee could be reviewed.
CHAIR MORGAN, upon determining there was no objection to
Amendment 1, announced that Amendment 1 was adopted. He, then,
announced his wish to forward this legislation on to its next
committee of referral.
Number 1705
REPRESENTATIVE SAMUELS moved to report CSHB 216, Version 23-
LS0822\I, Cook, 4/14/03, as amended out of committee with
individual recommendations and the accompanying fiscal notes.
REPRESENTATIVE CISSNA objected and inquired as to why this
committee wouldn't amend the legislation.
REPRESENTATIVE ANDERSON related his belief that the matter [with
regard to the fuel flowage fee] had been resolved with the
adoption of Amendment 1. Representative Anderson said he didn't
believe the words fuel flowage fee had to be included in the
legislation. He interpreted Representative Samuels to be
highlighting that the legislation has another committee of
referral.
REPRESENTATIVE CISSNA related her belief that each committee
should do the work falling under its purview.
REPRESENTATIVE ANDERSON asked Ms. Davis if Amendment 1 would
cover the fuel flowage fee issue.
Number 1826
MS. DAVIS noted that the fuel flowage fee is a term of art
that's used nationwide. Essentially, fuel flowage is a transfer
style tax. She explained that the charge is based upon fuel
flowing upon or over the land owned by the entity assessing it.
The fuel simply has to be moved. She informed the committee
that the fuel flowage fee [for the Juneau International Airport]
is described as sales of aviation fuel and aviation fuel
delivery services at the airport. The Ted Stevens Anchorage
International Airport and the Fairbanks International Airport
define fuel flowage fees as charged on all aviation fuel
dispensed at the Anchorage and Fairbanks airports, except fuel
dispensed as manifested cargo. She said that Amendment 1
basically limits out cargo. She reiterated that the language in
Amendment 1 would simply require a transfer of fuel, no sale is
required. Therefore, the language would adequately cover the
fuel flowage fee.
REPRESENTATIVE SAMUELS informed the committee that currently the
fuel flowage fee is part of the package negotiated with the
Fairbanks and Anchorage International Airports. Representative
Samuels related his belief that Amendment 1 fixes the [fuel
flowage fee] problem without going too far. He said that
specifying the fuel flowage fee in the legislation would have
the unintended consequence of precluding Juneau, Ketchikan,
Homer, Kenai, and Merrill Field from their current practice with
the fuel flowage fee. Representative Samuels emphasized that
there is no desire to stop municipalities from continuing the
current practice at the municipally-owned airports, which he
believes the amendment achieves. If Amendment 1 doesn't
accomplish the aforementioned, then adding or [eliminating] the
fuel flowage fee could be done.
REPRESENTATIVE CISSNA commented on the floor amendments that
occur because issues haven't been thought through enough. She
noted that moving legislation rapidly isn't the way the system
was established rather it was set up to painstakingly review
matters. Representative Cissna expressed her desire for the
committee to put in the time [on issues] when necessary.
Representative Cissna withdrew her objection.
Number 2116
CHAIR MORGAN announced that there being no further objection,
CSHB 216 as amended, CSHB 216(CRA), was reported from the House
Community and Regional Affairs Standing Committee.
ADJOURNMENT
There being no further business before the committee, the House
Community and Regional Affairs Standing Committee meeting was
adjourned at 9:36 a.m.
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