04/29/2004 12:20 PM House EDT
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ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON ECONOMIC
DEVELOPMENT, INTERNATIONAL TRADE AND TOURISM
April 29, 2004
12:20 p.m.
MEMBERS PRESENT
Representative Cheryll Heinze, Chair
Representative Lesil McGuire, Vice Chair
Representative Pete Kott
Representative Nancy Dahlstrom
Representative Vic Kohring
Representative Sharon Cissna
Representative Harry Crawford
MEMBERS ABSENT
All members present
OTHER LEGISLATORS PRESENT
Representative Jim Holm
Representative Hugh Fate
Representative Nick Stepovich
COMMITTEE CALENDAR
HOUSE BILL NO. 207
"An Act relating to taxes regarding certain commercial passenger
vessels operating in the state; and providing for an effective
date."
- HEARD AND HELD
PREVIOUS COMMITTEE ACTION
BILL: HB 207
SHORT TITLE: TAX ON COMMERCIAL VESSEL PASSENGERS
SPONSOR(S): REPRESENTATIVE(S) GATTO
03/24/03 (H) READ THE FIRST TIME - REFERRALS
03/24/03 (H) EDT, TRA, FIN
01/27/04 (H) EDT AT 10:00 AM CAPITOL 120
01/27/04 (H) Heard & Held <Assigned to Subcommittee>
01/27/04 (H) MINUTE(EDT)
03/30/04 (H) EDT AT 10:00 AM CAPITOL 120
03/30/04 (H) -- Meeting Canceled --
04/20/04 (H) EDT AT 5:30 PM CAPITOL 120
04/20/04 (H) -- Meeting Canceled --
04/22/04 (H) EDT AT 5:30 PM CAPITOL 120
04/22/04 (H) -- Meeting Canceled --
04/29/04 (H) EDT AT 12:00 AM SPEAKER'S CHAMBER
WITNESS REGISTER
REPRESENTATIVE CARL GATTO
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Spoke as the sponsor of HB 207.
CODY RICE, Staff
to Representative Carl Gatto
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Reviewed the changes between Version I and
Version S of HB 207.
JOE GELDHOF
Responsible Cruising in Alaska
Juneau, Alaska
POSITION STATEMENT: Urged the committee to report [HB 207] from
committee.
JIM CALVIN, Partner
McDowell Group
Juneau, Alaska
POSITION STATEMENT: During discussion of HB 207, reviewed the
McDowell Group's findings related to the Office of the
Governor's projections of cruise-related costs.
SUSAN BURKE, Attorney at Law
Gross & Burke, PC
Juneau, Alaska
POSITION STATEMENT: Representing the North West CruiseShip
Association, expressed concerns with Version S of HB 207.
CHUCK HARLAMERT, Juneau Section Chief
Tax Division
Department of Revenue
Juneau, Alaska
POSITION STATEMENT: During discussion of HB 207, answered
questions.
ACTION NARRATIVE
TAPE 04-16, SIDE A
Number 0001
CHAIR CHERYLL HEINZE called the House Special Committee on
Economic Development, International Trade and Tourism meeting to
order at 12:20 p.m. Representatives Heinze, McGuire, Kott,
Kohring, Dahlstrom, Cissna, and Crawford were present at the
call to order.
HB 207-TAX ON COMMERCIAL VESSEL PASSENGERS
[The counter numbers reflect the actual time.]
CHAIR HEINZE announced that the only order of business would be
HOUSE BILL NO. 207, "An Act relating to taxes regarding certain
commercial passenger vessels operating in the state; and
providing for an effective date."
CHAIR HEINZE reminded the committee that at the last hearing HB
207 was assigned to a subcommittee, and therefore she requested
a report from the subcommittee.
12:21
REPRESENTATIVE KOTT related that the subcommittee primarily
wrestled with the legal questions that were presented at the
last hearing on HB 207. The subcommittee couldn't reach a
consensus on which direction to take. Furthermore, he said he
felt that it was beyond the scope of the subcommittee to come to
grips with the understanding of the legal aspects. Therefore,
he announced his intent to report the legislation from the
subcommittee without any changes.
12:23
REPRESENTATIVE DAHLSTROM moved to adopt CSHB 207, Version 23-
LS0850\S, Kurtz, 4/28/04, as the working document. There being
no objection, Version S was before the committee.
REPRESENTATIVE CARL GATTO, Alaska State Legislature, spoke as
the sponsor of HB 207. He reminded the committee that this
legislation originally had a $100 head tax per passenger, which
made it fairly easy to predict the amount of revenue that would
be collected. He pointed out that tourism is a valuable and
growing resource that has been able to progress without any
taxes. "If we're willing to tax ourselves and we're willing to
tax the other industries that we have here, then I would like to
treat tourism as one of our additional industries," he said.
The goal of the $100 head tax, he explained, was to provide a
certain amount of money for Southeast Alaska to improve tourism
facilities, a certain amount for education, and the remainder
was to go into the general fund (GF).
REPRESENTATIVE GATTO opined that Version S has a $5 tax per
passenger per port, up to the first five ports. The remaining
[$5 tax per passenger after the fifth port or if there is less
than five ports] would go into the GF. He explained that it
costs the state a certain amount of money to host tourism
passengers from the cruise ships. In fact, there is information
that points out that the amount of money that would be collected
from cruise ship passengers is less than the amount the state is
expending. The reality is that even if services such as fire
service and police service aren't utilized, they still need to
be in place and maintained. The aforementioned is somewhat
attributable to the volume of [visitors] to a community.
12:26
CHAIR HEINZE asked if the commissioner of the Department of
Revenue would be the deciding factor with regard to where the
money goes.
REPRESENTATIVE GATTO explained that if there are only three
ports, the three ports would receive the $5 per passenger tax
and the remainder would go into the GF.
12:27
CODY RICE, Staff to Representative Carl Gatto, Alaska State
Legislature, reviewed the changes between Version I and Version
S. In Version S the tax was capped at $50 per passenger per
voyage. Version S also includes a $5 per passenger tax at each
of the first five ports and if there are less than five ports
the first however many ports would receive the $5 tax and the
remainder [of the tax] would go into the GF. The tax in Version
S is entirely based on costs to the state and local government
attributable to the cruise ship passenger vessel industry as
determined by the Department of Revenue. Mr. Rice pointed out
that Version S changes the liability of the tax to be based on
the vessel rather than the passengers. He noted that there are
other technical changes were required in order to make revenue
sharing between boroughs and cities work, which is related to
ownership of docks. In response to Chair Heinze, Mr. Rice
explained that the first five ports will be determined by the
department and will vary based on the cruise ships' itinerary.
REPRESENTATIVE GATTO emphasized the importance of the change to
a vessel tax that is determined by the volume of passengers
aboard the vessel.
12:29
REPRESENTATIVE CISSNA inquired as to whether the constitutional
problems has been resolved.
REPRESENTATIVE GATTO recalled that there were three [legal]
questions regarding the following: the tonnage clause, the
commerce clause, and the Maritime Transportation Security Act of
2002 (MTSA 2002).
MR. RICE informed the committee that he has been in contact with
the offices of U.S. Representative Don Young and U.S. Senator
Ted Stevens. With regard to the MTSA 2002, section 445
essentially prohibits ad valorem taxes. The MTSA 2002
specifically targeted Yakutat, a community which placed a cruise
ship tax on vessels that weren't docking in Yakutat. After
discussing this with the attorney who drafted a recent amendment
to the MTSA, the legislation was changed such that it should be
more defensible.
REPRESENTATIVE GATTO explained that the City of Yakutat wanted
to charge each passenger $1 for simply sailing by because the
city felt that when the cruise ships entered the bay it may have
impacted the sea mammals and fishing. The aforementioned tax
was never paid and [MTSA] determined that it should never be
paid. However, the language of [MTSA] was fairly broad and
didn't simply address Yakutat. In talking with the
Congressional delegation, it was clear that the intent of [MTSA]
wasn't to go beyond fixing the issue at Yakutat.
12:32
REPRESENTATIVE KOTT inquired as to why five ports was chosen.
He related his understanding that if the ship docked at more
than five ports, those ports after the fifth port wouldn't
receive the passenger tax. The aforementioned seems to create a
constitutional issue regarding equal protection.
REPRESENTATIVE GATTO informed the committee that typically
cruise ships like to leave and return home on a Sunday. He
related his belief that it takes a day-and-a-half to get here
and the same on the return. Therefore, three days is spent
going and coming combined, which leaves four days for visiting
ports. It would be difficult to get in five ports. However, he
agreed that if there were more than five ports, the issue
Representative Kott raised would have to be addressed. Perhaps,
$25 would be distributed among all the ports equally rather than
$5 a port. Still, there is no desire to go over $5 a port,
which provides the borough $2.50 and the city $2.50. In further
response to Representative Kott, Representative Gatto said he
didn't know of any trips that stopped at six ports.
REPRESENTATIVE DAHLSTROM inquired as to the legislation's next
committees of referral.
REPRESENTATIVE GATTO replied that the next committees of
referral are the House Transportation Standing Committee and the
House Finance Committee.
REPRESENTATIVE KOHRING expressed concern that the cruise ships
may decide not to come to ports with taxes, which has happened
in the past.
REPRESENTATIVE GATTO said that he would like to take away the
ability of the cruise ships to do the aforementioned, which is
referred to as "port pulling." With this tax, the cruise ship
industry could make the best trip by choosing the ports it
prefers rather than the [tax deciding which ports and for how
long]. However, the money could be used as enhancement to
entice the cruise ships to stop at a particular port.
12:40
REPRESENTATIVE KOHRING inquired as to whether there should be a
tax on an industry that's experiencing substantial growth,
especially when taxes are in conflict with a goal of increasing
the growth of the economy.
REPRESENTATIVE GATTO pointed out that as the industry grows, the
impact on the state also grows. He also pointed out that cruise
ships always arrive full. Furthermore, many of the costs not
included in the cruise are fairly expensive and in fact the
cruise ship portion may only represent half of the [total cost].
Therefore, adding $50 to the trip is inconsequential, which he
determined after interviewing 100 cruise ship passengers. He
noted that his findings are in line with those of Channel 2,
which delved into the matter when the tax was $100. From that
[data] Representative Gatto opined that this $50 tax won't
impede the growth of the cruise ship industry. Moreover, he
recalled his cruise ship trips for which the price of the trip
was listed separately from the port charges and taxes, which
amounted to $150.
12:46
REPRESENTATIVE McGUIRE opined that [Version S] seems to address
some of the legal concerns by making a better connection between
the revenue to the types of services impacted at both the state
and local level. However, the amount of the tax itself and how
the tax is assessed remains troubling, she said. Collecting $5
from the first five ports seems to be a logistical nightmare and
an administrative burden, which lead her to suggest that the
sponsor consider how it could be streamlined. Representative
McGuire recalled that Kathryn Kurtz' memorandum said that a
smaller fee with a more direct link to the provision services of
the specific vessel would be easier to defend. She then turned
attention to the memorandum dated January 27, 2004, from the
Office of the Governor and the attachment entitled, "Cruise Ship
Port Fees in Selected U.S. Ports". The aforementioned
attachment specifies that the passenger fee in California and
many other states utilize "embarking/disembarking" language and
thus there is a clear activity to which the fee is linked. The
data from the attachment also illustrates that the average fee
is $5, and therefore she inquired as to why the sponsor chose
$50.
REPRESENTATIVE GATTO clarified that under this legislation $5
isn't collected at each port, rather the fee is collected all at
once at the beginning of the trip and distributed to each of the
five ports. With regard to the "embarking/disembarking"
language, he pointed out that the [ship/passenger] isn't
stopping at a port. He then turned to the amount of money given
to each port and opined that it's not excessive.
REPRESENTATIVE McGUIRE expressed the need for the sponsor to be
able to defend how he arrived at the $50. She further suggested
that the sponsor think about a smaller amount that's directly
attributable to those services impacted by the cruise ship
passengers.
MR. RICE pointed out that in California the
embarking/disembarking fee in Los Angeles is $9.35 and $5.00 for
San Diego, which is solely for passengers. This legislation
specifies in Section 4 on page 2 that the tax will be based on
the state and local government costs attributable to the
commercial passenger vessel industry, but the tax can't in
excess of $50. However, if the commissioner determines that the
actual costs are less, the per passenger tax can be less. "It's
based solely on actual costs, as determined by the department,"
he clarified.
12:55
REPRESENTATIVE KOHRING expressed concern with the direction of
this tax in light of the legislature dealing with the cruise
ship industry, which has brought much to the state. He reminded
the committee of the tonnage tax of 10 years ago that was
eventually dropped. He also reminded the committee of the
special session that former Governor Knowles called in regard to
cruise ship regulations and fees.
MR. RICE said he believes Representative Kohring's reference to
the tonnage tax refers to the 1999 legislation that repealed
what was essentially a tax on all vessels, including oil
tankers.
12:57
JOE GELDHOF, Responsible Cruising in Alaska, informed the
committee that he actually worked for the legislature a few
years ago, has experience with various tax, and cruise ship
issues. He also informed the committee that he is an attorney
and authored the local head tax initiative in Juneau. In the
aforementioned endeavor he said he did much of the legal
analysis related to the commerce clause and the tonnage clause.
The result was [a proposal] for a local fee of $5 per person to
offset and mitigate the impact of having 800,000 visitors. Mr.
Geldhof noted that he also worked for the Alaska State
Legislature doing research and analysis [regarding the cruise
ship industry] during the time when the Senate enacted the $50
fee.
MR. GELDHOF emphasized that he isn't personally against the
cruise ship industry, which has, by and large, a positive impact
on the state. However, he noted his agreement with Governor
Murkowski that the cruise ship industry should pay its fair
share. The challenge is in regard to encouraging the industry
to come and grow while providing a funding mechanism for the
substantial infrastructure that's required. "There are real
costs to servicing this industry," he said. The further
challenge is meeting the revenue flow in a manner consistent
with constitutional [parameters]. Mr. Geldhof opined that
former Governor Knowles walked away from a fairly reasonable
deal when the Senate passed the first $50 head tax. Since that
time, the cruise ship industry has tacked on MTSA, section 445,
which, on its face, restricts the ability of the [state] to levy
a tax and attempts to make it so that the tax could only be
spent on matters related to the cruise ship industry. Any
industry would love the aforementioned, but that's not how
things are done under the traditional commerce clause analysis.
However, if one chooses to levy under the tonnage tax, those
funds must be used on services related to the vessel.
MR. GELDHOF opined that the limit and exclusions of 12
passengers should be raised. In the past, federal and state law
have held it much higher. He suggested setting the limit at 100
or 150 passengers. At that level, the small cruise ships are
paying corporate income taxes and paying their fair share. The
state doesn't need to regulate small cruise ships, in his
personal opinion.
MR. GELDHOF concluded by saying that one has to pay attention to
[MTSA] section 445, although it's not the "be all, end all."
Furthermore, he suggested that almost all of the constitutional
issues can be overcome with hard work. Finally, he reminded the
committee of the governor's statement that the cruise ship
industry must pay its fair share, and therefore he urged the
committee to report the legislation from committee.
REPRESENTATIVE KOTT requested explanation of the 12 passenger
[limit/exclusion].
MR. GELDHOF directed attention to page 4, lines 12-13, which is
part of the definition of "commercial passenger vessel." In the
work done over the last five or so years on various issues, the
[limit] has always been much higher.
REPRESENTATIVE McGUIRE inquired as to the passenger capacity in
Juneau.
MR. GELDHOF answered that [the exclusion] is for 150 or 250
[passengers].
TAPE 04-16, SIDE B
1:05
JIM CALVIN, Partner, McDowell Group, informed the committee that
the McDowell Group has prepared most of the state's economic
impact studies regarding the visitor industry. The McDowell
Group has also prepared regional tourism industry economic
impact studies in Southeast Alaska, the Interior, and
Southcentral Alaska. Currently, the McDowell Group is preparing
a comprehensive statewide assessment of the economic impact of
the cruise industry. The study will review regional and local
level impacts as well. He highlighted that a key part of the
study is in regard to the impacts of the cruise industry on
state government finances as well as local government finances.
MR. CALVIN told the committee that the McDowell Group was asked
[by the North West CruiseShip Association] to review a letter
from the governor's office that had inventoried some costs that
are attributed to the cruise industry. The McDowell Group was
to review the assumptions and determine whether the costs
attributed to the cruise industry were reasonable, which has
lead to his suggestion to make more realistic assumptions based
on what is known about cruise ship passengers. He further
suggested focusing on the general fund money that goes toward
supporting the cruise-related activity. He also suggested
focusing on the revenues that are generated. Mr. Calvin said
that after going through the aforementioned, one finds that very
few of these cost areas identified in the governor's letter hold
any water. For instance, the international airport system
receives no GF. "My point here is that, ... to the extent that
your decision ... will be based on actual impacts on state
government finances, you need to get some better data in front
of you," he said. He commented that the issue of what happens
at the local level is a completely different story. The
McDowell Group has reviewed what happens to local governments in
Southeast Alaska and found that the revenues generated in
Juneau, Skagway, and Ketchikan from sales tax and property tax
revenues from businesses that provide goods and services to the
cruise ship industry far exceed the expenditures the local
governments make to the cruise ship industry and its passengers.
In Juneau, the sales tax revenue generated goes directly into
the general fund.
REPRESENTATIVE KOTT surmised then that the port of calls in
Southeast Alaska that have a sales tax are doing extremely well
and are obtaining revenue that far exceeds the cost to the
[local government] to entertain the cruise ship industry.
MR. CALVIN replied yes. He suggested that the committee think
about the impacts of the cruise ship industry on a community.
The tourists get off the ships, wander through town, take bus
tours, and leave money, much of which is taxable, behind due to
purchases. Occasionally, there is an incident with the cruise
ship industry that requires an ambulance. There is some trash
to pick up and some communities utilize additional police during
the summer tourism season. Therefore, the impact of the cruise
ship industry is fairly minor in comparison to the sales tax
revenues being obtained. However, he acknowledged this might
not be the case in all the ports.
REPRESENTATIVE KOTT concluded, then, that the $5 per first five
ports proposed in HB 207 is a great deal.
MR. CALVIN responded, "It's going to be pure gravy into the
local government coffer."
1:12
REPRESENTATIVE KOTT requested that Mr. Calvin explain the
differences between his preliminary findings versus those of the
governor's office.
MR. CALVIN emphasized that the McDowell Group is in the
preliminary stage. However, he highlighted that the largest
numbers are in relation to the international airport system,
which doesn't receive any GF money. Furthermore, one can't
ignore the federal money that comes into the international
airport system.
REPRESENTATIVE KOTT commented that Representative Gatto just
fixed the revenue sharing problem in Southeast Alaska.
CHAIR HEINZE asked if Mr. Calvin "had a feel" for the numbers
from the governor's office in regard to from where they came and
why.
MR. CALVIN answered that the governor's numbers seem to have
come from a very cursory examination that was focused purely on
finding costs, regardless as to whether they were general fund
related costs, and ignored the revenue side of the matter.
There wasn't an effort to find a net impact on state government.
In response to Representative Kott, Mr. Calvin specified that
the McDowell Group's full report will be available several
months down the round. Currently, the focus is on local and
state government financial impacts, which he estimated to be two
to three weeks from completion.
1:15
SUSAN BURKE, Attorney at Law, Gross & Burke, PC, representing
the North West CruiseShip Association, informed the committee
that she had provided it with a summary of her comments from the
prior meeting plus some additional comments.
REPRESENTATIVE KOTT asked if the summary addresses Version S.
He also asked if Ms. Burke maintained the same constitutional
issues with Version S.
MS. BURKE clarified that the summary she provided addresses the
original legislation. After reviewing Version S for the last
hour, she related that there are still serious legal problems.
Firstly, she turned to the federal statute and drew attention to
Kathryn Kurtz', Attorney, Legal and Research Services,
memorandum dated February 16, 2004. She related that Ms. Kurtz
believes the federal statute applies beyond Yakutat as does the
attorney general, the former attorney of the City & Borough of
Juneau, as well as herself. Ms. Burke pointed out that federal
courts follow the plain meaning rule; and even if there is
sliding scale interpretation, no court will look at statements
provided after enactment, even those from the sponsor.
Furthermore, the Congressional record has Congressman Don Young
stating that this federal statute is to codify existing law,
which she identified as the tonnage clause. She said she wasn't
aware of any other existing law.
MS. BURKE turned to Version S, which refers to "costs
attributable to commercial passenger vessel industry" and
includes a list of the costs for the Alaska Railroad Corporation
and state parks. However, the legislature's own counsel has
advised that such can't be done under the federal Act because
those aren't costs attributable to the cruse ship visitor
industry. Furthermore, the way this [tax] is set up every year
the commissioner of the Department of Revenue will determine the
tax, which she characterized as an invitation for endless
litigation. Ms. Burke emphasized that it's a terrible policy to
have a different tax rate every year. Furthermore, there's no
guarantee that the $25 a passenger will be earned to give to the
communities that can't justify the need for this money.
REPRESENTATIVE KOTT inquired as to how would the Department of
Revenue make an analysis with regard to coming up with a new tax
rate every year.
1:23
CHUCK HARLAMERT, Juneau Section Chief, Tax Division, Department
of Revenue, said that the Department of Revenue probably isn't
the correct department because it doesn't have much expertise
with regard to the buying costs of any activity within the state
budget. Therefore, he suggested that the more appropriate
entity to [make the analysis] would be Office of Management &
Budget. The Department of Revenue is fairly adept at collecting
monies and enforcing taxes, but it's not its specialty to
analyze the state's budget in great detail. Mr. Harlamert said
that one would need to take a historical view and apply [the
tax] going forward
REPRESENTATIVE KOTT commented that the aforementioned appears to
be a complex analysis.
MR. HARLAMERT said that if the [tax] is below $50 per passenger,
then it'll be fairly controversial and complex. However, if
it's larger, then it would be much less troublesome.
CHAIR HEINZE announced that since the committee had just
received Version S, she would recess to the call of the chair.
[HB 207 was held over.]
ADJOURNMENT
The House Special Committee on Economic Development,
International Trade and Tourism meeting was recessed at 1:25
p.m. [This meeting did not reconvene.]
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