Legislature(2009 - 2010)Anch LIO Rm 210
09/22/2009 02:00 PM House JUDICIARY
| Audio | Topic |
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| Start | |
| Overview(s): Constitutional Issues Arising from the Alaska Cruise Ship Passenger Head Tax | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
ALASKA STATE LEGISLATURE
HOUSE JUDICIARY STANDING COMMITTEE
Anchorage, Alaska
September 22, 2009
2:16 p.m.
MEMBERS PRESENT
Representative Nancy Dahlstrom, Vice Chair
Representative John Coghill
Representative Carl Gatto
Representative Bob Lynn
Representative Max Gruenberg
Representative Lindsey Holmes
MEMBERS ABSENT
Representative Jay Ramras, Chair
OTHER LEGISLATORS PRESENT
Representative John Harris
Representative Les Gara
Representative Scott Kawasaki (via teleconference)
Senator Dennis Egan
COMMITTEE CALENDAR
OVERVIEW(S): CONSTITUTIONAL ISSUES ARISING FROM THE ALASKA
CRUISE SHIP PASSENGER HEAD TAX
- HEARD
PREVIOUS COMMITTEE ACTION
No Previous Action to Report
WITNESS REGISTER
JOE GELDHOF, Attorney
Juneau, Alaska
POSITION STATEMENT: Testified during discussion about the
Alaska Cruise Ship passenger head tax.
REPRESENTATIVE JOHN HARRIS
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Testified during discussion about the
Alaska Cruise Ship passenger head tax.
SENATOR DENNIS EGAN
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Testified during discussion about the
Alaska Cruise Ship passenger head tax.
REPRESENTATIVE LES GARA
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Testified during discussion about the
Alaska Cruise Ship passenger head tax.
BOB STONE, Chairman
Alaska Cruise Association (ACA)
Anchorage, Alaska
POSITION STATEMENT: Testified during discussion about the
Alaska Cruise Ship passenger head tax.
STEVE RUMMAGE, Attorney
Alaska Cruise Association (ACA)
Anchorage, Alaska
POSITION STATEMENT: Testified during discussion about the
Alaska Cruise Ship passenger head tax.
DONALD BULLOCK, Attorney
Legislative Legal and Research Services
Legislative Affairs Agency (LAA)
Juneau, Alaska
POSITION STATEMENT: Testified during discussion about the
Alaska Cruise Ship passenger head tax.
DAN SULLIVAN, Acting Attorney General
Office of the Attorney General
Department of Law (DOL)
Juneau, Alaska
POSITION STATEMENT: Testified during discussion about the
Alaska Cruise Ship passenger head tax.
ACTION NARRATIVE
2:16:57 PM
VICE CHAIR NANCY DAHLSTROM called the House Judiciary Standing
Committee meeting to order at 2:16 p.m. Representatives
Dahlstrom, Lynn, Gruenberg, Holmes, Coghill, and Gatto were
present at the call to order. Also in attendance were
Representatives Harris, Gara, and Kawasaki (via teleconference),
and Senator Egan.
2:17:35 PM
^Overview(s): Constitutional Issues Arising From The Alaska
Cruise Ship Passenger Head Tax
2:17:44 PM
VICE CHAIR DAHLSTROM announced that the only order of business
would be a discussion of constitutional issues arising from the
Alaska cruise ship passenger head tax.
VICE CHAIR DAHLSTROM noted that Representative Ramras would not
be participating in today's meeting due to a [possible] conflict
of interest.
2:19:29 PM
JOE GELDHOF, Attorney, confirmed that he was one of the prime
authors of the Cruise Ship Taxation, Regulation and Disclosure
initiative, which was approved by the voters in 2006. He
declared that the initiative's goal was to "make Alaska and our
coastal ports the best possible cruise ship destination." He
explained that the initiative dealt with environmental matters,
consumer disclosure, and revenue. He pointed out that this was
the culmination of local citizen activities and legislative
action, and built upon a 2000 Senate enactment that adopted a
$50 head tax. He offered his belief that the excise tax was
constitutional and the Department of Revenue (DOR) had
administered it in a neutral manner.
MR. GELDHOF explained that the excise tax was per passenger, and
was not a fee levied on the vessel itself. He said he did not
believe that the excise tax would be "all balled up into the
tonnage tax analysis." He opined that the analysis would
recognize the Commerce Clause, the constitutional framework, and
federal law. He expressed his belief that the tax needed to be
spent on primary infrastructure, designed and related to
servicing the vessels and the passengers. He suggested that the
real issue was to ensure the expenditures were consistent with
state and federal law.
2:23:40 PM
MR. GELDHOF suggested that the legislators and the
administration reevaluate the proposed excise tax projects to
ensure the constitutionality of each projects' funding.
MR. GELDHOF restated that the reason for the excise tax revenue
was to make Alaska the best possible tourist destination.
2:25:57 PM
REPRESENTATIVE GRUENBERG asked if Mr. Geldhof was a party to the
litigation and whether he planned to intervene.
MR. GELDHOF replied that he was not.
REPRESENTATIVE GRUENBERG asked which would take primacy, federal
statute or constitutionality.
MR. GELDHOF offered his belief that the federal statute would
first be analyzed.
REPRESENTATIVE GRUENBERG referred to the most recent decision in
JOHN MOSCHEO v. POLK COUNTY, TENNESSEE in the Court of Appeals
in Tennessee.
2:28:55 PM
REPRESENTATIVE GRUENBERG asked whether the wording of the ballot
initiative, which imposed a tax, was deliberate, as opposed to
calling this a fee.
MR. GELDHOF, in response, said there was a lot of discussion
about the nomenclature, but that tax was the most honest.
REPRESENTATIVE GATTO asked if a fee could be refused, whereas a
tax could not.
MR. GELDHOF said that he would have to research whether there
was a meaningful distinction. He noted that, as a practical
matter, if a person balks at paying a fee, they are not issued a
ticket.
2:31:59 PM
REPRESENTATIVE JOHN HARRIS, Alaska State Legislature, reported
that the intention of the initiative sponsors was to have the
money spent for the benefit of the cruise ship passengers.
MR. GELDHOF, in response to Representative Harris, shared that
Alaska was one of a minority of jurisdictions that has a
prohibition on dedicated funds. He explained that the
initiative tried to offer "some points to steer by" without
requiring where the expenditures be spent. He pointed out that
the cruise ship industry was not offering project ideas for the
passenger tax, even though they had the best perspective of how
the funds should be spent.
2:34:19 PM
REPRESENTATIVE HARRIS asked whether any other state had a
similar law or imposed a similar fee on cruise ship passengers.
MR. GELDHOF said that there were a number of charges levied by
international, state, federal, and local jurisdictions. He
offered an analogy to the early aviation industry, and noted
that, ultimately, the US Congress would harmonize the collection
of these charges.
REPRESENTATIVE HARRIS asked Mr. Geldhof whether he believed the
Alaska cruise ship taxes were illegal.
2:36:56 PM
MR. GELDHOF offered his belief that a federal judge would give
some suggestions for legal projects.
REPRESENTATIVE GRUENBERG asked if there was a federal agency
with the oversight for the expenditure of charges, or if not,
should the legislature introduce a joint resolution for the US
Congress to create one.
2:39:08 PM
MR. GELDHOF suggested that they speak with Sean T. Connaughton,
lawyer and former head of the U. S. Maritime Administration.
2:39:58 PM
SENATOR DENNIS EGAN, Alaska State Legislature, noted that Juneau
and Ketchikan had charged fees prior to the Cruise Ship
Taxation, Regulation and Disclosure initiative, and he asked why
those fees were not in issue.
MR. GELDHOF explained that the issue was the $46 excise tax;
however that did not mean the other fee issues were waived. He
opined that the litigation was as political as it was legal.
REPRESENTATIVE LES GARA, Alaska State Legislature, clarified
that he did request a legal memo outlining rules for the
expenditure of cruise ship fees, but not because he believed
that any of the expenditures were illegal. He opined that the
federal government should not determine how a state spends its
tax money, and he asked Mr. Geldhof how it was determined that
the cruise ship taxes had to be spent on "directly relevant
cruise ship related expenditures."
MR. GELDHOF, in response to Representative Gara, mused on the
scant Alaskan legislative history for the relevant provisions in
the Maritime Transportation Security Act of 2002.
2:44:43 PM
BOB STONE, Chairman, Alaska Cruise Association (ACA), said that
he was available to answer questions.
STEVE RUMMAGE, Attorney, Alaska Cruise Association (ACA), asked
to speak for 15 minutes, and then to answer any questions.
2:45:56 PM
MR. RUMMAGE explained that the Alaska Cruise Association (ACA)
had filed suit to rescind the passenger excise tax. He said
that the ACA doesn't want to be in an adversarial relationship
with the state, but that the cruise industry firmly believed
that the tax was unconstitutional, improper, and unwise. He
stated that it violated fundamental constitutional principles
and it discourages tourism.
MR. RUMMAGE referred to the Commerce Clause, Art. 1, § 8, cl. 3,
of the Constitution, which stated that "The Congress shall have
power to regulate commerce with foreign nations, and among the
several states..." He reflected that this had been construed to
prevent the states from discriminating against interstate or out
of state commerce, and he opined that this was a fundamental
motivation for replacing the Articles of Confederation. He
quoted from a U.S. Supreme Court decision forbidding interstate
discrimination:
... reflects a central concern of the framers that was
an immediate reason for calling the Constitutional
Convention, the conviction that in order to succeed,
the new union would have to avoid the economic
balkanization that had plagued relations among the
colonies and later among the states under the Articles
of Confederation.
He quoted another court decision:
During the first years of our history as an
independent confederation each state was free to adopt
measures fostering its own local interests without
regard to possible prejudice to non-residents.
He offered his belief that this was the immediate cause which
lead to the formation of the Constitutional Convention. He
noted that "the Commerce Clause was the framers' response to the
central problem giving rise to the Constitution itself."
2:50:05 PM
MR. RUMMAGE pointed out that this "goes to the core of the very
instrument that binds us together as a nation in economic
terms." He reported that, historically, courts had dealt with
Commerce Clause challenges by requiring proof that a law was
discriminatory in its intent or in its effect on interstate
commerce. He pointed out that, in this case, the public record
of intent existed as this was a contested political campaign.
He quoted a [initiative] sponsor from the Anchorage Daily News
(ADN): "It's a good day when the citizens get to win one against
the multi-billion dollar industry in British Columbia and
outside" and "Alaskans are not stupid. For the average person
sitting in a bar, it takes five minutes to figure out this is a
tax on the guy from Ohio." He observed that the media reported
that Alaska voters supported the fee precisely because it taxed
outsiders. He surmised that the record indicated that the
purpose of the initiative was to impose a tax on non-residents
of Alaska because they were visiting and were available to tax.
He continued, detailing that this had a discriminatory effect on
interstate commerce because the tax only applied to cruise ships
which were 250 feet or longer, cruises of longer than 72 hours
in duration, and vessels that supplied overnight accommodations
in Alaskan waters. He summarized that these tax requirements
only applied to out of state Alaska cruise companies. He
proposed that the tax was overwhelmingly imposed "on the guy
from Ohio." He noted that there were other court imposed tests
for the Commerce Clause, including an internal consistency test
and the "complete auto transit test," and that any of these
tests would reveal that the $46 entry fee violated the Commerce
Clause. He referred to other judicial cases, similar to those
in Alaska, including Bridgeport & Port Jefferson Steamboat Co.
v. Bridgeport Port Authority, 567 F.3d 79 (2nd Cir.2009). He
read that "the fee was not based on a fair approximation of the
ferry passengers' use of the port facilities, and that the fee
was excessive in comparison with the government benefit
conferred in a relation to the cost incurred by the taxing
authority." He offered his belief that a court would reach the
same conclusion about the Alaska Cruise Ship passenger head tax.
MR. RUMMAGE directed attention to the Tonnage Clause, Art. 1, §
10, cl. 3, which read: "no state shall, without the consent of
Congress, lay any duty of tonnage." He pointed out that the
Supreme Court, in its decision to strike down the Valdez tanker
tax, (Polar Tankers, Inc. v. City of Valdez, 2009) ruled that a
tonnage tax could not be avoided simply by calling it a tax on
something other than tonnage: "all taxes and duties regardless
of their name or form that impose a charge for the privilege of
entering in, trading in, or lying in a port." He reported that
the tonnage tax could not be avoided by levying a tax on "the
number of masts, or of mariners, the size and power of the steam
engine, or the number of passengers which she carries."
Referring to Bridgeport & Port Jefferson Steamboat Co. v.
Bridgeport Port Authority, the court ruled that the Tonnage
Clause applied to a passenger head tax. He surmised that the
Alaska Cruise Ship passenger head tax violated the Tonnage
Clause, as the fee was assessed based upon entering into the
port, and based on the capacity of the ship. He catalogued the
permissible charges and fees under the Tonnage Clause to
include: for services facilitating commerce, such as pilotage,
towage, charges for loading and unloading cargoes, wharfage,
storage, and the like. He explained that "if a tax or fee is
levied to raise money, as distinct from defraying services
actually provided to the vessel, it violates the Tonnage
Clause."
2:57:14 PM
MR. RUMMAGE, referring to the Maritime Transportation Security
Act of 2002, 33 U.S.C. 5(b)(2), which imposed the limitations on
taxes and fees, noted that this gave additional detail to the
Tonnage Clause, and he read: "a state cannot impose any taxes,
tolls, operating charges, fees, or any other impositions from
any vessel or from its passengers or crew." He offered his
belief that this clarified that it was not permissible to
circumvent the law by taxing the passengers instead of the
vessel, that a tax included tolls and assorted fees, and that
the only exceptions allowed were "reasonable fees charged on a
fair and equitable basis used solely to pay the cost of the
service to the vessel or watercraft, enhance the safety and
efficiency of interstate and foreign commerce and do not impose
more than a small burden on interstate or foreign commerce."
2:58:31 PM
REPRESENTATIVE GRUENBERG, noting the language of the statute,
asked if the interpretation of "solely" was limited to mean a
benefit only for the cruise ships. He questioned whether,
hypothetically, the costs for dredging the channel, which would
make it possible for the cruise ships to operate, could be
levied on the cruise ships.
MR. RUMMAGE offered his belief that a court would determine that
this constituted a service to the cruise ships.
REPRESENTATIVE GRUENBERG replied that this was the determination
in New Orleans SS Assn. v. Plaquemines Port, Harbor & Terminal
Dist. (5th Cir. 1989).
MR. RUMMAGE concurred that this was fundamentally correct, and
was similar to the decision of Clyde Mallory Lines v. Alabama
(1935), in which it was stated that even if the security was not
used, one would benefit from the harbor security.
REPRESENTATIVE GRUENBERG added, "because it was available."
MR. RUMMAGE agreed. He opined that the current $46 entry fee
was not designed, and did not function, as a "user fee for
services provided" even by the hypothetical definition offered
by Representative Gruenberg. He listed the cruise ship fees to
already include: docking fees, lightering fees, and utility
fees. He pointed out the distribution of the $46 fee: 25
percent ($11.50) was distributed to communities with no cruise
ship visitation via the Regional Cruise Ship Impact Fund; $25
was divided among the first five ports of call, with no state
restriction on the use; and the remainder was appropriated by
the legislature. He opined that the Regional Cruise Ship Impact
Fund was not used "solely to pay the cost of a service to the
vessel or watercraft" and that there were not enough appropriate
projects to absorb this $46 entry fee. He directed attention to
the memo from [Legislative Legal and Research Services] to
Representative Gara which referenced funding for the Alaska Zoo,
and he opined that the implications of this were clear, "that
passenger fees that are collected to fund zoos, convention
centers, community centers, light rail stations and so on, do
not satisfy federal law." He expressed that these were not
legitimate expenditures of cruise line fees.
MR. RUMMAGE directed attention to the memo from Responsible
Cruising in Alaska (RCA), which expressed concern that the
appropriations would undermine the law. He assessed, from the
appropriations identified in the memo, that approximately 20
percent of those appropriations were proper.
MR. RUMMAGE pointed out that most of the collected passenger fee
revenue was not spent in accordance with the Tonnage Clause
guidelines. He opined that the Tonnage Clause dictated that the
fee should be for services rendered and advised that this
collection of fees for future project spending was not
appropriate.
3:05:37 PM
REPRESENTATIVE GRUENBERG directed attention to the exceptions
for 33 U.S.C. 5(b), which included fees charged under section
208 of the Water Resources Development Act of 1986 (33 U.S.C.
2236), and reasonable fees charged on a fair and equitable
basis. He opined that 33 U.S.C. 2236 was written differently
than 33 U.S.C. 5(b)(2), as 33 U.S.C. 2236 prohibited the
expenditure of local funds to build a new structure, but 33
U.S.C. 5(b)(2) did not have a similar prohibition. He stressed
that this placed both Alaska and the cruise ship industry in a
difficult position, as ports could not be used without
facilities, yet the fees could not be used to build those
facilities. He noted that the remainder of 33 U.S.C. 5(b)(2)
did not contain the prospective prohibition, and he asked if
Congress would have put this specific prohibition in if they
expected this to be read as Mr. Rummage suggested. In response
to Mr. Rummage, he clarified that 33 U.S.C. 2236 "says you
cannot use federal funds unless it is to improve existing
facilities."
MR. RUMMAGE explained that a more typical funding approach would
be to issue bonds for construction, and then pay the debt with
user fees. He suggested that collecting fees from a passenger
today to build a service for use by a future passenger was not
in compliance.
REPRESENTATIVE GRUENBERG concluded that a financing program
would solve the problem.
MR. RUMMAGE agreed, and shared an example of the Denver Airport
which had initially applied a passenger surcharge to fund the
new airport. He pointed out that the courts rejected this fee.
3:09:15 PM
MR. RUMMAGE, in response to Representative Gatto, said that
rental car fees were not applicable under the Tonnage Clause.
3:10:20 PM
MR. RUMMAGE, in response to another question from Representative
Gatto, confirmed that a cruise ship passenger could not be
singled out to pay an entry fee that was not charged to other
users.
REPRESENTATIVE COGHILL asked whether the cruise industry had
monitored the Cruise Ship Taxation, Regulation and Disclosure
initiative before it was approved as a statutory provision.
MR. RUMMAGE replied that he was unaware of the initiative until
the day after it was passed [by the voters]. He conveyed that
there had been "pretty substantial development in the law on
exactly this issue since the initiative was passed."
MR. RUMMAGE, in response to Representative Coghill, clarified
that the lawsuit seeks an injunction against the further
collection of the tax, but it does not seek a refund.
REPRESENTATIVE COGHILL asked whether anyone in the cruise
industry had recognized the approaching clash with the Tonnage
or Commerce Clauses.
3:14:01 PM
MR. RUMMAGE reiterated that he had only become aware of the
initiative after its passage.
REPRESENTATIVE COGHILL asked Mr. Stone if he was the Chairman of
ACA at the time of the initiative.
MR. STONE replied that he was not, and he observed that ACA was
formed after passage of the Cruise Ship Taxation, Regulation and
Disclosure initiative.
REPRESENTATIVE COGHILL surmised, given the history of the
initiative, the use of the language in the statute, and the
ensuing court decisions, that the legislature had been
reasonable in its approach.
3:15:23 PM
REPRESENTATIVE GATTO asked if entry fees could be charged for
cruise ship visitations to the glaciers in the City and Borough
of Yakutat, even if they did not dock.
MR. RUMMAGE said that he did not know the details, but he
reflected that Mr. Geldhof had earlier mentioned Yakutat in
connection with the Maritime Transportation Security Act of
2002.
REPRESENTATIVE GATTO noted that the glacier visitations were in
Icy Bay.
MR. RUMMAGE emphasized that the ACA members wanted to pay their
fair share, but the $46 entry fee was in excess of the services
provided to each vessel. He relayed that the ACA did want to
reach an agreement for a passenger fee that satisfied federal
law and delivered benefits to the Alaska cruiseline industry.
MR. RUMMAGE opined that the approach taken by the legislature
would send a signal to the cruise ship industry.
REPRESENTATIVE LYNN, acknowledging the importance of the cruise
industry for tourism, questioned why the ACA had taken so long
to file the lawsuit.
3:20:13 PM
MR. STONE, in response to Representative Lynn, explained that it
took time for nine separate, competing cruise lines to come to a
consensus of the next steps. He emphasized that the filing of
the lawsuit had nothing to do with the scheduled agenda for the
House Judiciary Standing Committee.
3:21:27 PM
REPRESENTATIVE GRUENBERG offered his understanding that
considerable deference was given to each state in its use of
taxes. He questioned whether Mr. Rummage was correct in his
premise that a state was not allowed to forward fund projects
using the entry tax and he asked for a specific case law. He
stressed that waiting for enough tax money in the future could
cause a problem for a currently healthy cruise ship industry in
Alaska.
MR. RUMMAGE affirmed that he did not "have anything that is
absolutely, categorically on point." He offered his belief that
this was implied in statute, referencing Bridgeport & Port
Jefferson Steamboat Co. v. Bridgeport Port Authority, and he
identified that many of the $46 entry fee projects did not
benefit the passengers who were paying the fees.
The committee took an at-ease from 3:24 p.m. to 3:25 p.m.
3:24:58 PM
REPRESENTATIVE GRUENBERG asked what percentage of the passengers
who pay the $46 entry fee were Alaskan.
MR. STONE supposed that it was less than 1 percent.
3:26:33 PM
REPRESENTATIVE GARA established that the intent of the
initiative and the will of the majority of Alaskans was not to
tax out of state visitors, but instead to pay for infrastructure
costs imposed by the cruise ship industry.
MR. RUMMAGE replied that ACA was ready to deal with the
infrastructure issues.
3:28:32 PM
DONALD BULLOCK, Attorney, Legislative Legal and Research
Services, Legislative Affairs Agency (LAA), stipulated that it
was not the length of the ship that determined whether a cruise
ship was taxable, but rather whether it had at least 250 berths.
Referring to AS 43.52.230, he pointed out that the proceeds from
the tax actually went into the general fund. He clarified that
the legislature could appropriate money for specific purposes,
but that this was not a dedicated fund. He noted that the ACA
litigation was founded on the use of the entry tax money, and
that the Tonnage Clause, the Commerce Clause, and 33 U.S.C. 5(b)
put a limit on the state use of that money.
MR. BULLOCK, referencing the tax on commercial passenger vessels
providing overnight accommodations, explained that AS 43.52.220
addressed the liability for payment of the tax. He stated that
the tax was on the passenger and generally it was the cruise
line that collected the tax. He pointed out that Bridgeport &
Port Jefferson Steamboat Co. v. Bridgeport Port Authority, 567
F.3d 79 (2nd Cir.2009) declared that the ferry company could be
a partner to the lawsuit because the passenger tax could have an
effect on its business, and that the tax had to be reasonable
and not an undue burden on interstate commerce.
MR. BULLOCK, in response to Representative Coghill, noted that
both Bridgeport & Port Jefferson Steamboat Co. v. Bridgeport
Port Authority, 567 F.3d 79 (2nd Cir.2009) and High Country
Adventures, Inc. v. Polk County, No. E2007-02678-COA-R3-CV
treated the passengers as litigants and the courts determined
they were entitled to refunds of the tax.
REPRESENTATIVE COGHILL questioned the reason for the cruise
lines to be the aggrieved litigants, when it was the passengers
who paid the tax.
3:34:59 PM
MR. BULLOCK explained that the passenger tax in Bridgeport &
Port Jefferson Steamboat Co. v. Bridgeport Port Authority, 567
F.3d 79 (2nd Cir.2009), which arose prior to 33 U.S.C. 5(b)(2),
was imposed by the Bridgeport Port Authority to be used for the
operating budget of the Authority. He relayed that the 2nd
Circuit Court of Appeals determined that the activities which
benefited the ferry passengers were the "construction and
maintenance of a new ferry terminal building, repair of the
bulkhead of the dock, construction of the access road, planning
of the parking facility for ferry passengers, security for the
dock, and daily operations related to the ferry," but he said
that he did not know how this would relate to forward funding.
He listed activities which the 2nd Circuit Court of Appeals
determined did not benefit ferry passengers, which included
other development projects, a high speed ferry for another
route, a barge-feeder service for shipping containers, a
complimentary pump-out service for pleasure boats, and dredging
of the Bridgeport harbor.
MR. BULLOCK opined that there was no guidance from the Court
decision defining the distance from the ferry buildings for
allowable projects. He noted that both the Tonnage Clause and
the Commerce Clause required a relationship of the benefit to
the entity and interstate commerce. He noted that both of these
cases were prior to 33 U.S.C. 5(b)(2), which now offered a
narrower "roadmap" of traditional concepts and Commerce Clause
analysis.
MR. BULLOCK pointed out that two parts of 33 U.S.C. 5(b)(2)
related to the passenger tax: "reasonable fees charged on a fair
and equitable basis," and "do not impose more than a small
burden on interstate or foreign commerce." He confirmed that
there had been a lot of litigation concerning "reasonable tax
and reasonable amount." He noted that the Department of Law
(DOL) was concerned with the litigation from the cruise ship
lines, whereas the legislature was concerned whether the law was
being correctly applied. He cautioned that the merits and the
ramifications of the case should not be discussed in a public
meeting.
3:40:26 PM
REPRESENTATIVE COGHILL noted that discussion of the case should
be continued in executive session. He opined that although this
was a very dynamic process, the law had been settled before the
appropriations were agreed upon.
MR. BULLOCK affirmed that the Cruise Ship Taxation, Regulation
and Disclosure initiative was effective in December, 2006; the
law in effect at that time, 33 U.S.C. 5(b)(2), was enacted in
November, 2002.
REPRESENTATIVE COGHILL asked whether 33 U.S.C. 5(b)(2) was
scrutinized during the budget process.
MR. BULLOCK declined to answer, surmising that it was one of the
points that would be addressed in the litigation. He referenced
the privilege tax imposed by Polk County on the rafters (High
Country Adventures, Inc. v. Polk County, No. E2007-02678-COA-R3-
CV); and cited an argument was that the rafts were used on
navigable waters, which he analyzed to be trigger for 33 U.S.C.
5(b)(2).
REPRESENTATIVE GRUENBERG asked if the statute, AS 43.52.200,
could be read that any ship with overnight accommodations,
navigating Alaskan waters for more than 72 hours, could be
taxed.
3:44:40 PM
MR. BULLOCK explained that whenever an Alaskan statute was
challenged, there was a presumption of constitutionality. He
opined that if there was a means of enforcement and application
of the statute which was consistent with the words and intent of
the statute, in a constitutional manner, then the courts would
be unlikely to determine the statute was unconstitutional. He
pointed out to Representative Gruenberg that the definitions in
Polar Tankers, Inc. v. City of Valdez, 2009 had so many
exceptions that the only ships left were the tankers.
In response to Vice Chair Dahlstrom, Mr. Bullock noted that any
further discussion would best be discussed in executive session.
3:46:57 PM
DAN SULLIVAN, Acting Attorney General, Office of the Attorney
General, Department of Law (DOL), shared his enthusiasm for
working with the legislature and introduced Assistant Attorney
General Chris Poag.
3:50:26 PM
MR. SULLIVAN reminded the committee that this hearing had been
originally scheduled as an information gathering session for the
Alaska Cruise Ship passenger head tax, and that the "posture of
this hearing has changed given the filing of the lawsuit by the
Cruise Ship Association [ACA] against the state on Friday." He
underscored that the administration and the state retained
respect for the Cruise Ship industry and the importance of
working with the industry, but that the state would vigorously
defend against the lawsuit. He pointed out that it was not in
the best interest of the state or Alaskans "to be publicly
revealing what we think of the merits of the Cruise
Association's lawsuit, or what our litigation strategy is,
particularly given that this lawsuit has only been filed a few
days ago, and it involves significant finances for the state."
MR. SULLIVAN declared that adjourning to executive session was
common practice during these types of litigation issues. He
directed attention to two important points: (1)although the
economic benefit of the cruise industry was very significant to
the state, so was the impact of one million tourists in a very
short period of time, and that the state and local communities
had spent significantly to build infrastructure and provide
services necessary to accommodate this large influx of
passengers and would continue to significantly spend to host
these passengers; (2) it was well established jurisprudence
under the U.S. Constitution "that when state and local
communities have provided significant infrastructure and
services to host travelers, whether from in or out of state,
that the law allows for users of such services to pay their fair
share of the costs."
MR. SULLIVAN offered his belief that while the ACA counsel had
indicated that this case was "open and shut," the state did not
agree with that, particularly given the well established case
law. He opined that the burden of proof that the principle was
violated lay with the ACA.
MR. SULLIVAN observed that "facts and economics can be elusive
things." He recognized the argument that the passenger tax was
significantly hurting passenger demand for Alaska; however, he
pointed to a study by the Legislative Legal and Research
Services which established that since implementation of the tax,
passenger visits through Juneau had increased in 2007 by 65,000
passengers, in 2008 by 15,000 passengers, and in 2009, a notably
difficult economic year, that additional cruise lines had
announced Alaska as a destination. He assessed that
establishing the facts would be an important part of the
litigation.
MR. SULLIVAN requested the opportunity to speak more candidly in
executive session.
3:57:58 PM
REPRESENTATIVE LYNN expressed concern with the possibility of
voting on legislation using information gathered in executive
session, and thereby being unable to fully explain the
reasoning.
3:59:47 PM
REPRESENTATIVE GATTO made a motion to move to executive session
for the purpose of discussing confidential litigation
strategies.
REPRESENTATIVE COGHILL objected for discussion, and asked if all
legislators were invited to the executive session.
VICE CHAIR DAHLSTROM, in response to a question, clarified that
all legislators, DOL staff, and Mr. Bullock were invited.
REPRESENTATIVE HOLMES noted that the uniform rules stated that
no members of the legislature could be excluded.
[The objection was removed.]
4:01:09 PM
There being no objection, the committee went into executive
session at 4:01 p.m.
5:35:36 PM
VICE CHAIR DAHLSTROM brought the meeting back to order at 5:35
p.m.
5:36:08 PM
ADJOURNMENT
There being no further business before the committee, the House
Judiciary Standing Committee meeting was adjourned at 5:36 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| 1. Alaska Cruise Assoc v. Galvin, Complaint.pdf |
HJUD 9/22/2009 2:00:00 PM |
|
| 10. Applicable Alaska Statutes.pdf |
HJUD 9/22/2009 2:00:00 PM |
|
| 2. ACA Presentation to legislature 8.18.09.pdf |
HJUD 9/22/2009 2:00:00 PM |
|
| 3. Bullock legal opinion 9.4.09.pdf |
HJUD 9/22/2009 2:00:00 PM |
|
| 4. Bridgeport and Port Jefferson Steamboat Co. v. Bridgeport Port Authority.pdf |
HJUD 9/22/2009 2:00:00 PM |
|
| 5. High Country Adventures v. Polk County.pdf |
HJUD 9/22/2009 2:00:00 PM |
|
| 6. Polar Tankers v. City of Valdez.pdf |
HJUD 9/22/2009 2:00:00 PM |
|
| 7. US Constitution.pdf |
HJUD 9/22/2009 2:00:00 PM |
|
| 8. Applicable U.S.C.pdf |
HJUD 9/22/2009 2:00:00 PM |
|
| 9. Applicable Rules of Fed Procedure.pdf |
HJUD 9/22/2009 2:00:00 PM |
|
| ResponsibleCruisingin AK.pdf |
HJUD 9/22/2009 2:00:00 PM |