Legislature(1997 - 1998)
02/12/1997 01:06 PM House TRA
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE TRANSPORTATION STANDING COMMITTEE
February 12, 1997
1:06 p.m.
MEMBERS PRESENT
Representative Bill Williams, Chairman
Representative Beverly Masek, Vice Chairman
Representative John Cowdery
Representative Bill Hudson
Representative Jerry Sanders
Representative Kim Elton
MEMBERS ABSENT
Representative Al Kookesh
COMMITTEE CALENDAR
*HOUSE BILL NO. 63
"An Act extending the motor fuel tax exemption for fuel sold for
use in jet propulsion aircraft to fuel used in those aircraft for
flights that continue from a foreign country; and providing for an
effective date."
- HEARD AND HELD
(* First public hearing)
PREVIOUS ACTION
BILL: HB 63
SHORT TITLE: AVIATION FUEL TAX EXEMPTION
SPONSOR(S): REPRESENTATIVE(S) THERRIAULT,Davies,Kelly,Brice
01/13/97 48 (H) READ THE FIRST TIME - REFERRAL(S)
01/13/97 48 (H) TRANSPORTATION, FINANCE
01/22/97 126 (H) COSPONSOR(S): DAVIES
02/12/97 (H) TRA AT 1:00 PM CAPITOL 17
02/12/97 325 (H) COSPONSOR(S): KELLY
WITNESS REGISTER
REPRESENTATIVE GENE THERRIAULT
Alaska State Legislature
Capitol Building, Room 511
Juneau, Alaska 99802
Telephone: (907) 465-4797
POSITION STATEMENT: Sponsor testimony on HB 63
KURT PARKAN, Deputy Commissioner
Department of Transportation and Public Facilities
3132 Channel Drive
Juneau, Alaska 99801
Telephone: (907) 465 6977
POSITION STATEMENT: Testified in support of HB 63
BOB BARTHOLOMEW, Deputy Director
Income and Excise Audit Division
Department of Revenue
P.O. Box 110420
Juneau, Alaska 99802
Telephone: (907) 465-2320
POSITION STATEMENT: Testified on HB 63
JEFF COOK, Vice President
External Affairs and Administration
Mapco
1150 High Lane
North Pole, Alaska 99705
Telephone: (907) 488-2741
POSITION STATEMENT: Testified in favor of HB 63
KIM ROSS, Director
Alaska Air Carriers Association
1117 E.35th Street
Suite 102
Anchorage, Alaska 99508
Telephone: (907) 277-0071
POSITION STATEMENT: Testified against HB 63
ACTION NARRATIVE
TAPE 97-6, SIDE A
Number 001
CHAIRMAN BILL WILLIAMS called the House Transportation Standing
Committee to order at 1:06 p.m. Members present at the call to
order were Representatives Williams, Masek, Cowdery, Hudson,
Sanders and Elton. Representative Kookesh was absent.
HB 63 - AVIATION FUEL TAX EXEMPTION
Number 058
CHAIRMAN WILLIAMS stated that HB 63 is, "An Act extending the motor
fuel tax exemption for fuel sold for use in jet propulsion aircraft
to fuel used in those aircraft for flights that continue from a
foreign country; and providing for an effective date." He stated
that he was considering adding a possible amendment and asked the
sponsor, Representative Therriault explain the bill.
Number 109
REPRESENTATIVE GENE THERRIAULT stated HB 63 would lift the 3.2 cent
tax that is collected from instate refiners for jet fuel that is
used on inbound foreign flights into the U.S. territory. He
stated, "So the flights that originate from a foreign location,
touched down in Anchorage or Fairbanks and then continue on to
domestic or foreign locations." He stated that HB 63 extends the
motor fuel tax exemption to include fuel used in aircraft for
flights that continue from a foreign country. He stated that
currently the state of Alaska provides a tax exemption for fuel
used only in flights to foreign countries. He stated that federal
law preempts state taxation of imported aviation fuel, transported
through the Foreign Trade Zone (FTZ) for use in aircrafts during
all foreign flights. He stated, "The federal definition of foreign
flights includes flights originating from and flights continuing to
a foreign country. As a result the jet fuel produced in Alaska is
taxed 3.2 cents per gallon more than similar fuel produced at
foreign refineries." He stated that two tankers filled with 20
million gallons of tax exempt foreign fuel were brought into Alaska
in 1995 and last year just under 38 million gallons were imported
through the FTZ. He stated that without new legislation it is
anticipated that the practice of using the FTZ to import, will
increase as airlines move to purchase tax exempt fuel for use.
Representative Therriault stated that HB 63 is needed to provide a
level playing field to Alaska's producers, by allowing the tax
exemption for all fuel used in foreign flights.
Number 290
REPRESENTATIVE THERRIAULT stated that last year the Administration
was opposed to the legislation, however, the governor announced a
switch in position this year. He stated, "That switch in position
came after traveling in the Pacific Rim countries and hearing from
a number of the carriers that the tax that was imposed on the jet
fuel, produced in the state of Alaska was a deterrent to running
more operations through the state of Alaska." He stated that the
administration looked into whether the FTZ exemption could be
closed off, however, the commissioner of the Department of
Transportation and Public Facilities did not think that could be a
possibility. He stated that the situation is, the fuel that is
produced at the instate refineries have to pay the tax, while fuel
that is imported from foreign destinations is not subject to the
the tax resulting in the shifting of Alaska's economy to off shore
locations. He stated that the unfairness of a tax that puts
Alaska's production at a disadvantage needs to be considered and
dealt with.
Number 417
REPRESENTATIVE THERRIAULT stated he would like the committee to
consider adding bunker fuel sales to the legislation. He stated
there is a statement from the Department of Revenue, Income and
Excise Audit Division, that indicates the number of Bunker Fuel
that is sold in the state. He stated that there was legislation
that passed that was designed to be revenue neutral and once Alaska
passed 400,100,000 gallons of sales from marine bunker fuel in the
state of Alaska, the tax would go away. He stated that this
threshold was only met and surpassed in 1995, and since the sales
of marine bunker fuel in Alaska has dropped from over 4 million
gallons to less then 100 gallons. He stated that we tax the marine
bunker fuel and then the cruise ships and other marine vessels get
fuel in Canada or Seattle, were the fuel is not taxed, putting
Alaskan industry at a disadvantage. He stated that he would like
the committee to remove the tax.
Number 570
REPRESENTATIVE JOHN COWDERY asked what the benefit is to stopping
in Anchorage and in Fairbanks.
Number 580
REPRESENTATIVE THERRIAULT stated that there is geographic benefit
but all of the air carriers have to be sensitive to the price of
fuel that they consume, a change of a penny can result in a lot of
money to the air carriers. He stated that locations in British
Columbia are trying to attract some of the refueling business from
Alaska through a price advantage.
Number 643
REPRESENTATIVE COWDERY asked if HB 63 only pertains to foreign
companies whose flights originate in foreign countries but stop in
Alaska.
Number 664
REPRESENTATIVE THERRIAULT stated that the tax exemption for the
fuel that is brought in through the Foreign Trade Zone is for any
flight that originates or is destined to a foreign airport,
however, the state tax exemption is only for outbound flights. He
stated that Alaska currently taxes the inbound flights, therefore,
if we want to sell an Alaskan produced product it has to be taxed,
a foreign source is not.
Number 736
REPRESENTATIVE THERRIAULT stated that he argued against the fiscal
note last year because it showed a loss if $3.5 million. He stated
that he felt Alaska would lose this tax anyway because the airlines
are going to seek out the lowest source of fuel resulting in an
erosion of the tax revenue. He stated that the fiscal note
attached to HB 63 shows an increase in the FTZ fuel.
Number 752
REPRESENTATIVE COWDERY asked who is the largest supplier of jet
fuel.
Number 762
REPRESENTATIVE THERRIAULT responded that Department of Revenue
might be able to answer that.
Number 805
CHAIRMAN WILLIAMS asked how the other areas, Miami, New York, San
Francisco, Los Angeles or Seattle are handling the tax exemption.
Number 849
REPRESENTATIVE THERRIAULT stated that number of other states have
taken similar action because of the importation of tax free fuel
through a FTZ. He stated that Tennessee has eliminated the tax.
Number 893
REPRESENTATIVE JERRY SANDERS asked what the money being taken in as
taxes is being spent on.
Number 905
REPRESENTATIVE THERRIAULT stated that it goes into the general
fund. He stated that he believed the current amount to be $4
million.
Number 925
REPRESENTATIVE SANDERS stated, "What scares me is we trying to cut
$60 million dollars out, if we pass this bill do we have to cut $64
million out to accomplish the same thing."
Number 938
REPRESENTATIVE THERRIAULT replied that is correct. He stated that
he is working on a way that it can be revenue neutral and it is a
problem that has to be dealt with.
Number 965
REPRESENTATIVE COWDERY asked if the other states that have
eliminated the tax are located in a strategic geographic location.
Number 1020
REPRESENTATIVE THERRIAULT responded that Alaska has the distinct
advantage that its location can not be duplicated very easily. He
stated that Federal Express decided to locate in Tennessee because
of strategic location, but would be able to find another area quite
easily. He stated that carriers that felt they had to use Alaska
for their fuel due to the timing of their flights, will want to
import the tax free fuel.
Number 1099
KURT PARKAN, Deputy Commissioner, Department of Transportation and
Public Facilities (DOT/PF), stated that the administration supports
HB 63. He stated that HB 63 will remove the competitive
disadvantage that currently exists with regard to foreign fuel. He
stated that the location of Anchorage and Fairbanks is important
and growth in the cargo industry is fairly rapid yet yields are
dropping significantly to those cargo carriers. He stated that a
penny does make a difference, Vancouver, Seattle and Portland are
trying to take the our business as well as intercept new business
that we are trying to attract. He stated that it is competitive
amongst the airports, and we are in a good position to increase our
cargo. He stated that HB 63 will help sell Alaska as a good place
for the cargo industry to do business.
Number 1243
MR. PARKAN stated that last year there was a concern with the bill.
He stated that the DOT/PF thought eliminating the FTZ tax exemption
provision resulting in a tax for all would be the solution,
however, the DOT/PF learned that this was problematic. He stated
that in addition, it was not possible to stop carriers from using
bonded warehouses to bring in bonded fuel.
Number 1336
MR. PARKAN stated that the money that comes into the general fund
by the fuel tax does not affect the DOT/PF's budget. He stated
that they have program receipts tied to revenue that is generated
from leases and fees from the airports, in particular the rural
airports, which amounts to $2.8 million a year. He stated that the
costs of operating the rural airports is about $20 million a year.
He stated that the international airports operate in an enterprise
fund, they generate the revenue internally and the money is fed
back into the operations. He stated that an increase in revenues
at the international airports would go back and reduce landing
fees, resulting in a net zero process in international airport
operation.
Number 1433
CHAIRMAN WILLIAMS asked how HB 63 will affect the rural areas and
should they be concerned.
Number 1470
MR. PARKAN stated that the rural airports should not be concerned
in relation to HB 63. He stated that they should be concerned as
it relates to the general state of affairs, reducing budgets will
affect the rural airports but there is no link between HB 63 and
the rural airports. He stated that the DOT/PF has no plans, as a
result, of HB 63 to raise landing fees. He stated that the
legislature passed a bill a few years ago regarding an increase in
fuel tax with a provision that stated landing fees can not be
charged for a period of five years. He stated that the DOT/PF is
not interested in raising any fees as a result of HB 63.
Number 1543
CHAIRMAN WILLIAMS asked how the DOT/PF will make up in the loss of
revenue.
Number 1470
MR. PARKAN replied that there are benefits to HB 63 such as
encouring expansion of instate refinery work.
Number 1617
REPRESENTATIVE THERRIAULT stated that the members should refer to
the fiscal note attached to HB 63 which states the estimated impact
to be a loss of $2.8 million. He stated last year's fiscal note
was for $3.7 million, therefore, in a year there has already been
a loss of roughly $1 million. He stated that the airport revenues
are going down anyway without HB 63. He stated there would be
extra revenue created by landing fees, "if the fees stayed flat but
we have ten more flights per week there would be extra revenue
generated."
Number 1679
MR. PARKAN stated, "We are not proposing to increase landing fees
at the international airports, we not proposing to implement
landing fees which do not currently exist at the rural airports."
Number 1704
CHAIRMAN WILLIAMS asked, "What about the airport leasing."
Number 1709
MR. PARKAN replied that the DOT/PF is looking at increasing revenue
in certain areas, such as tie down fees that are not being charged
at the rural airports.
Number 1734
REPRESENTATIVE COWDERY asked if he could explain his interpretation
of the word foreign and should HB 63 further define "foreign."
Number 1756
MR. PARKAN replied he could not answer that but in terms of which
carriers are paying the tax, which direction they are flying and
when they are not paying the tax, is fairly clear.
Number 1775
REPRESENTATIVE COWDERY asked that Korean Airlines is definitely a
foreign airline, but Northwest has flights that could originate in
a foreign country but does not always so how is the tax determined.
Number 1790
MR. PARKAN replied the tax is charged to the carrier based on where
they are flying not whether or not they are a foreign or domestic
carrier. He stated that Alaska's biggest cargo air carriers are
domestic and they are paying the tax.
Number 1812
REPRESENTATIVE COWDERY asked, "They would not get the same benefits
as the foreign."
Number 1825
MR. PARKAN replied that they would. He stated that if they are
currently paying the tax and would be exempted under HB 63, it does
not matter if they are Federal Express or Korean Airlines, they
would both benefit.
Number 1836
REPRESENTATIVE COWDERY asked who are the beneficiaries if HB 63 is
passed.
Number 1846
MR. PARKAN replied that Korean Airlines, China Air, Federal
Express, UPS, Northwest, Japan Airlines, United Airlines, Air
France, Luftansa and others.
Number 1874
REPRESENTATIVE COWDERY asked what other companies would benefit
from the tax exemption.
Number 1884
MR. PARKAN replied that besides the carriers, hopefully the instate
processors will benefit in terms of expanding their production,
increasing jobs, and by giving local producers business.
Number 1904
REPRESENTATIVE COWDERY asked if the local producers are Mapco
and Tesoro.
MR. PARKAN replied that Mapco, Tesoro and Petro Star are the ones
that come to mind.
Number 1933
REPRESENTATIVE COWDERY asked what would we lose if HB 63 did not
pass.
Number 1944
MR. PARKAN replied that we would continue to lose market share from
instate producers to foreign producers. He stated that fuel is
coming in from the FTZ and the bonded warehouses and we would not
be giving the message we want to the international cargo market.
Number 1992
REPRESENTATIVE BILL HUDSON stated that he sees this as an equity
issue, as we are trying to offset $2.8 million in potential tax
receipts which will become less as the foreign producers over
compete with the local refineries. He asked what the value is to
Alaska by not paying the 3.2 cent tax at the present time. He
asked is there a defined value by having more people come through
the airports.
Number 2033
MR. PARKAN replied that Anchorage International Airport provides
about 9 percent of the total jobs in Anchorage. He stated that
there is great potential for more jobs as a result of cargo hubbing
and logistics. He stated that Alaska has several third party
investors that are looking to develop cargo hubbing warehouses. He
stated that if we can further encourage the air cargo carriers, by
reducing the tax, Alaska will have a better advantage to keep and
attract business. He stated that as the international airports get
more traffic the cost of landing fees will be reduced and all
airports will benefit as a result of this.
Number 2175
REPRESENTATIVE HUDSON stated then this should reduce the cost of
flights to the villages. He stated that the quantity or volume of
production has some bearing to the cost of production, and in turn
some benefit to Alaskans at the gas pump. He stated that if Mapco
and Tesoro is able to refine more than perhaps the cost to Alaskans
will be reduced.
Number 2222
REPRESENTATIVE THERRIAULT replied that the local refineries are
serving local markets and every gallon of product going out of the
refinery has a fixed cost attached to it and if the number of
gallons that are going out are increased then each gallon will cost
less. He stated that the fixed cost of gasoline will spread.
Number 2260
REPRESENTATIVE BEVERLY MASEK stated on Page 6 under jet fuel
revenues, it says if "The legislature decides to continue a foreign
flight exemption the term foreign clearly defined in statute...",
she asked is that in HB 63.
Number 2286
REPRESENTATIVE THERRIAULT stated that it is not in HB 63 because
the definition that has caused the problem is a federal definition
of what a foreign flight is and has triggered the loss to the tax
revenue. He stated that the legislature can not do anything in the
statute to fix the federal definition problem.
Number 2307
REPRESENTATIVE SANDERS asked that the problem is not with changing
routes but with the duty free fuel.
Number 2339
MR. PARKAN stated that there are new carriers that are expressing
an interest in coming to Alaska, so no one is changing routes as a
result of the fuel tax at this point, but clearly it does effect
the bottom line of carriers that would do business in Alaska.
Number 2369
REPRESENTATIVE SANDERS asked if the FTZ provides nothing to offset
the money lost through the tax.
Number 2385
MR. PARKAN stated that in terms of actual dollars there is no
benefit to the FTZ, but it encourages value added processing. He
stated that the fuel benefit was not anticipated when Alaska went
into the FTZ business.
Number 2446
BOB BARTHOLOMEW, Deputy Director, Income and Excise Audit Division,
Department of Revenue, stated that he was here to answer any
questions.
Number 2446
REPRESENTATIVE COWDERY asked if the Department of Revenue has a
definition of the word foreign.
Number 2459
MR. BARTHOLOMEW replied that under the state Motor Tax Law there is
a clear definition of "foreign" and there has not been problems
with who is subject to a tax and who is not. He stated that in tax
laws, "foreign" is defined by destination, the confusion occurs in
the federal commerce laws and in who qualifies for FTZ activities.
He stated that from a state tax prospective definitions of
"foreign" do not need to be changed.
TAPE 97-6, SIDE B
Number 032
REPRESENTATIVE HUDSON asked if there were any tax mechanisms on
imported fuel in the state of Alaska.
Number 049
MR. BARTHOLOMEW stated the problem is Alaska does have the
authority to tax imported fuel, whether it is domestic or foreign
but the federal government has developed special clauses under the
U.S. Constitution in which customs, bonded warehouses, and the FTZ
came into being which superceeds any state jurisdiction to levy a
tax or a fee.
Number 073
REPRESENTATIVE HUDSON asked if there could be a potential tax on
imported fuel before it comes into the FTZ.
Number 087
MR. BARTHOLOMEW replied that we can not tax until they come into
Alaska's jurisdiction, which is in the FTZ.
Number 108
REPRESENTATIVE HUDSON asked if there was any corporate income tax
from those who operate in our airports.
Number 127
MR. BARTHOLOMEW replied that there is a corporate income tax based
on net income for any business that transacts business in Alaska.
He stated that any registered taxable corporation is subject to the
corporate income tax.
Number 133
REPRESENTATIVE HUDSON stated that it is a factor that we can
adjust, in that we establish what the corporate taxation rate will
be. He asked if there is a separate rate for carriers that are
operating at the airport as opposed to any other corporation in the
state.
Number 146
MR. BARTHOLOMEW replied that at this time the state of Alaska
charges a tiered corporate rate that is applied to all business'
and that he is not sure what the rules are for taxing differently.
Number 159
REPRESENTATIVE SANDERS stated that he knows there is a definite
benefit for the ships to come into the port of Anchorage, and asked
if the port of Anchorage could have a port tax to offset this to
the point were we could keep the tax.
MR. BARTHOLOMEW replied that he did not know what authorities the
ports would have for fees and charges.
Number 193
REPRESENTATIVE THERRIAULT responded that if the municipalities put
an increase fuel flowage fee, it would be a revenue to Anchorage
and unless they bequeathed a certain amount of money every year to
the general fund, he did not know how they would link the two
together.
Number 216
REPRESENTATIVE HUDSON asked if we have any understanding of what
the comparative tax mechanisms are at other airports.
Number 231
MR. BARTHOLOMEW stated that there is a diverse set of fees and
taxes charged at every airport. He stated that the first thing to
look at would be the landing fees, land rents, the local and state
taxes. He stated that he has not seen a comparison of the total
cost of doing business at airports.
Number 272
REPRESENTATIVE HUDSON asked if it was possible if he could pull
together a comparison to another airport to see how Alaska's policy
is through the competition.
Number 293
MR. BARTHOLOMEW replied that he would have to defer to the
Department of Transportation and Public Facilities.
Number 311
MR. PARKAN stated that the DOT/PF had tried to do a similar
analysis and ran into problems but will try to bring in something
to the next meeting.
Number 328
JEFF COOK, Vice President, External Affairs and Administration,
Mapco, based at the North Pole refinery. He stated that he has
worked for Mapco for two years. He stated that Mapco is twenty
years old and was purchased the trans-Alaskan refinery in 1981. He
stated that there are 450 employed by Mapco with 100 percent local
hire rate.
Number 393
MR. COOK stated that we have clearly seen the shift to FTZ fuel and
the Mapco jet fuel customers have made it clear that they are going
to continue to buy FTZ fuel. He stated that we are losing sales
through the FTZ and even if we could remove the FTZ it would still
allow the carriers to use bonded fuel.
Number 454
MR. COOK stated that Alaska consumes between 51,000 and 55,000
barrels of jet fuel, each barrel contains 42 gallons. He stated
that Anchorage airport consumes 42,000 barrels a day of that total.
He stated that Federal Express is located in Tennessee and the
Memphis airport consumes 18,000 barrels of jet fuel a day. He
stated that the instate refineries do not have the capacity to
refine the fuel demand and are about 10,000 barrels short a day.
He stated that we have always had to import a certain amount and
until the FTZ it was always West Coast refined jet fuel which would
import North Slope crude oil. He stated that in order to have a
contract with a carrier Mapco needs to be able to meet all there
fuel needs and as a result has to sometimes import FTZ fuel. He
stated that there needs to be an incentive to expand the production
of the refineries. He stated that the expansions are multi-million
dollar projects and a penny can mean three million dollars.
Number 576
MR. COOK stated that this tax is going away anyway. He stated that
the benefits from increasing Alaska's international air traffic are
increased fuel flowage fees, landing fees through usage, corporate
taxes, and additional jobs. He stated that Mapco is the largest
shipper of the railroad in that they provide $21 million in revenue
to the railroad, therefore if fuel is imported, the Alaska Railroad
is penalized as well. He stated that there needs to be an
incentive to bring in Alaskan fuel. He stated that Alaska would
benefit with added production and increased demand for Alaska crude
oil. He stated there would be a potential for added jobs by all
corporations who are paying corporate taxes.
Number 770
REPRESENTATIVE THERRIAULT asked, "With regard to the cost of your
crude, and through the refinery is royalty oil through the state,
and I just remember back in the mid 1980s, when I was involved in
negotiation of the contract and the price that you were paying was,
I think you actually paid a slight premium, that contract I think
is expired and I am not sure what your current price...."
Number 800
MR. COOK replied that there is a market based contract with the
state and it goes to 2003 and it looks to market references and the
state negotiated those contracts to make sure Alaska is getting
full value.
Number 828
REPRESENTATIVE COWDERY asked if Mapco is profitable.
MR. COOK replied, "We make money, if we didn't we wouldn't be
here."
Number 838
REPRESENTATIVE COWDERY asked what is the price of the gas in
Anchorage and Fairbanks.
Number 859
MR. COOK stated that the price is less in Anchorage than in
Fairbanks.
REPRESENTATIVE COWDERY asked why that was.
MR. COOK stated that Anchorage has competitors and Fairbanks does
not. He stated, "We have a refinery that has a fixed production,
whether we run the maximum of 135,000 barrels a day through there,
which we retain 44 or 45 or whether we run nothing there are
certain fixed costs that are there. So if we could sell in a
market and make less than we could to justify selling our whole
production at that and stay in business we have benefitted
everybody." He stated that Mapco is sensitive to local markets and
trys to be fair to the consumers.
Number 918
REPRESENTATIVE COWDERY asked if his understanding was correct in
that the price to the public is based on the competition or the
alternative supply.
MR. COOK stated it is a market value.
Number 992
REPRESENTATIVE COWDERY asked if could Mapco adjust their prices to
take up the slack from the tax.
Number 1039
MR. COOK stated that they do not pay the tax the carriers do. He
stated that Mapco is not going to be able to increase the price by
the 3.2 cents. He stated that we want to maintain and hopefully
increase volumes. He stated that we either lose the business or we
have to absorb it and it would not be fair for instate refiners to
have to absorb that cost.
Number 1083
REPRESENTATIVE COWDERY stated that instate refineries are going to
be the beneficiaries of the tax exemption in a larger volume of
sales.
Number 1113
REPRESENTATIVE HUDSON asked if Mapco had expansion plans at the
current time to provide the added capacity.
Number 1128
MR. COOK stated that Mapco does not have specific plans but HB 63
is key to the expansion.
Number 1209
REPRESENTATIVE SANDERS asked if HB 63 is passed can't the foreign
refiners drop their price by a penny resulting in Alaska being no
better off than it is now.
Number 1247
MR. COOK replied that a 3.2 cent advantage is a big advantage plus
there are a lot of other factors that the foreign carriers have to
comply with. He stated that there are other costs and he thinks
that the instate refiners will still have the advantage.
Number 1339
KIM ROSS, Director, Alaska Air Carriers Association, testified via
teleconference from Anchorage, that she had been director of the
association for ten years. She stated that the association
represents 110 air carriers and air service suppliers, serving
Alaska. She stated that the views expressed in the association's
February 28, 1996, letter remain valid today. She stated that a
tax policy decision should be based on accurate facts and sound
analysis, and that has yet to be done. She stated that the fuel
tax exemption would create an un-level playing field for carrier
competing for cargo at Anchorage airport. Ms. Ross stated,
"Carriers that happen to be continuing from a foreign airport,
picking up new cargo at Anchorage and carrying it on to Memphis or
Los Angeles would get the fuel tax exemption and a competitive
advantage. Carriers that start in Anchorage or that come to
Anchorage from another U.S. airport picking up the same cargo at
Anchorage and carrying it to the same destination in the U.S. would
not receive the fuel tax exemption and that would create a
competitive disadvantage."
Number 1516
MS. ROSS stated that federal law does exempt FTZ or bonded fuel
from the Alaska tax of 3.2 cents, the Department of Revenue should
be collecting that tax. She stated that no one has refuted the
association's analysis on this point.
Number 1582
MS. ROSS stated that there are options to fix the perceived problem
at the boundaries of the FTZ. She stated that a substantial amount
of the foreign fuel is being imported by Alaskan refineries because
they can not compete but at the same time there are enjoying record
production volume, sales volume, margins and profit. She stated
that Anchorage has record cargo growth without the jet fuel tax
exemption, it grew over 13 percent in 1996. She stated that the
tax exemption would cost between four and five million dollars
which are funds that are for the rural airports' maintenance and
operations budget.
Number 1704
MS. ROSS stated that the rural airports budget total is $19.3
million dollars, revenue from the DOT/PF is about $2.5 million,
aviation fuel revenues are $8.5 million, which leaves a short fall
of $8.3 million in 1995. She stated that the DOT/PF projects a 40
percent to 50 percent decrease in fuel tax revenue if HB 63 passes,
which equates to 25 percent of the entire maintenance and
operations budget for rural airports. She stated that this could
result in a terrible impact on operational safety and a disastrous
impact on the transportation needs of Alaskans. She questioned
where the airport would make up the $4.5 million for airport
operation and maintenance as the rural communities could not afford
a small dent in this short fall.
Number 1858
MS. ROSS stated that the point of increased landing fees from
increased traffic does not make sense because the increased traffic
would be in Anchorage and the law states that landing fees can only
be used to fund Anchorage and Fairbanks and can't be diverted to
rural airports. She stated that the Governor and the legislature
promised not to reinstate landing fees at rural airports and that
fuel taxes were the fairest method to raise revenues for rural
airports. She asked if the rural airports would the effects of the
tax give away.
Number 2070
MS. ROSS stated that the association would like HB 63 to require an
overall transportation funding plan be developed and put into
effect prior to any tax exemption is effective. She stated that
those seeking a tax advantage should be able to provide good
reasons for it. She stated that the lost revenue will be made up
at the rural airports expense and they can't afford it. She asked
what the committee would do to protect the rural airports
interests.
Number 2181
REPRESENTATIVE THERRIAULT stated that he and Representative Hanley
met with a representative from the association this past summer and
asked for a review of their legal arguments by the attorney
general's office and the Department of Revenue. Mr. Hanley
received a letter back stating "I am confident that the conclusions
reached by our staff are correct and that we must continue to
exempt the fuel used in foreign commerce that is run through the
FTZ." He stated that the administration did look into this and
felt assured that their interpretation was right and they
respectfully disagree with the Alaska Air Carriers Association. He
stated "If a link existed between the revenue drive from the fuel
that protected the air carrier from seeing increased landing fees,
the erosion of nearly a million dollars from this year and last
year should cause the association to be concerned because they
should be feeling the pressure of that slack." He stated that
there is no connection between the two it is only through the
budgeting policy that there is any connection between the revenues
that are generated between the fuel tax and the revenues that are
charged from the moorage.
Number 2381
CHAIRMAN WILLIAMS stated to Ms. Ross that he would have some
answers to her letter at the next meeting.
Number 2436
REPRESENTATIVE HUDSON asked if her analysis of the $4.5 million
value of the revenue is derived from subtracting known figures from
the total cost.
Number 2466
MS. ROSS replied that is correct.
TAPE 97-7, SIDE A
Number 014
REPRESENTATIVE HUDSON asked Ms. Ross if there was a policy written
on the total collected taxes and the implications of use at the
various of airports, he would like to see it.
Number 055
CHAIRMAN WILLIAMS stated that HB 63 will be taken up at the next
meeting.
ADJOURNMENT
Number 084
CHAIRMAN WILLIAMS stated that the House Standing Transportation
Committee was adjourned at 2:40 p.m.
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