Legislature(2003 - 2004)
04/23/2003 08:38 AM House W&M
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON WAYS AND MEANS
April 23, 2003
8:38 a.m.
MEMBERS PRESENT
Representative Mike Hawker, Co-Chair
Representative Jim Whitaker, Co-Chair
Representative Vic Kohring
Representative Norman Rokeberg
Representative Bruce Weyhrauch
Representative Peggy Wilson
Representative Carl Moses
MEMBERS ABSENT
Representative Cheryll Heinze
Representative Max Gruenberg
COMMITTEE CALENDAR
HOUSE BILL NO. 271
"An Act levying and providing for the collection and
administration of an excise tax on passenger vehicle rentals;
and providing for an effective date."
- HEARD AND HELD
PREVIOUS ACTION
BILL: HB 271
SHORT TITLE:PASSENGER VEHICLE RENTAL TAX
SPONSOR(S): REPRESENTATIVE(S)KOTT
Jrn-Date Jrn-Page Action
04/15/03 0986 (H) READ THE FIRST TIME -
REFERRALS
04/15/03 0986 (H) W&M, FIN
04/15/03 0986 (H) REFERRED TO WAYS & MEANS
04/22/03 (H) W&M AT 7:00 AM HOUSE FINANCE
519
04/22/03 (H) Heard & Held
MINUTE(W&M)
04/23/03 (H) W&M AT 7:00 AM HOUSE FINANCE
519
WITNESS REGISTER
DAN COFFEE, Part-Owner
Dollar Rent A Car - Anchorage
Anchorage, Alaska
POSITION STATEMENT: Expressed concerns with HB 271.
ANDREW HALCRO, President/CEO
Avis Rent-A-Car - Alaska
Anchorage, Alaska
POSITION STATEMENT: Testified in opposition to HB 271.
ACTION NARRATIVE
TAPE 03-12, SIDE A
Number 0001
CO-CHAIR HAWKER called the House Special Committee on Ways and
Means meeting to order at 8:38 a.m. Representatives Hawker,
Whitaker, Kohring, Rokeberg, Weyhrauch, Wilson, and Moses were
present at the call to order.
HB 271-PASSENGER VEHICLE RENTAL TAX
CO-CHAIR HAWKER announced that the only order of business would
be HOUSE BILL NO. 271, "An Act levying and providing for the
collection and administration of an excise tax on passenger
vehicle rentals; and providing for an effective date."
Number 0058
DAN COFFEE, Part Owner, Dollar Rent A Car - Anchorage, said that
as a small business in Anchorage he is and will always continue
to be willing to do its share to solve the fiscal problem. Mr.
Coffee turned to what one would consider [the car rental
industry's] fair share. In Anchorage, there is a 10 percent
airport fee, a sales tax of 8 percent for a total of 18 percent.
Therefore, an additional 15 percent tax will effectively be a
tax rate of 33 percent, which doesn't take into account the
proposed increase in license fees for vehicles nor does it take
into consideration the proposed tax increases on gasoline. Mr.
Coffee informed the committee that the car rental industry in
Anchorage pays a little over $8 million into the state and local
coffers. Therefore, the [Anchorage rental car] industry already
makes a substantial contribution.
MR. COFFEE said he hoped that the committee would understand the
consequences of this legislation to the industry. He turned to
the fiscal note and related his belief that the costs are
understated and the revenue is overstated. Furthermore, there
is no analysis with regard to what this legislation would do to
business. While there is a certain elasticity, at some time
[these taxes] create marginal effects on business such that
there is a decrease in the total volume of business if the price
continues to increase. There are other alternatives, he
suggested. He commented that he doesn't believe the
consequences of HB 271 are fully appreciated. However, if the
legislature is going to move forward with this proposal, he
expressed the need to not exclude any particular segment of the
industry. He noted that he didn't understand why recreational
vehicles (RVs) had been excluded from this legislation. He
highlighted that the cruise ship industry almost faced a similar
tax, however it was ultimately deemed inappropriate. Therefore,
he surmised that [the car rental industry] is the only industry
left in the barrel. Mr. Coffee said that [the rental car
industry] would like to participate in a way that addresses
these concerns and how a tax would impact the car rental
industry. He mentioned that he didn't understand why this
legislation is on a fast track. He pointed out that HB 271 was
introduced Tuesday and this is its second hearing, and then it's
scheduled in the House Finance Committee on Friday. Mr. Coffee
expressed the desire [for the car rental industry] to have a
better opportunity to present its side of the matter.
Number 0525
CO-CHAIR HAWKER requested that Mr. Coffee explain the airport
surcharge and who benefits from it.
MR. COFFEE explained that the airport surcharge is a 10 percent
surcharge on time and mileage. This surcharge is in addition to
rent and is basically used for various airport facilities.
Every concessionaire, whether a car rental company or gift shop,
signs an agreement with the airport, the airport goes out for a
request for proposals (RFP), and solicits car rental companies.
The solicitation specifies that the company would have to pay 10
percent of its gross revenue to the airport in order to do
business there. Mr. Coffee noted, for reasons unknown to him,
that the off-airport operators also pay 10 percent. In further
response to Co-Chair Hawker, Mr. Coffee said that anyone who
comes through the airport pays the 10 percent tax. He explained
that the reporting responsibility lies with the car rental
company. Those companies with shuttle buses to take individuals
to an off-airport location are required to report that portion
of income that is generated from those individuals who come into
the Ted Stevens Anchorage International Airport (TSAIA) and rent
a car at an off-airport location.
CO-CHAIR HAWKER related his understanding that if he arrives at
TSAIA and takes a shuttle to an off-airport facility, the
airport would assess a 10 percent tax. He questioned what would
happen if he took a taxi and didn't specify that he had come in
from the airport.
MR. COFFEE responded that Co-Chair Hawker wouldn't pay the 10
percent tax in that situation. In further response to Co-Chair
Hawker, Mr. Coffee clarified that the shuttle buses are from
companies that aren't concessionaires. Generally, on-airport
operators don't shuttle customers.
CO-CHAIR HAWKER asked if such an airport surcharge exists
elsewhere in the nation.
MR. COFFEE specified that the rates vary, but the fact of
charging a percentage of time and mileage is a universal
practice in all the areas with which he is familiar.
CO-CHAIR HAWKER asked if the off-airport rental charge is
typical.
MR. COFFEE answered that it wasn't [charged] in Alaska seven
years ago. When it was reviewed at that time, the off-airport
rental charge was [sporadic]. Typically, other locations charge
a per passenger or per trip shuttle bus fee and that usually
isn't charged as a percentage of time and mileage for off-
airport operators.
CO-CHAIR HAWKER related that his research indicates that at
least 16 airports in the U.S. now charge the off-airport rental
fees at rates varying form 4-10 percent.
MR. COFFEE agreed that it isn't uncommon.
Number 1044
REPRESENTATIVE KOHRING expressed concern about this tax for the
same reasons Mr. Coffee has mentioned. Furthermore, he wasn't
sure why this tax is being promoted because there doesn't seem
to be a compelling reason for the tax other than the need for
revenue. He expressed concern that this tax could create a
disincentive for tourists.
MR. COFFEE specified that his concern is in regard to the
independent traveler, who is his customer. The cruise ship
travelers aren't really customers [of the car rental industry].
He informed the committee that the growth of the independent
traveler has been either flat or negative. For example, [Ted
Stevens Anchorage International Airport's] revenue from car
rentals in the first three months of this year is down almost
$600,000, although that decline can be attributed to various
things. Imposing this type of tax would mean those in Anchorage
would pay 33 percent in taxes and fees. He noted that if the
airport fee was taken out, the fee in Anchorage would be 23
percent, which is the same as what is paid in Massachusetts, the
fourth highest in the country. Therefore, Alaska would be the
highest or fourth highest depending upon how the taxes are
defined. Therefore, Mr. Coffee was worried about the
consequences for the business because, as mentioned earlier, the
[rental car industry] has suffered a substantial reduction in
the type of travelers who rent cars. Therefore, he was fearful
this tax will result in a marginal decline and ultimately have a
very negative impact at some point. Furthermore, Mr. Coffee was
concerned that this will burden Alaska business travelers
substantially, which will have a negative impact on business
travel. Mr. Coffee opined that no one has a handle on the
potential impact of this tax, and therefore he expressed the
need to have a handle on it before implementing the tax.
Number 1349
ANDREW HALCRO, President/CEO, Avis Rent-A-Car - Alaska, informed
the committee that Avis rents cars in nine communities in
Alaska. He announced that he opposes HB 271. As a former
legislator, Mr. Halcro expressed great concern with regard to
the handling of this legislation. Mr. Halcro explained that
every rental car company in Alaska, with the exception of Hertz,
is a small locally owned operation.
MR. HALCRO turned to what rental customers pay the State of
Alaska. As Mr. Coffee mentioned, those renting cars at TSAIA
pay a 10 percent airport concession fee, which is based on the
amount of business the company does and that fee is passed on to
customers. Three years ago the citizens of Anchorage voted to
implement an additional 8 percent car rental tax. Therefore,
Anchorage is the only city in the U.S. with a car rental tax and
no retail sales tax. Mr. Halcro said, "Meaning that it's the
only city to single-handedly single out an industry for taxation
when the rest of the citizens are not paying anything."
Currently, rental car customers in Anchorage are paying 18
percent. Additionally, the car rental industry paid over
$200,000 last year in parking spaces alone at TSAIA. The total
car rental industry contribution to the Department of
Transportation & Public Facilities amounted to $3.7 million. He
reviewed the total fees in various cities throughout Alaska and
those fees ranged from 9.5 percent to 15 percent. Therefore,
with the proposal in HB 271 customers in the following
communities will pay the following fees: Anchorage - 33
percent; Fairbanks - 24 percent; Kenai - 30 percent; Juneau - 30
percent; Sitka - 24 percent; Skagway - 19 percent; Petersburg -
21 percent.
MR. HALCRO turned to a document in the committee packet
entitled, "Rental Car Tax, State-by-State Comparison." If
Alaska passed a 15 percent car rental tax, Alaska would be
highest in the nation. Currently, the highest rental car tax is
11.5 percent in Maryland. Mr. Halcro interpreted the sponsor of
HB 271 as proposing that Alaska's rental car tax go from 0 to 15
percent. Additionally, Mr. Halcro said that the information
provided isn't correct because the local sales tax column only
goes up to 6 percent; customers in Anchorage are paying 8
percent. Mr. Halcro returned to what the rental car industry
contributes to Alaska and informed the committee that last year
Avis Rent-A-Car - Alaska spent $140,000 registering vehicles.
In Anchorage alone, Avis Rent-A-Car purchased 125,000 gallons of
gas, which doesn't included gas that customers purchased at
stations throughout the state.
MR. HALCRO said that he would now address the industry outlook.
As Mr. Coffee mentioned, the rental car industry is going
through some difficult times. For instance, there was a slow
down after [the terrorist attacks of September 11, 2001],
although he characterized it as okay. However, this summer [the
down turn] is about the economy and the fact that people aren't
traveling because they are worried about the economy. He
informed the committee that business was down 11 percent in
February at TSAIA. Furthermore, Mr. Halcro related that fewer
people are getting off airplanes and renting cars. The
aforementioned seems to be supported by the information included
in the committee packet. The committee packet includes a
summary report of the 2002 travel industry season from the
Alaska Travel Industry Association. Page 10 of the report shows
the progression of passenger travel and the trend over the past
10 years. From that, one can see that by the end of 2002, more
cruise ship passengers were projected than those getting off
domestic air flights. People who depart from cruise ships don't
rent cars. However, those that rent cars also stay at bed and
breakfasts, visit gift shops, and spend money. Over the last 10
years the lack of the state's inability to make a strong
commitment to marketing tourism, independent travelers are being
replaced by cruise ship passengers.
Number 2155
MR. HALCRO noted that he has been traveling to his shops
throughout the state and the outlook in each community is not
good for the summer tourism season. For instance, in Petersburg
the tourism industry is under much stress. At one of most
critical times in the tourism industry, this legislation
proposes implementing a tax on the industry; a tax that would
make Alaska the highest taxed [rental car industry] in the
country. Mr. Halcro expressed frustration because taking 15
percent out of the car rental industry hurts the industry while
nothing is being done to stimulate business or get more
customers in the airports and off planes. Therefore, $7.5
million is being taken out of an industry and it still doesn't
solve the fiscal gap. Mr. Halcro said he assumes that this
exercise is to generate revenue to fill the fiscal gap. He
recalled that the discussion regarding not "nickeling and
diming" individual Alaskan industries was had a year ago. Now,
HB 271 was introduced last week and no one in the industry was
contacted or counseled. In response to Co-Chair Hawker's
directive to speak only to the merits of the legislation, Mr.
Halcro emphasized that the merits of the legislation go hand-in-
hand with the process. This legislation wasn't given adequate
committee referrals, he said.
Number 2451
MR. HALCRO turned to the intent of HB 271. If the intent of HB
271 is to obtain a contribution from those who use state
service, why was the recreational vehicle exempted yesterday.
This is a matter of fairness. Mr. Halcro pointed out that this
hearing was scheduled at 7:00 a.m. and the legislation is
already scheduled in the House Finance Committee on Friday. He
expressed the hope that he would be given the ability to raise
questions during the public process, although he also mentioned
that this bill is on the fast track. In closing, Mr. Halcro
suggested that HB 271 be placed in a subcommittee and the car
rental industry allowed to participate. He opined that HB 271,
poorly thought out legislation, is being rushed. This
legislation has the possibility to hurt an industry that's
struggling. He concluded by noting that he heard Representative
Heinze explain that the cruise ship head tax was killed because
of her concerns regarding the impacts to the cruise ship
industry.
Number 2736
CO-CHAIR HAWKER announced that legislation in other committees
will not be discussed in this committee when HB 271 is before
this committee. Co-Chair Hawker related his understanding that
part of the intent of HB 271 is to use money to stimulate
tourism through marketing. As mentioned earlier, one of the
largest problems of the car rental industry is the potential
decline in tourism traffic this summer. He asked, "Is there a
reasonable connection ... between looking at those that would
benefit from additional tourism in some way contributing to the
cost of the state soliciting those tourists."
MR. HALCRO replied, "You're absolutely correct." The problem
with the tourism industry in Alaska is that it has no way to pay
for itself. Other states have a state sales tax and those
proceeds return to the state to generate revenue to market the
state, which is what Alaska should be doing. The aforementioned
isn't accomplished by choosing one industry and burdening it
with a 15 percent tax. This legislation should be amended to be
a 2-3 percent statewide sales tax so that everyone contributes
and there would be revenue to advertise and market Alaska. One
can clearly see the trend that more people are coming to Alaska
on cruise ships rather than planes. Such a trend does nothing
for the car rental industry or a whole host of other industries
in the state. Mr. Halcro said, "If you're looking to solve the
problem, if you're truly looking to generate revenue to pay for
the necessary investment in tourism marketing, then I would
suggest to you that taking 15 percent out of one industry is not
the appropriate way to do it. Rather, spread the burden around
everybody that benefits."
Number 2930
REPRESENTATIVE ROKEBERG asked if Mr. Halcro has had the
opportunity to review the number of bills relating to revenue
enhancement that will impact the car rental industry.
Specifically, he asked if Mr. Halcro has analyzed the potential
sales tax cost in combination with the motor fuel tax increases
and vehicle registration fee increases in order to determine the
bottom line impact as well as the industry's contribution to the
state coffers.
MR. HALCRO replied, yes. He said that part of his frustration
is that the car rental industry is under siege. For instance,
yesterday the House Finance Committee passed legislation that
increased the Division of Motor Vehicle (DMV) fees. Mr. Halcro
said that Governor Murkowski is his governor and what does he
have to show for it: a proposed increase in DMV fees; a propose
increase in the gas tax; a proposed fee increase on tires; and
now a proposed 15 percent rental car tax. In further response
to Representative Rokeberg, Mr. Halcro related that the impact
on his company from the fees alone amounts to an increased cost
of doing business of about $65,000-70,000. However, that
doesn't include any negative impacts related to a 15 percent car
rental tax and the decrease in business he believes would ensue.
Therefore, he said he believes HB 271 needs some work and there
needs to be a mechanism for the industry to meet with
legislators so that the industry can show how much pressure it
is under.
Number 3259
REPRESENTATIVE ROKEBERG suggested that it would be helpful if
Mr. Halcro could provide some numbers regarding the impact of
each bill on the car rental industry and equate that to a
percentage. He noted his concern that if HB 271 is passed along
with the other industry-related legislation, there could
possibly be increases of 25 percent on a gross basis. He
related his opinion that "this" is somewhat hostile when viewed
in concert with the other legislation that would impact the car
rental industry.
MR. HALCRO said he would be happy to provide those numbers, but
pointed out that the industry is trying to slow the legislation
long enough to "get a word in." The sponsor of this legislation
is proposing a change in public policy, yet the industry is
being required to do the homework to show the legislators that
this isn't necessary. However, it should be the other way
around in that the committee should be reviewing full and fair
information.
Number 3529
REPRESENTATIVE ROKEBERG turned to the issue of economic
substitution and inquired as to what the economic substitution
alternatives are and the impact those would have [on the car
rental industry].
MR. HALCRO agreed that raising the cost of goods sometimes makes
the consumer look elsewhere, such as shuttle buses and taxis.
He said that it's probably a $15 cab ride to downtown Anchorage.
However, he suggested that the impact of taxes on the industry
is more important to review. If an industry is growing, it is
far easier to absorb an increase in taxation. However, when the
industry is in decline, it is much harder to absorb a 15 percent
increase. Mr. Halcro noted that Avis operates in some marginal
communities. He informed the committee that over the past five
years, the company hasn't grown and there are no growth
opportunities. He related communities in which he has closed.
Mr. Halcro said that every day he is faced with the challenge to
keep doors open in some of the smaller communities. Now, the
aforementioned challenge is in addition to this proposed 15
percent increase.
Number 3757
REPRESENTATIVE ROKEBERG pointed out that when Alaskans are
polled regarding revenue enhancement, one suggestion is to get
the visiting public to pay. Therefore, this legislation appears
to be a vehicle that allows for that. He asked if Mr. Halcro
believes there is some equity in applying a tax that modestly
impacts the car rental industry, such as that proposed in HB
271.
MR. HALCRO commented that moderation in eye of beholder. He
said he didn't consider a 15 percent tax moderate. He agreed
that Alaskans have the right to feel that tourists need to
contribute more, but the car rental industry already pays [its
share]. He reiterated that Anchorage is the only U.S. city with
a car rental tax but no retail sales tax. This proposal doesn't
solve anything, he said. Mr. Halcro said he wanted all visitors
to Alaska to pay. He suggested amending this legislation to
make it a 2-3 percent statewide sales tax and a cruise ship head
tax, and therefore the problem has been solved while giving
industries the ability to grow and prosper.
Number 4011
CO-CHAIR HAWKER asked if Mr. Halcro is saying that the car
rental industry in Alaska should be excluded from contributing
to the cost of the state's development of its tourism industry.
MR. HALCRO clarified that the car rental industry is already
paying and contributing, last year $3.7 million. If the desire
is to have the car rental industry contribute more, then have
others contribute as well. "Stop singling out the car rental
industry," he said. He agreed that there is a huge fiscal gap,
but the problem isn't being solved. He explained that as an
employer he wants to grow his business, he wants his employees
to make more and he wants to make more. However, that can't be
achieved when government singles out the car rental industry.
In 1990, the average cost of a car for [Avis] was approximately
$9,500. This year, the average cost of a car in the [Avis]
fleet is approximately $19,000; however, rates have not doubled.
Yet, every year communities and now the legislature have singled
out the car rental industry to pay an unfair burden. He
reiterated the need to review the other industries. He informed
the committee that the growth in the tourism industry has been
isolated to the cruise ship companies because at the same time
the state has decreased its commitment to tourism marketing, the
cruise ships have gotten larger and the industry has spent more
on marketing. The problems created by the aforementioned are
realized by the car rental industry as well as bed and
breakfasts and hotels. Mr. Halcro concluded by saying, "This is
just one more in a number of questionable ideas."
Number 4407
CO-CHAIR HAWKER announced that some amendments have been
proposed and there are more potential amendments. Therefore, HB
271 will be held over.
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Ways and Means was adjourned at 9:23 a.m.
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