Legislature(2017 - 2018)BELTZ 105 (TSBldg)
03/01/2018 01:30 PM Senate LABOR & COMMERCE
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| Start | |
| SB110 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 110 | TELECONFERENCED | |
| + | TELECONFERENCED |
ALASKA STATE LEGISLATURE
SENATE LABOR AND COMMERCE STANDING COMMITTEE
March 1, 2018
1:33 p.m.
DRAFT
MEMBERS PRESENT
Senator Mia Costello, Chair
Senator Kevin Meyer, Vice Chair
Senator Berta Gardner
Senator Peter Micciche
MEMBERS ABSENT
Senator Gary Stevens
COMMITTEE CALENDAR
SENATE BILL NO. 110
"An Act establishing the Travel Alaska Board; relating to a
tourism marketing assessment; and establishing a tourism
marketing fund."
- HEARD & HELD
PREVIOUS COMMITTEE ACTION
BILL: SB 110
SHORT TITLE: TOURISM MARKETING:BOARD;ASSESSMENT;FUND
SPONSOR(s): LABOR & COMMERCE
04/07/17 (S) READ THE FIRST TIME - REFERRALS
04/07/17 (S) L&C, FIN
03/01/18 (S) L&C AT 1:30 PM BELTZ 105 (TSBldg)
WITNESS REGISTER
NATASHA MCCLANAHAN, Staff
Senator Mia Costello, Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Presented the sectional analysis for SB 110.
SARAH LEONARD, President/CEO
Alaska Travel Industry Association
Anchorage, Alaska
POSITION STATEMENT: Testified in support of SB 110.
JOHN LAMBETH, President/CEO
Civitas, California
POSITION STATEMENT: Provided supporting testimony on SB 110.
COLLEEN STEPHENS, Chair
Tourism Marketing Board;
Government Relations representative
Alaska Travel Industry Association; and
Stan Stephens Glacier & Wildlife Cruises
Valdez, Alaska
POSITION STATEMENT: Testified in support of SB 110.
EMILY NAUMAN, Legal Counsel
Legislative Legal Services
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Answered questions related to SB 110.
KEN ALPER, Director
Tax Division
Department of Revenue
Juneau, Alaska
POSITION STATEMENT: Answered questions related to SB 110.
ACTION NARRATIVE
1:33:04 PM
CHAIR MIA COSTELLO called the Senate Labor and Commerce Standing
Committee meeting to order at 1:33 p.m. Present at the call to
order were Senators Micciche, Gardner, Meyer, and Chair
Costello.
SB 110-TOURISM MARKETING:BOARD;ASSESSMENT;FUND
1:33:41 PM
CHAIR COSTELLO announced the consideration of SB 110 and
solicited a motion to adopt the work draft committee substitute.
1:34:35 PM
SENATOR MEYER moved to adopt the CS for SB 110, labeled 30-
LS0434\R, as the working document.
CHAIR COSTELLO found no objection and version R was adopted. She
introduced SB 110 speaking to the following sponsor statement:
Senate Bill 110, the Travel Alaska Act, will establish
a mechanism for the State of Alaska to partner with
the private tourism industry in support of Alaskan
tourism destination marketing. Tourism marketing
program funding produces a substantial return on
investment for the State of Alaska and many Alaskan
citizens given that tourism is currently Alaska's
second largest private sector employer. Research shows
that every $1 spent on tourism marketing leads to $58
in visitor spending, $21 in income for state
residents, and $2.84 in state and local revenue.
Alaska's tourism marketing funding has been falling in
recent years while competitors' budgets have been
rising, resulting in a loss of market share compared
to national trends. To address this, the Alaska State
Legislature included intent language in the FY'17
operating budget asking the tourism industry to create
a self-sustaining program funded by tourism
businesses. SB 110 would allow the Department of
Revenue to assist the Travel Alaska Board, create an
Alaska tourism marketing fund, and manage the
capitalization and expenditures of the fund.
Funding for Alaska-specific tourism marketing is
essential for a robust and thriving industry that can
stay competitive with national growth trends. Tourism
marketing program funding would generate significant
economic impacts, amounting to billions in spending
over time.
SB 110 is an innovative way for private industry to
partner with the public sector to address the current
lack of funding for Alaska tourism marketing and keep
Alaska forefront in this fast-paced competitive
market. This private-public partnership will
strengthen Alaskan tourism and provide a long-term
solution for sustaining this crucial Alaskan industry.
1:38:05 PM
NATASHA MCCLANAHAN, Staff, Senator Mia Costello, Alaska State
Legislature, Juneau, Alaska, provided the following sectional
analysis for SB 110.
Section 1: Provides for an exception to vehicle rental
tax collection, as outlined in Section 2.
Section 2: Allows for entities subject to the vehicle
rental tax (imposed by AS 43.52.010 AS 43.52.099) to
request all or a portion of the tax revenue they remit
to the Department of Revenue be deposited into the
Alaska tourism marketing fund established in Section
5.
Section 3: Clarifies that vehicle rental tax revenues
will be deposited into the general fund, with the
Department separately accounting for proceeds
requested to be appropriated to the Alaska tourism
marketing fund.
Section 4: Allows for all vehicle rental tax proceeds
requested for appropriation to the Alaska tourism
marketing fund, as outlined in Section 2, to be
appropriated to the Alaska tourism marketing fund.
Section 5: Creates the Travel Alaska Board and
mechanism for an Alaska tourism marketing assessment
within the Department of Revenue.
Sec. 44.25.200 (Page 2) Establishes the Travel Alaska
Board in the Department of Revenue.
Sec. 44.25.205 (Page 2-3) Creates a board structure of
21, 23, or 25 voting members appointed by the
Governor.
Subsection (b) outlines that vacancies will be filled
by the Governor from a list of nominees forwarded by
the board. If the Governor rejects the list or a
portion of the list, the board will submit another
list for consideration. For vacancies based on an
expiration of term, nominees forwarded to the Governor
will be determined via an election process of assessed
tourism businesses established in Sec. 44.25.275.
Nominees for all other vacancies will be determined by
board approval.
Subsection (c) ensures board representation by
different regions, business sizes, and industry
segments. Voting members must be both a representative
of an assessed business, or payer, and a member of the
statewide nonprofit marketing association.
Subsection (d) allows the board to elect ex officio,
nonvoting members.
Subsection (e) provides the board shall annually elect
a chair and vice chair.
Sec. 44.25.210 (Page 3) Defines board terms. Members
serve staggered three-year terms and can be
reappointed.
Sec. 44.25.215 (Page 3) Provides that board members
may be removed for cause.
Sec. 44.25.220 (Page 3) Defines quorum requirements.
To initiate a vote among tourism businesses to levy,
amend, or terminate an assessment, approval of the
majority of all voting members is required. Other
board actions require only the approval of a majority
of voting members present. Subsection (b) permits the
board to transact business electronically.
Sec. 44.25.225 (Page 4) States board members receive
no salary, per diem or travel expenses.
Sec. 44.25.230 (Page 4) Asserts the board will meet at
least twice a year. Meetings can also be called upon
the written request of five members.
Sec. 44.25.235 (Page 4) The board may request
administrative support from the statewide nonprofit
tourism marketing association, and work with the
association to fulfill its duties. Subsection (b)
directs the board to adopt definitions for "tourism
industry," "tourism segment," and "tourism business"
and forward to the Department of Revenue for
ratification. Should the Department reject the
definitions, the board may submit alternate
definitions.
Sec. 44.25.240 (Page 4-5) Describes the powers of the
board in the adoption of policies related to the
board, cooperation with public and private
organizations, incurring expenses, appearing before
government entities, acquiring and disposing of
property, entering into agreements, and designating
and removing ex officio members of the board.
Sec. 44.25.245 (Page 5-6) Defines marketing duties of
the board to promote travel and tourism in the state
and promote segments participating in the assessment.
The board must submit an annual report to the
Governor, Legislature, and assessed tourism
businesses. A marketing plan must also be prepared
annually. Subsection (8) directs the board to identify
"segments" of the tourism industry, based on similar
goods and services provided.
Sec. 44.25.250 (Page 6) Provides that any expenditures
by the board must be consistent with the annual
marketing plan.
Sec. 44.25.255 (Page 6-7) If the board votes to
initiate the process of levying an assessment or
amending an existing assessment rate, a vote by
assessed businesses will be held following election
procedures outlined in Sec. 44.25.270.
Subsection (b) clarifies that different segments of
the tourism industry can be assessed at different
rates. If an election is held (per Sec. 44.25.270) and
an assessment rate is approved, that assessment will
then be levied on the gross revenue of tourism
businesses in that particular segment.
Subsection (c) defines assessment rates available for
consideration as 0, 0.25, 0.5, 0.75, 1.0, 1.25, 1.5,
1.75 or 2 percent of gross revenue.
Subsection (d) requires the board to advertise and
schedule public meetings for businesses potentially
subject to a proposed assessment prior to an election.
Sec. 44.25.260 (Page 7-8) Provides that a business
subject to an assessment may pass the cost of the
assessment on to its customers if the amount is
disclosed in advance, a receipt is given, and the
assessment is listed as a separate charge.
Subsection (b) states that information given to the
board or Department of Revenue by an assessed tourism
business is confidential with four exceptions.
Subsection (c) clarifies that information obtained by
the board or Department of Revenue used to determine
the assessment for a business is not public record.
Subsection (d) allows the Department of Revenue to
require assessed tourism businesses to maintain
records verifying gross revenue, permit inspection of
those records, and provide information upon request.
Sec. 44.25.265 (Page 8) An assessment will terminate
after six years, or on the sunset date stated on the
approved election ballot, whichever comes first.
Subsection (b) provides that if the board votes to
initiate the process of terminating an assessment, a
vote by assessed businesses will be held following
election procedures outlined in Sec. 44.25.270.
Sec. 44.25.270 (Page 8-9) Outlines the election
procedures for an assessment vote. The board can hold
an election after the Director of Elections approves
the notice, ballot, registration, and voting
procedures.
Subsection (b) establishes meeting, notice and ballot
requirements of the board for any election to levy,
amend, or terminate an assessment.
Subsection (c) gives parameters for the Director of
Elections to certify results.
Subsection (d) allows ballots to be considered valid
if signed by an officer or authorized representative
of the tourism business.
Sec. 44.25.275 (Page 9-10) Defines the weighted vote
process used in elections for both assessments and
board nominees. Votes will be weighted in proportion
to the amount each business is estimated to pay under
the proposed assessment in the next calendar year.
When voting on an existing assessment, only the votes
of businesses that pay under that assessment at the
time of the election shall be counted. Actions must be
approved by businesses representing a total of at
least 50 percent of the weighted votes received.
Sec. 44.25.280 (Page 10) Upon request by the Director
of Elections, the Department of Revenue will determine
the amount each assessed business is estimated to pay
for any calendar year, including future years for
purposes of weighting votes.
Sec. 44.25.285 (Page 10) Assessed business will remit
payment to the Department of Revenue within 30 days of
the end of each calendar quarter. Within 60 days of
the end of each calendar quarter, the Department will
report to the board the total amount of assessments
collected.
Sec. 44.25.290 (Page 10) Applies existing enforcement
statutes for the Department of Revenue (AS 43.05) and
the Attorney General (AS 43.10) to the Alaska tourism
marketing assessment.
Sec. 44.25.295 (Page 10) Establishes the Alaska
tourism marketing fund.
Sec. 44.25.300 (Page 10-11) Defines terms used in this
chapter: "assessment," "board," "business segment,"
and "traveler."
Section 6: Designates the leading statewide nonprofit
tourism marketing association as a transition board.
The transition board will hold an initial election to
determine the list of nominees for the Travel Alaska
Board and proposed assessment rates. Following the
election, nominees for the Travel Alaska Board will be
forwarded to the Governor. Once the Travel Alaska
Board is established through the appointment process,
the transition board will submit any proposed
assessment rates approved in the election to the
Travel Alaska Board, at which point the transition
board will dissolve.
Subsection (b) provides that if the Governor rejects
the initial list or a portion of the initial list of
nominees, the transition board will submit another
list for consideration.
Subsection (c) permits the Travel Alaska Board to
ratify assessments proposed by the transition board.
Subsection (d) refers to Sec. 44.25.300 for the
definition of "assessment."
1:47:36 PM
CHAIR COSTELLO invited Colleen Stephens and Sarah Leonard to
comment on the industry's proposal.
1:48:05 PM
SARAH LEONARD, President/CEO, Alaska Travel Industry Association
(ATIA), Anchorage, Alaska, thanked the committee for the
opportunity presented through SB 110 to potentially create the
legislative framework for an Alaska tourism improvement
district. She related that ATIA is the leading nonprofit
membership trade association for Alaska's visitor industry
representing over 650 tourism businesses in various sectors and
regions throughout the state. ATIA is also the state's contract
manager for Alaska's destination marketing program and is
responsible for statewide marketing and program development.
She described tourism as a bright spot in Alaska's economy and
noted that the state's investment in destination marketing
declined 90 percent between 2014 and 2017. She pointed out that
Alaska is falling behind as most states are increasing support
for destination marketing. In 2017 Alaska accounted for just .3
percent of the national spending on state tourism promotion.
That is down from 2.5 percent in 2014. She also noted that
Alaska's increasing visitor numbers are concentrated in the
cruise sector while independent travel is stagnant. She posited
that this decline translates into reduced visitor spending,
fewer jobs, and lower business revenue. She shared the results
of a recent independent analysis of the state's competitiveness
in terms of destination marketing investments and Alaska's
tourism sector performance. It shows that Alaska lost $189
million in visitor spending between 2012 and 2016, and $57
million in visitor spending in 2016 alone.
MS. LEONARD said the industry was listening when the legislature
said to come up with a funding solution for marketing. It was an
opportunity to develop a plan to phase out reliance on
unrestricted general funds for marketing and move towards a
self-sustaining program funded by industry. A number of models
were considered, but always with the parameters that any new
funding solution should not be reliant on one industry segment
or funding source, that revenue should focus primarily on
visitor activity with the least impact on Alaskans, that any
assessment or new revenue could be passed on to the visitor, and
most importantly, that any successful plan for the industry to
assess itself would be a private/public partnership with the
state that would continue to leverage the vehicle rental car tax
that the state already collects.
1:54:26 PM
JOHN LAMBETH, President/CEO, Civitas, California, said his
testimony would focus on providing background on destination
marketing and a national perspective on tourism improvement
districts. He agreed with earlier comments about the importance
of the travel and tourism industry; one in nine jobs are
dependent on tourism. He addressed the question about why there
should be destination marketing on a coordinated basis rather
than letting individual businesses do their own marketing. He
explained that the primary motivator of a trip is usually the
experience of the destination itself, not a single lodging
establishment or attraction. Thus, the destination should be
marketed as a unit. It's also a question of scale because no
individual business can market Alaska on a broad scale. It takes
the industry as a group to coordinate and pool its resources to
do destination marketing. He described the cycle of destination
marketing. He said an investment in travel and marketing
promotion creates demand that in turn creates visitor spending
which spurs new jobs and new tax revenues that allow investment
back into travel and tourism. He pointed out that nationwide,
the travel and tourism industry generates about $160 billion a
year in state and local taxes.
He explained that the model for tourism improvement districts
dates back to the 1930s when the agricultural industry levied a
charge on individual growers and used that money to promote
their products. In the 1960s that model was expanded to downtown
improvement activities. Now there are about 2,000 business
improvement districts across North America. In 1990s some
Californians extended the concept to tourism promotion which led
to the first tourism improvement district. The assessments
collected from those districts is typically returned to a
destination marketing organization that markets the destination.
Some of the advantages of this funding model is that there are
no free riders, there is transparency in its operations, and it
creates a reliable, consistent, stable source of funding for
tourism marketing. He said there are now 167 districts across 14
states and 11 more states are in the process of either adopting
legislation or of forming tourism improvement districts. He
opined that there will be a lot more going forward.
MR. LAMBETH asked the committee to consider two important
concepts as it deliberates on SB 110. First, this is not a
partisan issue. Republicans and Democrats alike understand the
importance of the tourism industry and how tourism investment
districts support it. Second, it's been a game-changer for
destinations that have adopted TIDs and it has taken reliance
off the general fund. He concluded that SB 142 will change
destination promotion activities in Alaska for a long, long
time.
2:01:23 PM
COLLEEN STEPHENS, Chair, Alaska Tourism Marketing Board (ATMB)
and Government Relations representative for Alaska Travel
Industry Association, said she also has a business-owner
perspective from the family business, Stan Stevens Glacier and
Wildlife Cruses. She said the board has worked with the tourism
industry since SB 110 was introduced in 2017 addressing
questions and concerns. The larger questions were whether ATMB
would continue to advocate to partner with the state with
vehicle rental car funds and the structure of the Travel Alaska
Board. She said SB 110 addresses many of those questions and
concerns. The industry has also created the TID Advisory Group
to the ATMB that has members from all sectors. She said the goal
is to make this an open dialog and transparent process.
She explained that SB 110 is the enabling legislation that
outlines the process and provides the tools to enact a tourism
improvement district. In phase two, the ATMB will determine
which sectors may be included in the assessment, the rates the
sectors will pay, how the board will be developed, and implement
the program. This will create a sustainable and predictable
funding model for Alaska tourism. Research shows that every
dollar spent on tourism promotion in Alaska results in $58 of
visitor spending, $21 in income for local residents, and $2.84
in state and local taxes.
MS. STEPHENS said as a small business owner it is more
unsettling to consider what happens if there isn't a well-funded
marketing program. The larger corporations operating in Alaska
won't be affected, but small communities, small businesses, and
remote locations will feel the impact if there isn't a broad-
based program that puts the image of Alaska before people and
convinces them that Alaska is their preferred travel
destination. She said it's time to take the step to change the
tourism marketing funding for Alaska.
SB 110 establishes the framework for a partnership with the
state. It asks the state to make a policy change relative to the
vehicle rental tax (VRT) and the industry contributes an
assessment from individual businesses. According to the 2015
McDowell Report the visitor industry brings $105 million in fees
and taxes to the state every year. She concluded that combining
the vehicle rental tax investment and the new business
assessments will guide the industry into the future for tourism
marketing and continue to fill the tourism pipeline
2:07:35 PM
CHAIR COSTELLO identified the individuals available to answer
questions.
SENATOR GARDNER asked Ms. Stephens if ATMB's outreach included
nonmember business owners and how people who should be included
are identified. For example, is a driver for Uber included?
MS. STEPHENS said no segment has been identified as in or out,
but taxicabs and Uber have not been part of the conversation at
the board level. ATMB has done outreach to convention and
visitor bureaus and chambers of commerce to identify businesses
that are in a different member base. The businesses that will or
will not be included will be determined in phase two.
SENATOR GARDNER asked if the legislature will know how much is
collected through assessments and the number of businesses in
each of the nine assessment categories that are participating.
2:12:06 PM
MR. LAMBETH said it's quite common to get summary information
about the number of businesses that are assessed and the amount
that is collected from each category.
SENATOR GARDNER asked if businesses are able to recover their
assessments by passing those costs along to their customers.
MS. LEONARD said if this legislation passes, the Department of
Revenue (DOR) would send a form to those businesses that are
part of the assessment to self-report what they owe in that
assessment. The state would collect the money that the business
collected from its customers.
SENATOR GARDNER questioned why a business that passes the
assessment along to its customers would opt to send that money
to the state.
MS. STEPHENS clarified that while businesses have the option to
pass the assessment along to their customers or guests,
remitting the assessment becomes compulsory for the business
once the legislation becomes law.
MR. LAMBETH agreed that the business owes the assessment
regardless of whether the assessment is passed along to the
customer.
CHAIR COSTELLO advised that page 4 of the sectional provides an
explanation.
2:17:45 PM
SENATOR MEYER asked how much the assessment might raise.
MS. LEONARD said the assessments have not been identified but
one percent on broad-based accommodations and tour activities
(projected on numbers from the McDowell Group) could raise about
$7 million.
SENATOR MEYER mentioned bed and breakfast and vacation rental by
owner (VRBO) and commented that part of the process will be to
decide which businesses will be subject to the assessment.
MS. LEONARD said in jurisdictions where there is a tourism
improvement district VRBOs and Air B&Bs join the programs
through individual agreements.
SENATOR MEYER asked if any proposed increases in the assessment
would come before the legislature.
MS. STEPHENS explained that the legislature sets the assessment
levels in .25 percent increments with a 2 percent maximum. When
the board meets for the first time it will define the tourism
segments, the Department of Revenue will ratify them, and then
the businesses that are subject to the assessment will vote on
the proposed assessment levels and the Travel Alaska Board
recommendations that will move forward to the governor. The vote
is weighted based on the gross revenues paid toward the
assessment. The bill requires a second vote after six years.
This is an opportunity for the industry to weigh in on the
success of the program and to adjust the assessment. The bill
also provides a termination clause.
SENATOR MEYER said he assumes the program is compulsory.
MS. LEONARD confirmed that an individual business cannot
terminate its assessment.
SENATOR MEYER asked what entity oversees enforcement.
MS. LEONARD advised that the bill incorporates existing statute
regarding the state enforcing the collection of fees and taxes.
2:25:01 PM
CHAIR COSTELLO asked Mr. Lambeth to comment on the bill
designating the entire state as a single tourism investment
district as opposed to the more common model of establishing
TIDs for specific regions.
MR. LAMBETH confirmed that the program has been most commonly
used in individual destinations, but it has been used very
successfully for statewide marketing in California. He said
several other states are looking at that model and he suspects
this model will become more common for states.
CHAIR COSTELLO asked if the members will have access to the
research that is conducted using revenues from the assessments.
MR. LAMBETH replied research is a critical part of destination
marketing and typically it is widely available to members.
"These districts tend to be very transparent in their
operation," he said.
CHAIR COSTELLO asked if there was an avenue for a business that
does not want to participate.
MR. LAMBETH explained that the compulsory model is preferred by
most destinations because there will be free riders if paying
the assessment is voluntary. The voluntary model works well if a
benefit is provided to certain businesses and not others.
SENATOR MICCICHE asked if some countries have a value added tax
(VAT) for this purpose. He cited Australia.
MR. LAMBETH confirmed that some countries do have that type of
tax, but they tend to be used for a variety of activities, not
just tourism promotion. He opined that this model where the
industry is leading the effort will be a very successful for
Alaska given the constitutional constraints against dedicated
funding.
2:30:35 PM
SENATOR MICCICHE asked if anything in the bill eliminates the
potential for a larger scale partnership. He said he believes it
would be more efficient as a unit as opposed to separating by
industry or region.
MS. STEPHENS said the goal is to get the image of Alaska out and
convince travelers that Alaska is a possible destination. Once
the traveler has committed to Alaska the individual regions will
step up and help them identify where they want to visit. It's
the responsibility of businesses to work with the state and
regions to convert that to customers in their doors. Businesses
that are the farthest from the main stream will benefit most
from the notion that a rising tide raises all boats. She noted
that while cruise ship visitors are increasing, it is not at the
same rate as other destinations. That is an indication that
there is a market share issue even within the cruise industry.
SENATOR MEYER asked if the various community marketing programs
are active participants in this discussion.
MS. LEONARD said yes; community destination marketing management
organizations sit on both the Alaska Travel Industry Board and
the Alaska Tourism Marketing Board. Responding to an earlier
question she clarified that increasing the maximum assessment
above 2 percent would require legislative approval.
SENATOR MEYER asked if the amount from the vehicle rental tax
was fixed.
MS. LEONARD said the legislation does not suggest changing the
existing VRT rate. She recalled that is 10 percent for cars and
3 percent for recreational vehicles.
2:34:49 PM
SENATOR GARDNER summarized that the assessment applies to
everybody whether they are members or not but only members can
vote.
MS. LEONARD replied the assessment would apply to any segment
that is identified as a payer of the assessment and those payers
would be the voters.
SENATOR GARDNER asked if membership is required to be on the
board.
MS. LEONARD clarified that businesses are not required to be
members of the Alaska Travel Industry Association (ATIA). It's
any business that is identified as a segment in Alaska's visitor
industry.
SENATOR GARDNER observed that the appropriation process in
Section 2 carries a certain risk because it is subject to
legislative appropriation. She asked if it would be simpler to
have a grant process.
MS. LEONARD said a simpler process would be welcome. The reason
for pointing to the vehicle rental tax was the history and
legislative intent language. She opined that it is a reasonable
reinvestment of those dollars into tourism marketing.
SENATOR GARDNER asked why the bill proposes a variable number of
board members.
MS. STEPHENS said it was a range the ATIA Board was comfortable
proposing. In phase 2 a guiding document would be written and
clarify the exact size.
2:38:13 PM
At ease
2:38:33 PM
CHAIR COSTELLO reconvened the meeting.
SENATOR GARDNER why they were proposing a new board instead of
using the ATIA Board.
MS. LEONARD replied that option met with constitutional
challenges because of the partnership with the state. It's also
in line with the way TID boards for tourism marketing are set up
in other states.
SENATOR GARDNER asked how assessments will be handled for
tourism businesses that aren't headquartered in Alaska. She
cited the Four Seasons hotel chain and the cruise ship industry
as examples.
MS. STEPHENS explained that a direct assessment on the cost of a
cruise could have problems with the interstate commerce clause.
For the hotel chain, the assessment would be on just the
business that is done in Alaska and the Department of Revenue
(DOR) would help with the collection process.
SENATOR GARDNER asked for an explanation of Sec 44.25.280 on
Page 10.
MS. STEPHENS explained that the assessment is based on a
business's gross revenues and the Department of Revenue has
those confidential numbers.
CHAIR COSTELLO asked the bill drafter to comment on how the bill
addresses taxation authority and the powers of the legislature.
She also asked if there are any structural issues related to the
board that the committee should be aware of.
2:44:53 PM
EMILY NAUMAN, Legal Counsel, Legislative Legal Services, Alaska
State Legislature, Juneau, Alaska, explained that any time a
portion or the appearance of a portion of the authority to tax
leaves the legislature, it raises a concern about a violation of
the constitution's prohibition against the delegation to tax.
One helpful case on the topic is State v. Alex. A private
aquaculture association set an assessment and members challenged
it. The Alaska Supreme Court held that was an improper
delegation of the legislature's authority to tax because the
entire process occurred outside of the state. In response, the
state set out salmon assessment taxes on which ASMI was modeled.
The assessment proposed by SB 110 is loosely the same as the
ASMI model and that has not been tested by a court. She opined
that SB 110 strays a little farther towards an unconstitutional
tax, particularly in the transition provisions because of the
authority given the transition board which is a private
organization.
SENATOR MICCICHE asked if it's just the absence of the
legislature acting that raises the constitutional issue and if
the solution could be as simple as the board providing a
recommendation to the legislature that would be appropriately
approved and appropriated.
MS. NAUMAN said to raise no concern the legislature should set
the rate of the tax and who should be taxed in statute. That
could be done with a recommendation from industry or a private
board.
SENATOR GARDNER asked for an explanation of the language on page
2, lines 18-19, regarding establishing the Travel Alaska Board.
MS. NAUMAN said she would guess it was to try to establish that
the board is acting as a state function for the purpose of
avoiding triggering the delegation of tax issue.
CHAIR COSTELLO asked her to talk about the structure of the
board.
MS. NAUMAN said one unusual thing is that a segment of the
tourism industry that is not currently assessed will not have
representation on the board. That could place the board in the
position of trying to determine an assessment rate or whether an
assessment should be levied on an industry segment that does not
have representation. It could also be tricky if assessments were
terminated. There would be no one to be on the board because it
is composed of assessed businesses.
She said the rental car tax structure is unusual in that the tax
payor requests where the proceeds of the tax are directed. She
pointed out that it's not always going to be the tourism
industry that pays the tax. In some instances, it will be the
tourist that pays the tax and in that case it's a third party or
the tourism company that gets to decide where the tax they are
paying goes. That too is unusual. She also pointed out that the
bill does not specify what happens if the governor rejects the
list the board submitted of potential board members.
2:51:40 PM
SENATOR MICCICHE asked if all the instate vehicle rental taxes
are aggregated.
MS. NAUMAN said that was her understanding, but she would do
follow up research and provide a definitive answer.
2:52:25 PM
KEN ALPER, Director, Tax Division, Department of Revenue,
Juneau, Alaska, introduced himself and declared a potential
conflict. Through his wife he is a member of ATIA.
CHAIR COSTELLO asked Mr. Alper to explain how SB 110 would work
from the Department of Revenue's (DOR) perspective.
MR. ALPER said the department's role would be to help get the
affected businesses licensed and registered in the system like
any other Alaskan taxpayer. The police powers of the state would
enforce payment of that tax and if someone failed to pay, the
department has the power to suspend their business license,
among other powers.
He noted that the bill converts the vehicle rental tax from a
designated general fund appropriation to an unrestricted
category that is self-directed where each individual vehicle
rental tax payer would decide whether they wanted to designate
the money to this tourism entity or keep it unrestricted general
funds. He noted that Ms. Nauman identified it as a little
problematic to have a taxpayer directed designation of some
taxes.
He advised that DOR would also collect confidential information
to estimate the gross revenue of businesses in various tourism
segments, establish a weighting system for the vote based on one
vote per dollar in estimated gross revenue, and work with the
Division of Elections to help score the election.
SENATOR MEYER asked if administering the assessment would cost
the Department of Revenue.
MR. ALPER replied there are two costs. First is the one-time
cost of setting up a new module within DOR's software. That is
estimated to be about $900 thousand. The second cost is for
three additional staff to administer the tax. This includes one
technician, one supervisory or audit-level person, and one
economist to figure out how to do the weighting and estimate
what the payments would be for the purposes of conducting
elections.
SENATOR MEYER asked the Chair if there was a fiscal note from
DOR.
CHAIR COSTELLO said the fiscal notes do not reflect the current
version of the bill.
MR. ALPER advised that an updated fiscal note should be on line
later today.
CHAIR COSTELLO asked him to alert her aide if the department
does upload the fiscal note.
SENATOR GARDNER asked how many potential taxpayers under this
bill are already corporate taxpayers.
MS. ALPER said he didn't know but his sense is it would not be
many. Cruise ships are international corporations and would pay
Alaska corporate income tax, but they would not be subject to
this new assessment because of federal constitutional issues.
3:00:25 PM
CHAIR COSTELLO thanked the participants and held SB 110 in
committee.
3:01:04 PM
There being no further business to come before the committee,
Chair Costello adjourned the Senate Labor and Commerce Standing
Committee meeting at 3:01 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB110-DCCED-DED-02-23-18.pdf |
SL&C 3/1/2018 1:30:00 PM |
SB 110 |
| SB110-DNR-PKS-02-27-18.pdf |
SL&C 3/1/2018 1:30:00 PM |
SB 110 |
| CSSB 110 Work Draft Version R.pdf |
SL&C 3/1/2018 1:30:00 PM |
SB 110 |
| SB 110 Supporting Document - Tourism Marketing Fund History - REV -- 2.26.18.pdf |
SL&C 3/1/2018 1:30:00 PM |
SB 110 |
| SB 110 Supporting Document - Analysis of Tourism Marketing Program Funding - Alaska.pdf |
SL&C 3/1/2018 1:30:00 PM |
SB 110 |
| CSSB 110 Sponsor Statement.pdf |
SL&C 3/1/2018 1:30:00 PM |
SB 110 |
| CSSB 110 Sectional Analysis.pdf |
SL&C 3/1/2018 1:30:00 PM |
SB 110 |
| SB 110 Supporting Document - TID Simple.pdf |
SL&C 3/1/2018 1:30:00 PM |
SB 110 |
| CSSB 110 Frequently Asked Questions.pdf |
SL&C 3/1/2018 1:30:00 PM |
SB 110 |
| CSSB 110- 03.01.18 -Individuals and Business support.pdf |
SL&C 3/1/2018 1:30:00 PM |
SB 110 |