Legislature(1997 - 1998)
03/12/1997 01:37 PM House FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
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."
KIM ROSS, EXECUTIVE DIRECTOR, ALASKA AIR CARRIERS
ASSOCIATION, ANCHORAGE testified via the teleconference
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network. She read from written testimony (copy on file).
She maintained that HB 63 would provide a tax exemption for
a few select air carriers. She stated that the legislation
could be unfair and encourage misuse and manipulation of the
Anchorage Foreign Trade Zone.
Ms. Ross expressed concerned that HB 63 would adversely
impact Alaska's local domestic airline industry. She noted
that the domestic industry is made up of a wide range of
companies, based in Alaska, that provide service to bush
communities and larger cities.
Ms. Ross asserted that if HB 63 goes into effect, the State
of Alaska would lose approximately $4 - $5 million dollars
in annual revenues. She maintained that this revenue is
earmarked for rural airport maintenance and operations
costs. She alleged that this would amount to a 25 percent
loss of Alaska's annual budget for operation and maintenance
at rural airports.
Ms. Ross acknowledged that Alaska does not have dedicated
funding, but asserted that "earmarking funds" is a reality.
She maintained that a $4 - $5 million dollar a year
shortfall would result in increased "user fees", such as
airport land lease rates and landing fees. She stated that
increased costs cannot be absorbed by the domestic industry.
She asserted that local Alaskan operators would be forced to
pass on increased costs to the flying public and shippers.
Ms. Ross acknowledged that: "Our State is facing a
monstrous fiscal gap." She questioned how the general
public would respond if they knew that the Legislature was
considering elimination of an existing tax base. She stated
that, "In essence, our State would be giving away $4 - $5
million dollars in revenue, funds that are critical to
continued airport operations in rural Alaska."
Ms. Ross maintained that Kurt Parkan, Deputy Commissioner,
Department of Transportation and Public Facilities stated,
before the House Transportation Committee, that $4 - $5
million dollars would come out of the General Fund. She
acknowledged that Mr. Parkan added that there is, "no tie,
no link", between fuel tax revenues and the Department of
Transportation and Public Facilities' budget for rural
airport maintenance and operations. She pointed out that AS
43.40.010(e) states:
"... proceeds of the taxes on aviation
fuel shall be paid into a special
aviation fuel tax account in the state
general fund. The legislature may
appropriate funds from this account for
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aviation facilities."
Ms. Ross observed that CSHB 256 (TRAN), passed in 1994,
added a .07 cent aviation fuel tax. She added that the
legislation's preamble stated that:
"The purpose of this Act is to increase the tax on
aviation gasoline in an amount substantially comparable
to the amount that would be derived from the Department
of Transportation and Public Facilities reimposition of
landing fees at rural state operated airports, and to
leave this increased tax in place only so long as the
commissioner of Department of Transportation and Public
Facilities does not, before January 1, 2000, impose
landing fees at those airports at a higher rate than
was in effect on January 1, 1994."
Ms. Ross asserted that the legislative intent of CSHB 256
(TRAN) was to provide a funding source for "shortfalls" in
rural airports maintenance and operations budgets. She
noted that the 1994 fuel tax increase was in lieu of a
proposed landing fee program, which would have cost
approximately 40 cents on the dollar to administer.
Ms. Ross provided members with "Projected Revenue Flow"
charts, used by the Department of Transportation and Public
Facilities to justify the 1994 tax hike (copy on file). She
maintained that the charts further depict the "tie" between
aviation fuel taxes and rural airport maintenance and
operations budgets.
Ms. Ross observed arguments that HB 63 will create a "level
playing field". She questioned if the playing field needs
to be leveled. She asserted that the cost to ship foreign
fuel to Anchorage offsets any tax advantage. She noted that
fuel weighs 6-7 pounds per gallon.
Ms. Ross asked: "What happens if a refinery in Saudi Arabia
develops a new process that enables it to refine fuel 5 per
gallon cheaper than MAPCO can? How do we again re-level the
playing field for MAPCO?"
Ms. Ross quoted a MAPCO press release to demonstrate the
company's soundness: "MAPCO Reports All-Time Record Fourth
Quarter and Annual EPS From Continuing Operations." She
observed that MAPCO reported a record year, increased sales
volumes at both the Memphis and Alaska refineries, and an
annual operating profit of $63.9 million dollars for 1996.
Ms. Ross disputed statements by Deputy Commissioner Parkan
that competition from Vancouver, Seattle, Portland and the
Russian Far East make it necessary for Alaska to develop
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incentives to retain and attract international cargo
carriers. She observed that each additional air mile adds
to the fuel and operating costs of the airplane and
displaces cargo at 20 to $1 per pound. She stated that
"compared to these additional costs, a 3.2 per gallon tax
giveaway is insignificant."
Co-Chair Therriault responded to comments made by Ms. Ross.
He observed that the legislation would not impact attempts
by the Majority to reduce the budget by $60 million dollars.
He observed that there will be a $60 million dollar
reduction in spending. The legislation impacts revenues not
spending.
Co-Chair Therriault observed that the fiscal impact is
approximately $2.8 million dollars. Ms. Ross estimated the
impact at $4 - $5 million dollars. He observed that
legislation has not been introduced to raise landing fees.
He did not anticipate that legislation would be introduced
to raise landing fees.
In response to comments by Ms. Ross, Co-Chair Therriault
stated that it is not appropriate for the State to "level"
the playing field when the playing field is in the private
sector. He maintained that it is appropriate for the State
to level the playing field when there is a state
governmental imposed tax, that is only imposed on in-state
refineries.
Co-Chair Therriault referred to Ms. Ross' testimony before
the House Transportation Committee on 1/24/97:
"We sympathize with Alaska's oil refineries and
understand that they are struggling to compete with
fuel suppliers that take advantage of loopholes written
into the Foreign Trade Zone (FTZ) rule book. But let's
fix the problem, not massage the symptoms."
Co-Chair Therriault observed that Ms. Ross felt that the
Department of Revenue should be more aggressive in
collecting the tax and indicated that consumers should sue
the State if they thought the tax was incorrectly collected.
He quoted from a letter to Co-Chair Hanley from Deborah
Vogt, Department of Revenue:
"I'm confident that the conclusions reached by our
staff are correct, and that we must continue to exempt
fuel used in foreign commerce that is run through the
FTZ."
Co-Chair Therriault added that Jack Chenoweth, Alaska Legal
Services stated that:
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"I conclude that it is more probable than not, that the
Federal Court, using preemption analysis, would not
hesitate to invalidate a state tax, such as that excise
tax on jet fuel. For that reason, I would conclude
that the Department of Revenue presents the position,
that more likely than not, would be sustained by the
Court, if the questions were eventually litigated."
Co-Chair Therriault summarized that the State would not be
able to collect the tax. He pointed out that MAPCO had a
good year based on strong margins in the mid South. He
observed that MAPCO's press release did not say anything
about strong margins for the refinery in Fairbanks. He
maintained that the jet fuel market is pretty competitive.
He stated that the solution of collecting the tax and
litigating appears to be a "legal looser" for the State. He
noted that the tax was collected, deposited in the General
Fund and spent on rural airports.
Representative Martin noted that there are no guarantees
that a bill will not be introduced to increase landing fees.
Co-Chair Therriault reiterated that tax collection as a
solution has been exhausted. He observed that every unit of
production, jet fuel or gasoline, has a certain amount of
fixed cost. He maintained that if the increase production
of jet fuel is discouraged then the fixed cost will be
shifted to gasoline over heating oil.
In response to a question by Representative Martin,
Representative Davies clarified that the Alaska Railroad
charges for hauling fuel.
Representative Grussendorf asked if the Department of
Transportation and Public Facilities can demonstrate that no
linkage exists.
KURT PARKAN, DEPUTY COMMISSIONER, DEPARTMENT OF
TRANSPORTATION AND PUBLIC FACILITIES stated that the proof
that there is no functional linkage between fuel tax and the
Department's budget is contained in the proposed FY 98
operation budget short-form. He observed that there is no
reference to the tax as a fund source. He acknowledged that
there is a perceived connection based on the fact that the
money goes into the General Fund and the legislature may
expend money from that for airports.
In response to a question by Representative Davies, Mr.
Parkan estimated that approximately $20 million dollars was
spent on rural airports.
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Co-Chair Therriault pointed out that the tax impact has
dropped.
BILL SCHOEPHOESTER, DIRECTOR, ALASKA STATE CHAMBER OF
COMMERCE testified in support of HB 63. He maintained that
the legislation will fix a problem that gives foreign
businesses an advantage over Alaskan businesses. He
observed that Foreign Trade Zones (FTZ) have been
established to encourage value-added processing in Alaska
for items bound for foreign destinations. There are several
FTZ locations in Alaska, including Anchorage. During 1996,
several loads of foreign refined jet fuel came into the
Anchorage Airport fueling system for use under the FTZ.
Because of its foreign status, this fuel was exempt from
state fuel taxes, allowing it to be sold at a lower price.
He maintained that in-state refiners are at a disadvantage.
Tax-free foreign jet fuel can be sold in any FTZ. He
asserted that the objective in promoting international
flights in Alaska is to promote Alaskan business.
Representative Martin noted that refineries receive a credit
for gasohol. He observed that Anchorage is the only
community that uses gasohol year-around.
Mr. Schoephoester stated that the State Chamber of Commerce
looks at HB 63 as a fix to unequal taxation of businesses
competing in the same market. Representative Martin
responded that MAPCO receives a lot of state subsidizes.
Mr. Schoephoester stressed that he supports FTZ's when they
are used for value-added products. He maintained that there
is no value-added product. He asserted that a loophole in
the FTZ provision is being used to gain a tax advantage.
In response to comments by Representative Martin, Mr.
Schoephoester observed that the State of Alaska does not
produce enough jet fuel to fill its needs. He reiterated
that there are two different groups competing in the same
market, selling the same product to the same customer, one
is taxed and one is not taxed.
Co-Chair Therriault observed that the motoring public in the
State of Alaska, except for those in Anchorage, pays a tax
to help support the road network. He emphasized that
Anchorage is not being asked to pay a new tax. Anchorage is
only being asked to pay the same tax that the rest of the
state pays, "not a penny more and not a penny less, just the
same tax."
HB 63 was HELD in Committee for further consideration.
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