05/07/2025 09:00 AM House FINANCE

HOUSE BILL NO. 123                                                                                                            
                                                                                                                                
     "An Act relating to vehicle rental taxes; relating to                                                                      
     the issuance of subpoenas related to tax records; and                                                                      
     providing for an effective date."                                                                                          
                                                                                                                                
9:48:46 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE KEVIN MCCABE, SPONSOR,  explained that HB 123                                                                    
was a bill that intended  to address fairness. He emphasized                                                                    
that the bill cut the  vehicle rental tax, which leveled the                                                                    
playing  field and  protected  Alaskans  who had  previously                                                                    
been harmed by unclear rules  in the prior tax structure. He                                                                    
remarked that the bill provided  peace of mind regarding the                                                                    
ongoing  tax collection  efforts and  gave a  starting point                                                                    
for people  to move forward.  He asserted that at  its core,                                                                    
HB 123 supported small businesses.                                                                                              
                                                                                                                                
Representative  McCabe  added  that  the  bill  gave  legacy                                                                    
rental car companies  a small tax decrease  and required the                                                                    
online car rental company Turo to  pay a tax as required. He                                                                    
stated that  the bill resolved legal  uncertainties that had                                                                    
been  discussed at  a prior  committee meeting.  He asserted                                                                    
that the  bill represented a  win for Alaskans.  He recalled                                                                    
that  efforts had  been underway  for a  couple of  years to                                                                    
pass the  bill and he  thought that it  was time to  move it                                                                    
forward.                                                                                                                        
                                                                                                                                
9:50:10 AM                                                                                                                    
                                                                                                                                
Co-Chair Foster OPENED public testimony.                                                                                        
                                                                                                                                
Co-Chair Foster CLOSED public testimony.                                                                                        
                                                                                                                                
9:50:47 AM                                                                                                                    
                                                                                                                                
Co-Chair  Josephson remarked  that  he would  not object  to                                                                    
moving the bill and  acknowledged that Representative McCabe                                                                    
had   made   strong   arguments.  However,   he   asked   if                                                                    
Representative McCabe  could provide  more detail as  to why                                                                    
there should  be a reduction  in the  tax rate for  Turo and                                                                    
related businesses.                                                                                                             
                                                                                                                                
Representative McCabe  responded that Turo was  in the early                                                                    
stages of  becoming a significant  industry. He  argued that                                                                    
offering  a  small  tax   decrease  would  help  incentivize                                                                    
growth,  provide support,  and allow  time to  establish how                                                                    
many cars were involved and  what revenue would be produced.                                                                    
He explained  that additional criteria could  be implemented                                                                    
once  more  data  became available.  He  recalled  that  the                                                                    
legislature had taken a similar  approach years earlier with                                                                    
the motorhome  rental industry, which  was now taxed  at 3.5                                                                    
percent. He  expressed confidence that all  sectors would be                                                                    
brought together under a consistent  tax rate in the future.                                                                    
He stated that the current  2 percent difference between the                                                                    
legacy  rental  companies,  such as  Enterprise,  Avis,  and                                                                    
Hertz, and Turo was a way to bring Turo "into the fold."                                                                        
                                                                                                                                
Representative Galvin stated that  she appreciated the focus                                                                    
on fairness in the  bill. She recognized that Representative                                                                    
McCabe  sought to  protect Alaskans  who  had were  confused                                                                    
about  the  prior  system.   She  thought  the  peer-to-peer                                                                    
component was  especially important. She asked  how the term                                                                    
"peer-to-peer" was  defined and how many  cars an individual                                                                    
might rent out.                                                                                                                 
                                                                                                                                
Representative McCabe  responded that  he could  not imagine                                                                    
it would involve more than a  couple of cars. If there was a                                                                    
situation in the future in  which an individual operated 200                                                                    
cars  and   maintained  a  brick-and-mortar   business,  the                                                                    
individual  would  be  classified  as a  legacy  rental  car                                                                    
company,  even  if  they  were   using  Turo  as  a  booking                                                                    
platform.  He  added  that  he   could  not  imagine  anyone                                                                    
choosing the  legacy model because legacy  companies already                                                                    
had their  own platforms and booking  systems. He emphasized                                                                    
that Turo  had been designed  as a platform  for small-scale                                                                    
operators,  such  as families  with  a  couple of  cars,  or                                                                    
parents who  chose to rent  out a child's vehicle  while the                                                                    
child was away  at college. He reiterated  that the platform                                                                    
was  not  designed  for large-scale  operations,  though  he                                                                    
recognized  that some  people  might take  advantage of  the                                                                    
system, as was the case with any industry.                                                                                      
                                                                                                                                
Representative Galvin  remarked that  she had  noticed other                                                                    
states had established clearer  thresholds, such as limiting                                                                    
peer-to-peer operators  to ten cars or  fewer. She explained                                                                    
that she saw  the platform as a tool for  families to make a                                                                    
little  extra money,  which seemed  reasonable  to her.  She                                                                    
expressed   concern  that   some   individuals  might   take                                                                    
advantage of the system and  asked if the bill accounted for                                                                    
the possibility. She  asked how the reduction  in the legacy                                                                    
tax rate related to the peer-to-peer structure.                                                                                 
                                                                                                                                
9:55:40 AM                                                                                                                    
                                                                                                                                
Representative  McCabe  replied  that   his  intent  was  to                                                                    
initiate the  process. The  state currently  had no  data on                                                                    
revenue generated by  Turo, the number of  cars involved, or                                                                    
how many hosts  participated. He stated that  the purpose of                                                                    
the bill  was to begin collecting  information. He suggested                                                                    
that the  legislature might  reduce the  legacy rate  in the                                                                    
future to  match Turo, or  align motorhome rentals  as well,                                                                    
which would benefit  Alaskans without significantly reducing                                                                    
expected  revenue.  He relayed  that  he  was nervous  about                                                                    
carrying a bill involving a  tax, but understood that it was                                                                    
important  to  start  somewhere.  He  noted  that  the  bill                                                                    
included  subpoena powers,  which would  allow the  state to                                                                    
monitor how  much revenue was being  generated and determine                                                                    
how many  hosts were operating  more than five or  ten cars.                                                                    
He  added that  the  data  could then  justify  the kind  of                                                                    
limits Representative Galvin had described.                                                                                     
                                                                                                                                
Representative  Galvin asked  whether  the  legacy rate  was                                                                    
unrelated to the peer-to-peer rate.                                                                                             
                                                                                                                                
Representative McCabe responded in the affirmative.                                                                             
                                                                                                                                
Representative  Galvin asked  if  Representative McCabe  had                                                                    
considered introducing a bill  limited to subpoena powers in                                                                    
order  to   gather  information  before  making   any  other                                                                    
decisions.                                                                                                                      
                                                                                                                                
Representative McCabe  responded that he had  not considered                                                                    
the approach.  He explained  that the bill  had come  to him                                                                    
"pre-packaged" and it had been  carried in the Senate in the                                                                    
previous year. He  remarked that he had  seen an opportunity                                                                    
to advance the bill and had decided to proceed.                                                                                 
                                                                                                                                
Representative   Johnson  remarked   that  members   of  the                                                                    
committee  all  had  inquiring minds,  which  was  why  they                                                                    
served   on  the   committee,   and   they  could   continue                                                                    
questioning   indefinitely.  She   commended  Representative                                                                    
McCabe for his  persistence and noted that  he had attempted                                                                    
to advance  the bill  the previous year  despite challenges.                                                                    
She   commented  that   it  was   always  frustrating   when                                                                    
legislators worked  hard on bills  and the  process required                                                                    
persistence  to  complete.  She expressed  appreciation  the                                                                    
work that had been put into the bill.                                                                                           
                                                                                                                                
9:58:54 AM                                                                                                                    
                                                                                                                                
Co-Chair Josephson  understood that  there was  an amendment                                                                    
to the  bill, but  he wanted  to make  a comment  before the                                                                    
committee  discussed the  amendment.  He  understood that  a                                                                    
legal memo  about the  fairness of the  bill (copy  on file)                                                                    
had been made  available to the committee.  He remarked that                                                                    
the bill  appeared to  be inherently  unfair because  it was                                                                    
unclear why  Turo would be  treated differently  from brick-                                                                    
and-mortar operations  in terms of standing  to litigate. He                                                                    
pointed out  that if  Turo argued for  a discount,  it would                                                                    
have no standing  because the host paid the  tax rather than                                                                    
the  platform.  He  added  that the  legal  memo  cited  two                                                                    
relevant  cases,  Stanek  v. Greco,  a  2003  decision,  and                                                                    
Wilson  v. Municipality  of Anchorage,  a 1983  decision. He                                                                    
explained that both addressed  equal protection arguments in                                                                    
economic circumstances,  which received the lowest  level of                                                                    
judicial scrutiny.                                                                                                              
                                                                                                                                
Co-Chair Josephson  elaborated that  in one case,  the court                                                                    
had noted  that freedom from  disparate taxation lay  at the                                                                    
low end  of the  continuum of  interests protected  by equal                                                                    
protection,  which  suggested  there was  little  cause  for                                                                    
concern.  However,   the  Stanek  case  raised   the  common                                                                    
question  of whether  two  groups  treated differently  were                                                                    
similarly   situated  and   therefore   entitled  to   equal                                                                    
treatment. He  argued that there  was not a strong  case for                                                                    
distinguishing between  brick-and-mortar operators  and Turo                                                                    
hosts.  He   noted  that  the  Wilson   decision  held  that                                                                    
disparate taxation  must be  reasonable, not  arbitrary, and                                                                    
must  bear   a  fair  and  substantial   relationship  to  a                                                                    
legitimate  governmental objective.  He argued  that he  did                                                                    
not see  a clear justification  for treating the  two groups                                                                    
differently. He emphasized  that brick-and-mortar businesses                                                                    
incurred greater expenses by  definition, such as employees.                                                                    
He remarked  that while  he was  not overly  concerned about                                                                    
the issue, he believed it was important to discuss.                                                                             
                                                                                                                                
Representative McCabe and responded  that the concerns would                                                                    
be valid  if the  tax were applied  directly to  both brick-                                                                    
and-mortar   businesses   and   Turo  hosts.   However,   he                                                                    
emphasized  that it  was  a pass-through  tax,  much like  a                                                                    
sales tax, and was paid by  the renter rather than the host.                                                                    
He  explained  that  the same  applied  to  brick-and-mortar                                                                    
businesses,  meaning the  two groups  were  not being  taxed                                                                    
disparately. He  compared the  situation to  the legislature                                                                    
applying a  percentage tax to  alcohol, cigarettes,  or food                                                                    
products, or  how municipalities applied local  sales taxes.                                                                    
He added that  the legal memo referenced  had been requested                                                                    
by  a member  of the  Senate who  had carried  the bill  the                                                                    
previous year.                                                                                                                  
                                                                                                                                
Co-Chair Foster noted that the committee would take up the                                                                      
bill again in the afternoon's meeting.                                                                                          
                                                                                                                                
HB 123 was HEARD and HELD in committee for further                                                                              
consideration.                                                                                                                  
                                                                                                                                
Co-Chair Foster reviewed the afternoon meeting's agenda.