Legislature(2003 - 2004)
05/18/2003 01:03 PM Senate FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
CS FOR HOUSE BILL NO. 216(FIN)
"An Act relating to and limiting municipal taxation of refined
fuel and wholesale sales of fuel, and to the bulk fuel
revolving loan fund."
This was the first hearing for this bill in the Senate Finance
Committee.
Co-Chair Wilken said this bill "is a municipal taxation on refined
fuel products sponsored by [the] House Labor and Commerce
Committee, chaired by Representative Tom Anderson. HB 216 clarifies
local municipalities taxing authority for refined fuels sold both
within and outside the local jurisdiction."
REPRESENTATIVE TOM ANDERSON testified that this bill clarifies
local taxing authority for refined fuels sold both within and
outside of a local jurisdiction. He recalled an initiative petition
in the Fairbanks North Star Borough to implement a two-cent per
gallon transfer tax. He expressed that "fortunately" the voters
"overwhelmingly" defeated the proposed tax by a margin of 62
percent to 38 percent. Afterwards, he stated, the industry and
businesses recognized that clarification is necessary to limit the
number of municipalities that could tax the same fuel.
Representative Anderson exampled refined fuel shipped via the
Alaska Railroad from Interior Alaska to Anchorage for use in
Southcentral and Southeast markets. Before reaching Anchorage, he
counted eight different governmental taxing entities this fuel
travels through. He pointed out that conceivably, each jurisdiction
could impose a tax on this fuel. He opined that the "exorbitance to
the consumer" would be such that the fuel would not be purchased.
He predicted that this type of taxation would result in Alaska
residents paying local government costs for municipalities in which
they do not reside.
Representative Anderson gave a hypothetical example of a transfer
tax implemented by the Port of Anchorage on all freight landed at
the Port. He remarked that the cost of products traveling through
the Port would increase and residents of other communities would
pay Municipality of Anchorage expenses.
Representative Anderson stated that this bill clarifies local
government's rights to tax any fuel consumed within their
government boundaries, although prohibits taxation of value added
products refined and shipped outside the jurisdiction.
Representative Anderson noted an agreement reached with the
Municipal League of Alaska, which is reflected in the House Finance
committee substitute. He assured this legislation would not affect
those small communities that currently impose transfer taxes.
Representative Anderson also pointed out the committee substitute
contains an amendment sponsored by Representative Carl Morgan that
would increase the loan amount for the bulk fuel revolving loan
fund to one borrower in any fiscal year from $200,000 to $300,000.
Representative Anderson relayed Representative Morgan's intent to
provide adequate funding to meet the increasing costs associated
with construction and replacement of bulk fuel facilities,
particularly in Rural Alaska.
Senator Hoffman asked if any local governments that presently
implement a transfer tax would be impacted by this legislation.
Representative Anderson listed three, one of which is Cold Bay, and
he assured these communities would not be affected.
Senator Hoffman asked if other communities implementing a transfer
tax that have not been identified would remain unaffected as well.
Representative Anderson answered they would not because this bill
contains a grandfather clause and would only apply to future
situation.
Senator Bunde asked if it is "bad public policy" to allow future
transfer taxation, why local governments that currently impose
these taxes should be allowed to continue the practice.
Representative Anderson responded the intent is to be proactive as
a result of the aforementioned ballot initiative in the Fairbanks
North Star Borough. He suggested that the existing taxing authority
could be repealed but requested it be considered in separate
legislation.
Senator B. Stevens referenced Section 8 on page three of the
committee substitute, noting that the previous session the
authorized loan amounts from of the bulk fuel revolving loan fund
was increased from $100,000 to $200,000 and questioned the proposed
increase one year later. He understood the sponsor's argument that
the increased amounts are necessary for construction expenses, but
informed that use of the funds is only allowed "for the purchase of
fuel" and for "communities with populations of less than 2,000
people." He asked how the integrity of the loan fund would be
protected with an ability to draw from that fund increased by 300
percent in less than one year.
Senator B. Stevens he also asked the number of communities with
populations of less than 2,000 have the ability to purchase
sufficient quantities of fuel to repay a $300,000 loan.
Representative Anderson admitted this provision was inserted in the
bill after the House Labor and Commerce Committee considered the
bill and he was therefore unfamiliar with all the details.
Senator B. Stevens asked the status of the loan fund.
JOSH APPLEBEE, Staff to Representative Anderson, testified that
Representative Morgan sponsored Section 8 as a result of rising
fuel prices.
Senator Hoffman listed two other factors: upgrades of facilities
that are holding larger capacities, and attempts for communities to
establish regionalized facilities to allow for bulk purchases at
lower costs.
Senator B. Stevens expressed concern of the balance of the fund and
the impact of the increase from $100,000 to $300,000 loan amounts.
He cautioned that a few communities could exhaust the loan capacity
in a given year.
Co-Chair Wilken requested staff to research the balance of the fund
and indicated the matter would be revisited.
JEFF COOK, Vice President, External Affairs, Williams Alaska
Petroleum, testified via teleconference from an off net location,
that the company owns the largest oil refinery, which refines
approximately 70,000 barrels per day. He informed that about 90
percent of the finished product is shipped via rail to Anchorage
traveling through a number of municipalities. He expressed that
multiple taxes would hamper continued expansions necessary to meet
the demands of the entire State. He indicated that the company
considered proposing this legislation the previous session, however
decided to wait until residents of the Fairbanks North Star Borough
voted on the issue. He told of support for this legislation from
the Alaska Municipal League of Alaska, the Alaska Oil and Gas
Association and the three refineries operating in the State:
Williams Alaska Petroleum, Petrostar Corporation and Tesoro
Petroleum Corporation. He emphasized the need for these refiners to
maintain a competitive position and to provide Alaskans with
competitively priced fuel.
Mr. Cook commented on the provisions of Section 8 relating to the
Storage Tank Assistance Revolving Loan fund, stating that repayment
has historically been good. He explained this is because the
program allows loan amounts of 90 percent of the value of fuel, and
because many communities purchase fuel once per year and draw
repayment funds from the sale of that fuel over the course of that
year.
Senator Bunde understood the problem of multiple taxation, and
asked whether the continuation of the transfer tax imposed by the
three communities would cause hardship.
Mr. Cook replied that the original version of the bill contained a
blanket restriction; however it was learned that repealing the tax
would cause hardship for the three communities and it was therefore
determined that passage of the overall bill was more important than
the loss incurred in these communities.
Representative Anderson expressed he had no opinion on the
provisions of Section 8 of the committee substitute, reiterating
that the increased loan amount was the request of Representative
Morgan.
Senator Bunde asked the names of the two communities other than
Cold Bay that would have a transfer tax grandfathered by the
passage of this legislation.
Mr. Cook was unsure.
Co-Chair Wilken asked if Senate committees have made any changes to
the bill.
Representative Anderson answered no.
Co-Chair Wilken requested further information regarding the
communities that currently impose a transfer tax, as well as a
profile of the Storage Tank Assistance Revolving Loan Fund.
Senator Taylor recalled testimony before the Committee regarding a
proposed fuel tax, attesting that the community of Unalaska
transferred over 60 percent of all the fuel sold in the State.
SFC 03 # 103, Side A 08:12 PM
Senator Taylor suggested Unalaska could be one of the communities
that currently impose a transfer tax.
Co-Chair Wilken requested additional information.
Co-Chair Wilken ordered the bill HELD in Committee.
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