Legislature(1997 - 1998)
02/25/1998 01:40 PM House FIN
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
HOUSE BILL NO. 239
"An Act relating to the liability of motor fuel
dealers for payment of tax imposed on certain credit
transactions involving motor fuel sales or transfers
that become worthless debts or on sales or transfers
to persons who declare bankruptcy; and providing for
an effective date."
REPREESNTATIVE GARY DAVIS explained that the Alaska motor
fuel tax is an excise tax designed to be paid by the
consumer or user of the fuel. For administrative reasons,
state law requires the tax to be collected and paid by the
motor fuel wholesaler at the time the fuel is sold or
transferred. As a practical matter, the transaction often
occurs at the wholesale level with businesses that
subsequently resell the fuel to the consumer or user of the
fuel.
Representative G. Davis continued, in commercial
transactions of this nature, it is customary to extend
reasonable credit terms that may result in a deferral or
delay in the collection of both the debt and the motor fuel
tax by the dealer. In some cases, the debt may become
wholly or partially worthless because of a bankruptcy
filing.
HB 239 would allow motor fuel dealers in these cases to
receive a nonrefundable credit in an amount equal to the
tax previously remitted to the State. The credit would
only be applied against subsequent tax liabilities, and
could only be taken for sales with a total tax liability of
$500 or more.
The language specifies that dealers may only apply for a
bad debt credit by filing written proof of the bankruptcy
petition, or after reporting the debt as worthless on the
dealer's federal income tax return.
Representative Gary Davis summarized that HB 239 would
include a provision requiring repayment of the tax if the
account or debt was subsequently repaid, with partial
payments to be handled on a proportional or pro rata basis.
Co-Chair Therriault questioned the need for the "findings"
section. Representative G. Davis replied that section
indicates the process that the State must go through to put
the situation in place. He agreed that section could be
deleted.
Representative J. Davies recommended that the effective
date of the legislation must be changed. Representative G.
Davis agreed. Co-Chair Therriault noted that would occur
in the new committee substitute.
Representative Grussendorf emphasized the need of
establishing "other" revenue streams if the State continues
to give "breaks" to industry. Representative G. Davis
believed that $500 dollars tax owed, at eight cents a
gallon would be an equitable threshold. Co-Chair
Therriault pointed out that the tax would be written off
and that the refiner would take the "big hit".
BOB BARTHOLOMEW, DEPUTY DIRECTOR, INCOME AND EXCISE TAX
DIVISION, DEPARTMENT OF REVENUE, spoke to the Department of
Revenues (DOR) considerations with the proposed
legislation. Last year, when the Department went through
the process to change the motor fuel forms to increase the
compliance effort of the State, the forms were changed and
additional information was collected from the industry. At
that time, the industry brought up issues that they had
with businesses not paying their debts. DOR agreed to look
into it, and then discuss it internally as a policy issue.
At that time, other states were contacted regarding the
manner in which they addressed this concern. The
Commissioner believed that this was a reasonable tax from
an equity standpoint.
Mr. Bartholomew advised that the Division had established
"guardrails" as to who would have the authority, which then
lead to focusing on several sections of the bill:
? 1st - Going into bankruptcy and meeting the court
test for not having the financial assets to meet
the debts;
? 2nd - Meeting the IRS guidelines for writing off
a worthless debt.
He continued, one of those criteria must be met to be
eligible for the credit. The Division also has asked for a
bottom threshold. Other states recommended that there be
language to keep the small transactions out, consequently,
a limit was established.
Mr. Bartholomew continued, no cash refund would be given.
If a credit were claimed, it would come from a future tax
liability. The fiscal note is based on 1/10th of 1% of the
total sales or revenue coming into the State. The State
currently collects about $40 million dollars a year in
motor fuel revenues.
Representative Grussendorf asked if when the dealer buys
the gasoline in bulk, if he would have to pay the federal
tax on it. Mr. Bartholomew understood that the federal tax
was collected "further upstream" and that the manufacturer
or the distributor would have paid it.
Co-Chair Therriault questioned if motor fuel tax would
include marine fuel and highway fuel. Mr. Bartholomew
stated it would and applied to all motor fuel taxes under
Title 43, aviation, marine and highway.
Representative G. Davis pointed out that other states have
this in place, although, it is not used often. He reminded
members that other states do not have the seasonal industry
that Alaska does, which would make this legislation more
advantageous here.
Co-Chair Therriault referenced language proposed in the
amendment, which considers the total transaction. Mr.
Bartholomew understood that a typical tanker load would be
limited to one transaction and subject to the $500 dollar
limit. He acknowledged that it would be a rare occasion
when a customer with one shipment payment late would be cut
off. Usually the second or third shipment is where the
line would be drawn. Limiting it to single transaction
would not help. He believed that the transaction could
work given the other stipulations contained in the bill.
Co-Chair Therriault reiterated that no transaction would be
allowed once it was known that the business was bankrupt or
unwilling to pay the debt.
Co-Chair Therriault suggested that if a company was going
bankrupt, it would be prudent for the distributor to get a
letter of credit, rather than continue building that
potential debt. Mr. Bartholomew commented, some business
would attempt to get some type of security. If there was a
recovery by the company, they would then have to reimburse
the State for a portion of the credit, and that would be
prorated.
Representative Grussendorf asked if the company applying
for the credit would have to submit their IRS statements to
the State. Mr. Bartholomew replied that the Division would
require documentation of the bankruptcy files as a part of
the credit support.
MARK HICKEY, REPRESENTING - PETRO MARINE SERVICES, JUNEAU,
spoke in support of HB 239. He stated that the bill would
allow fuel dealers to receive a nonrefundable credit for
fuel taxes paid to the State for fuel sold on credit, but
not paid by purchasers, who had declared bankruptcy or
rendered their debt worthless. The bill would allow motor
fuel dealers to receive a nonrefundable credit in an amount
equal to the tax previously remitted to the State. The
credit would be applied against subsequent tax liabilities
only, and could be taken for sales with a total tax
liability of $500 dollars or more.
The legislation specified that dealers may only apply for a
bad debt credit by filing written proof of the bankruptcy
petition or reporting on the dealer's federal income tax
return that debts are worthless. Mr. Hickey commented that
Alaska Petro Marine Services believes that HB 239 would
provide a more fair and equitable adjustment to current
law.
The company supports the amendment. Mr. Hickey pointed out
the technical problem on Page 3, Section (f), regarding
protection. Current language could be interpreted that this
not apply to the transaction. He recommended that Line 22
be worded: "This section does not apply to a credit
transaction by" and keeping the remaining language. He
suggested, on Line 27 to insert "a" and delete "the".
Co-Chair Therriault spoke to Section (e), Page 3, Line 19,
in reference to the three-year period. Mr. Hickey
understood that language clarified that once a company has
a credit with an individual customer, they would not be
able to again apply when they ceased to pay the debt.
HB 239 was HELD in Committee for further consideration.
(Tape Change HFC 98- 42, Side 1).
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