Legislature(1995 - 1996)
03/21/1996 01:50 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 362
"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."
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Commissioner Perkins provided an update on the issues which
were left outstanding from the previous meeting regarding
the proposed legislation. The first issue concerns the
management of the Foreign Trade Zone (FTZ) in Anchorage.
The Municipality of Anchorage and the State of Alaska
committed to a meeting to discuss the State's involvement in
management issues related to State land in the FTZ. The
meeting did occur and agreement was reached that the State
would be included in any decision on the FTZ. Details
remain to be worked out relative to the existing use of the
FTZ. He provided a letter from Mayor Rick Mystrom regarding
the Anchorage FTZ. [Copy on file].
The second concern addressed the availability of Custom
Bonded Warehousing for the storage of AvJet fuel. That
issue has been researched thoroughly, concluding that in the
State's ability to tax, there would be no practical
difference. He noted that either one, an FTZ or a Custom
Bonded Warehouse could be used for the purpose that FTZ is
used today. However, it would also clarify that a Custom
Bonded Warehouse would have disadvantages that are not
present with an FTZ. In a Custom Bonded Warehouse, goods
must be segregated from the moment they enter the warehouse
until they leave. For an FTZ, there is no such requirement.
JEFF COOK, (TESTIFIED VIA TELECONFERENCE), VICE-PRESIDENT,
EXTERNAL AFFAIRS & ADMINISTRATION, MAPCO PETROLEUM,
ANCHORAGE, stated that the only way to provide the in-state
refineries protection would be through passage of HB 362.
He pointed out that Fed Ex has testified that they intend to
use bonded fuel.
(Tape Change, HFC 96-84, Side 1).
Mr. Cook reiterated MAPCO's position of support for HB 362
which he thought would "level the playing field". In
response to Representative Navarre's question, Mr. Cook
stated that bonded fuel has been available since the 1930's.
Representative Navarre asked if it had always been exempt
from the tax, and if so why had it not eliminated the demand
from the market. Mr. Cook admitted that he was not
qualified to answer that query, although reiterated that
Alaska does not refine enough jet fuel for the demand.
Representative Navarre suggested that in-state refiners
might already have a competitive advantage. He requested
information on the current MAPCO profit margin. Mr. Cook
stated that MAPCO competes against other refiners and was
not willing to lay out their costs. He assured Committee
members that shipping costs through the FTZ were cheaper
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than what local refiners pay to ship via the Alaska Railroad
from Fairbanks.
Representative Navarre maintained that bonded fuel has been
available and has not yet glutted the market. He believed
that would not happen, emphasizing that the 3.2 cents
charged by the State is not the only factor in the equation.
Representative Navarre emphasized that enough information is
not available to make the decision recommended. Mr. Cook
agreed that the tax is not the only variable. Business has
become much more competitive and the airlines definitely
have interest in saving money. He emphasized that in the
fourth quarter, 1995, 20 million gallons of jet fuel did
come into the Alaskan market. He urged that the tax
advantage for the foreign refined fuel be eliminated.
Discussion continued between Representative Navarre and Mr.
Cook.
Representative Navarre questioned the two cent per gallon
flowage fee lifted at the airport. He asked if that was a
charge on all fuel pumped at the airport.
KURT PARKAN, DEPUTY COMMISSIONER, OFFICE OF THE
COMMISSIONER, DEPARTMENT OF TRANSPORTATION AND PUBLIC
FACILITIES (DOTPF), stated that the fuel flowage fee
circulates back into the enterprise fund at the airport.
Most of that is collected through an operating agreement
with the air carriers. That agreement is based on a five
year operating agreement during which time, the fuel flowage
fees can not be increased. The fuel users within the FTZ
are nearly all members of the operating agreement.
Members discussed the concept of profit margin.
Representative Therriault spoke to the advantages and
disadvantages among private sector in determining the profit
margin. Co-Chair Hanley inquired if fuel that came into
Alaska had displaced any Alaska refined product.
Representative Navarre suggested that it had been a
balancing influence in the competitive market.
Commissioner Perkins stated that DOTPF wants to "level the
playing field", although he felt that enough information
indicating that it was not currently level, is not
available. The Department plans to proceed to work with the
Municipality of Anchorage addressing the FTZ portion of the
legislation. The bonding concerns should be addressed at a
later date.
Co-Chair Hanley asked if new facilities would need to be
built for bonded fuel. Commissioner Perkins advised that
the current set-up could be used, although it can not be
mixed in the tanks. He added, bonded fuel did come into
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Alaska in 1971, which was the only bonded fuel to come into
Alaska until the tanker last year. He did not know of any
tankers which were scheduled to come back into Alaska.
Discussion followed between Representative Kelly and
Commissioner Perkins as to the definition of a "level
playing field". Commissioner Perkins noted that there were
many considerations which would create a level playing field
including the cost of transportation and the cost of
product. The deciding factor is whether a business can
compete and make a profit. Representative Kelly reiterated
that it was not "fair" that in the free market place, one
business was required to pay over and above the other, a 3.2
cent tax. Representative Navarre advised that the tax was
not the only thing making the playing field not level. He
stressed that it has not been proven that the bonded fuel is
crippling the in-state refiners.
Commissioner Perkins asked if there had been to date, enough
impact on industry to remove the 3.2 cent tax, eliminating
that revenue source for the State of Alaska. He noted that
the Department supports in-state producers and would
guarantee that if there was a lot of fuel arriving at the
Anchorage harbors, the Department would then suggest that
the tax be removed. Co-Chair Hanley agreed that the State
would lose revenue with the removal of the tax.
JACK BURMINGHAM, (TESTIFIED VIA TELECONFERENCE), ALASKA AIR
CARRIERS ASSOCIATION, ANCHORAGE, testified that airlines
were the ones required to pay the aviation fuel tax, not the
refiners. To the extend that there is an unlevel playing
field, he noted that some airlines do not pay the fuel tax
and are competing with those airlines that do. He stated
that there has not been specific justification for the tax
give-a-way for bonded fuel.
PAMELA LABOLLE, PRESIDENT, ALASKA STATE CHAMBER OF COMMERCE,
JUNEAU, spoke in support of HB 362. Under present
circumstances, Alaskan business' are being put at a
disadvantage. She recommended the State goals be:
1. Value added resources; and
2. Economic development.
Co-Chair Hanley asked if bonded fuel could be taxed.
NEIL SLOTNICK, ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF
LAW, noted that he had checked if state tax would be
preempted by federal law. There is no statute that
explicitly preempts state taxation, which then leaves the
State in determining if state taxation is implicitly
preempted. He thought that arguments could be made on both
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sides. The taxpayers are likely to argue that there are two
cases before the U.S. Supreme Court that control that issue.
The commissioner of the Department of Revenue has
considered all the information, including weighing the risks
of litigation costs, and has determined that it would not be
in the State's best interest to assess state taxes against
bonded fuel.
(Tape Change, HFC 96-84, Side 2).
M. CLYDE STOLZFUS, SPECIAL ASSISTANT, OFFICE OF THE
COMMISSIONER, DEPARTMENT OF TRANSPORTATION AND PUBLIC
FACILITIES, responded to Co-Chair Hanley's question
regarding other states which tax bonded fuel. He advised
that there are other jurisdictions that tax bonded fuel,
although the type of taxes vary. The existence of a FTZ
does not in itself, exempt taxation.
Co-Chair Hanley asked if some states are taxing the fuel,
why doesn't Alaska. Mr. Stolzfus responded that the
situation was not fuel related. It was "other" commodities
within a FTZ. Mr. Slotnick added, the difference was not in
the commodities, but rather the type of tax. There are some
"privilege" taxes that have been allowed on exempt
commodities which are in a FTZ.
Representative Kelly suggested the possibility of offering a
rebate given to the local producers based on the amount that
is actually brought into the State. Mr. Bartholomew stated
that consideration could be a possibility. Perhaps an
exemption of every gallon coming into the State of that used
in excess of the capacity of the local producers.
RANDY WELKER, LEGISLATIVE AUDITOR, LEGISLATIVE AUDIT
DIVISION, commented that federal regulations that govern the
FTZ consists of a governing board. The regulations do
provide that the board, if given good cause, can exclude
certain goods or property from the FTZ. He stated that
there is a possibility that a resolution submitted to that
Foreign Trade Zone Board could encourage the exemption of
fuel from that zone. If that should occur, the fuel coming
in could be taxed, which would only address that FTZ fuel
and not the bonded fuel.
RICHARD CURTIN, GENERAL COUNSEL, PETRO STAR, ANCHORAGE,
testified that Petro Star owns the only Alaskan refinery and
the smallest refinery in the State. He stressed that once
the tankers are in route, it will be too late for in-state
refiners. The impact will cause some refineries to go out
of business. He concluded that the purchasers of jet fuel
have indicated that they intend to move to bonded fuel.
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HB 362 was HELD in Committee for further consideration.
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