Legislature(1993 - 1994)
03/04/1994 01:36 PM House FIN
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* first hearing in first committee of referral
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HOUSE BILL NO. 406
"An Act relating to municipal sales and use taxes
involving air carriers; and providing for an effective
date."
Representative Foster noted that HB 406 was assigned to a
subcommittee, on 2/24/94, consisting of Representative
Foster as Chair and Representatives Grussendorf and Martin.
He provided members with a proposed committee substitute,
work draft 8-LS1599\E, dated 3/3/94 (copy on file).
LARRY LABOLLE, STAFF, REPRESENTATIVE FOSTER explained that
the committee substitute prohibits a municipality from
levying or collecting a tax or fee on the transportation of
individuals or goods unless provided for in U.S.C. App
1513(b). He explained that this section enumerates items
that can be taxed, related to air commence. He observed
that the retroactive effective date was removed from the
committee substitute. He acknowledged that the committee
substitute does not alleviate all of the concerns expressed
by the City and Borough of Juneau and the Alaska Municipal
League.
In response to a question by Co-Chair Larson, Mr. Labolle
clarified that items sold at the air terminal are subject to
municipal taxes. He explained that the legislation refers to
anyone traveling in air commerce. Federal regulation
prevents additional taxes on air fares.
Co-Chair MacLean asked for an explanation of U.S.C. App 1513
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(b) and (e). Mr. Labolle observed that section (e) allows
the implementation of a three dollar head tax at the airport
of origin. He explained that section (b) encompasses
property taxes, fuel flowage taxes, personal property used
in business and other items not directly connected to the
transportation of a person or freight.
Representative Foster MOVED to ADOPT work draft 8-LS1599\E,
dated 3/3/94. There being NO OBJECTION, it was so ordered.
Representative Martin questioned if U.S.C. App 1513 (b)
allows local governments to tax transportation to and from
lodges and car rentals. Mr. Labolle stressed that local
government's ability to tax is not being expanded or
diminished by the legislation.
ROBERT HALLFORD, NATIONAL AIR CARRIERS testified via the
teleconference network from Anchorage, in support of CSHB
406 (FIN). He maintained that the legislation is not
intended to prevent or preclude the state or municipalities
which operate airports from continuing to tax the associated
services connected to air transportation. He noted that
landing fees, fuel flowage fees, or property rent will not
be effected. He asserted that the legislation will clarify
that taxation of air transportation is reserved for the
federal government in exchange for the "overriding benefit
of the public at large."
Mr. Hallford noted that the federal government collects a
ten percent excise tax on passenger fares and a six and a
half percent transportation tax on all air cargo. He
asserted that case law supports the proposition that no
additional taxes are allowed on air transportation of
persons or freight. He maintained that the legislation will
clarify federal law in order to prevent litigation by
municipalities wishing to impose taxes on the transportation
of property and people within the state. He suggested that
references to subsections (b) and (e) are redundant. He
pointed out that these sections pertain to matters other
than the sale of air transportation. He asserted that the
legislation will not hinder municipalities from collecting
allowable taxes.
JOHN HARTLE, ASSISTANT CITY ATTORNEY, CITY AND BOROUGH OF
JUNEAU (CBJ) testified in opposition to CSHB 406 (FIN). He
stressed that there is an unfunded mandate for
municipalities to provide services to air carriers without
the ability to collect taxes. He acknowledged that the
legislation will prevent sales tax on transportation and
goods through hub communities. He conceded that the
committee substitute improves the legislation. He expressed
concern that landing fees not be impacted by the
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legislation. He suggested that the addition of "air" before
"transportation" would further clarify the legislation. In
response to a question by Co-Chair Larson, Mr. Hartle
elucidated that landing fees would not be impacted by the
committee substitute.
Representative Hanley asked for further clarification of the
City and Borough of Juneau's position. Mr. Hartle
elaborated that federal law is unclear in regards to the
taxation of the transportation of property. The City and
Borough of Juneau believes municipalities should be free to
challenge the federal interpretation of taxation of freight.
He observed that freight could not be taxed if the
legislation is adopted. He added that taxation would be
precluded on the service of transporting property.
Representative Martin MOVED to insert "air" before
"transportation" on line 10, page 1.
Representative Parnell restated that the amendment would
exclude ground transportation. Mr. Hartle agreed that
ground transportation would be excluded. He added that the
legislative history is clear that the intent of the
legislation is to prohibit sales tax on the carriage of
goods.
There being NO OBJECTION, AMENDMENT 1 was adopted.
Representative Parnell clarified that "App" on page 1, line
12 refers to the appendix to the U.S. code.
REED STOOPS, ALASKA AIR CARRIERS ASSOCIATION spoke in
support of CSHB 406(FIN). He pointed out that air carriers
pay a 10 ten percent federal excise tax on passenger fares
and a six and a quarter percent federal excise tax on all
air cargo. This tax goes to the federal Airport and Airways
Trust Fund. He noted that the state of Alaska receives more
than it contributes into the Fund. He suggested that a
letter of intent be adopted to further define the
legislative intent.
CRYSTAL SMITH, DIRECTOR OF MEMBER SERVICE, ALASKA MUNICIPAL
LEAGUE spoke in opposition of CSHB 406 (FIN). She
reiterated that federal law pertaining to the transportation
of goods is not well defined. She asserted that the
transportation of intrastate freight is not exempted from
taxation. She noted that St. Marys has attempted to add
their municipal sales tax to the transportation of fish from
St. Marys to Anchorage. They would collect approximately
$100.0 thousand dollars a year if the sales tax was added.
She alleged that there is no existing state case law
regarding intrastate taxation of air freight.
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Ms. Smith referred to an opinion by the Department of
Transportation and Public Facilities, Deputy General Counsel
that states that federal law does not preempt intrastate
taxation. She referenced a preliminary opinion by Judge
Lincoln in Homer. Judge Lincoln ruled that municipalities
may place a tax on non certificated air carriers.
Ms. Smith recognized that the committee substitute did
address some of the concerns expressed by the Alaska
Municipal League.
Mr. Hallford noted that the letter referenced by Ms. Smith
from the Department of Transportation and Public Facilities
is dated 1986. He observed that the United States Supreme
Court ruled in 1992 that the preemption provision was
intended by Congress to have a broad effect. He clarified
that the preemption provision is contained in U.S.C. 1305.
He cited the supreme court decision Morelis vs Transworld
airlines. He suggested that the exception for intrastate
transportation was made clearer by the decision. He
asserted that intrastate transportation can be interstate
commerce.
Representative Martin MOVED to insert "air" before
"transportation" on page 1, line 1.
Representative Brown asked how flight seeing services would
be effected. Mr. Hartle replied that sales taxes on flight
seeing services would be prohibited by the legislation. He
added that CBJ has considered assessing a sales tax on
flight seeing tours that operate in Juneau. He emphasized
that the state has reduced aide to municipalities and is
cutting into the municipal tax base in statute.
Representative Hanley noted that Judge Lincoln's decision
found that the air taxi service in Homer was a non
certificated air carrier and could be taxed by the
municipality of Homer. Mr. Hartle observed that all
commercial aviators carrying passengers have some federal
certificate. He felt that the broad language contained in
CSHB 406 (FIN) would prevent the taxation desired by CBJ on
sight seeing air transportation.
Mr. Hartle clarified that the confusion regarding the
taxable status of air freight is contained in section (a) of
U.S.C. APP 1513. He maintained that reference to section
(b) would not create further confusion.
Representative Foster MOVED to report CSHB 406 (FIN) out of
Committee with individual recommendations and with the
accompanying fiscal notes. There being NO OBJECTION, it was
so ordered.
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CSHB 406 (FIN) was reported out of Committee with "no
recommendation" and with three zero fiscal notes, one by the
Department of Community and Regional Affairs, published
2/15/94 one by the Department of Revenue, published 2/15/94,
and with a zero fiscal note by the Department of
Transportation and Public Facilities; and a municipal fiscal
impact note by the Department of Community and Regional
Affairs on behalf of municipalities.
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