Legislature(2003 - 2004)
05/07/2003 09:01 AM 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 SENATE BILL NO. 112(TRA)
"An Act increasing the motor fuel tax; repealing the special
tax rates on blended fuels; removing the motor fuel tax
exemption of the Alaska Railroad; relating to tax refunds for
government agency purchases of fuel; and providing for an
effective date."
This was the first hearing for this bill in the Senate Finance
Committee.
Co-Chair Wilken informed that the Department of Revenue would be
presenting testimony on this legislation on behalf of the Governor.
He communicated that this legislation would increase the State's
highway motor fuel tax from eight cents a gallon to twenty cents a
gallon and would eliminate the motor fuel tax currently charged for
gasohol. He explained that the version before the Committee, CS SB
112 (TRA), Version 23-GS1118\, contains the language submitted by
the Governor as well as additional language pertaining to the
Alaska Railroad.
LANDA BAILY, Special Assistant and Legislative Liaison, Office of
the Commissioner, Department of Revenue verified that Version "U"
includes language that would exempt the Alaska Railroad from the
motor fuel tax. She communicated that Governor Frank Murkowski and
Commissioner Bill Corbus of the Department of Revenue support this
legislation.
SFC 03 # 80, Side B 06:08 PM
Ms. Baily explained that this legislation would increase the motor
fuel tax from the current eight cents per gallon to 20-cents per
gallon. She continued that, even with this increase, Alaska would
rank below the national average of 23-cents for excise tax rates on
highway motor fuel. She stated that twenty-two states have tax
rates exceeding this amount and that thirty-five states have
combined state and local tax rates that range from 21 to 38.70
cents per gallon. She shared that the Governor urges the Committee
"to agree with him" that this tax increase "would be a viable
method of generating critically needed, re-occurring revenue." She
commented that the Department of Revenue estimates that this
legislation would provide $41.16 million in additional State
revenue per fiscal year. She clarified that rather than $41.16
million, it is estimated that the additional revenue collected in
FY 04 would be approximately $37.7 million "because taxes are paid
one month after sales." She further explained that although the tax
might be effective as of July 1, 2003, the tax collected in July
would be for the status quo tax rate on June 2003 sales.
Ms. Baily continued that the off-highway motor fuel tax would
increase from six-cents to 18-cents per gallon. She reminded the
Committee that this is the first adjustment to this tax rate since
it was enacted in 1970. She stressed that the Department of Revenue
could efficiently administer the increased motor fuel tax. On
behalf of the Governor and the Department of Revenue, she urged the
Committee to adopt this legislation.
Senator Bunde stated that there has been discussion regarding a
phased implementation of this tax. Other than a reduction in the
estimated level of additional revenue, he asked what ramifications
a phased-in tax increase might incur.
Ms. Baily replied that a phased in program would create a problem
in that the Governor has requested the enactment of this
legislation in order to assist the State in addressing its fiscal
gap.
Senator Hoffman asked when the aviation fuel tax was last adjusted.
Ms. Baily stated that this information would be supplied to the
Committee.
JOHN MACKINNON, Deputy Commissioner of Highways & Public
Facilities, Department of Transportation and Public Facilities
conveyed that the Department "is in full support" of this
legislation. He shared that, currently, the Department spends
approximately $60 million in general funds to address statewide
highway and airport maintenance needs. He specified that the
current tax generates $28 million annually toward highway
maintenance and that the 12-cents per gallon increase would
generate an additional $41 million annually. He noted that, while
the total exceeds the current maintenance expenditures, the amount
in excess of current expenditures would be used to address "the
long list of deferred maintenance projects" that currently amounts
to $50 million.
Senator Bunde asked the amount of funds that would be specifically
designated for highway maintenance needs as opposed to the total
projected amount that includes both highway and airport
maintenance.
Mr. MacKinnon specified that the amount that would be spent on
airport maintenance would be: four million dollars in the Northern
Region; three million dollars in the Central Region; and
approximately one million dollars in the Southeast Region. He noted
that these amounts do not include international airport funding.
Co-Chair Wilken noted that the Alaska Railroad taxation issue is
addressed in Sec. 4, subsection (a) on page 4, lines 19-21 and in
Sec 7, subsection (G) on page 5, lines 25 and 26. He referred the
Committee to accompanying information provided by the Alaska
Railroad Corporation titled "Reasons Against Taxing Alaska's State
Railroad," [copy on file] as well as a Memorandum dated May 6, 2003
from Kathryn Kurtz, Legislative Counsel to Senator John Cowdery
[copy on file].
JOHN BINKLEY, Chairman of the Board, Alaska Railroad Corporation,
Department of Community and Economic Development, testified via
teleconference from an offnet site in Fairbanks, to voice concern
regarding a provision in the Senate Transportation Committee
committee substitute that would include "the Alaska Railroad into
the same category as the highway motor fuel users" by implementing
the twenty cent per gallon fuel tax "on all of the rolling stock of
the Alaska Railroad." He voiced concern about the resulting legal
and policy issues that might result.
Mr. Binkley stated that language in this bill could invoke a legal
challenge by violating the federal Railroad Revitalization and
Regulatory Reform Act, referred to as the 4-R Act that was
established in 1976. He explained that this Act prohibits a state
from imposing a tax relating to competitive fuel taxes "that
discriminates against a railroad." In addition, he stated that a
federal provision in the Alaska Railroad Transfer Act, that was
enacted when the federally owned railroad was transferred to the
State, mandates that the State maintain a viable railroad
transportation system to ensure that it would be available for
military and other uses. He stated that this provision prohibits
the State from taking money away from the railroad as opposed to
allowing the railroad to utilize its revenues for railroad
operations.
Mr. Binkley furthered that "on the policy standpoint, the State
should not tax itself," as he attested the railroad is owned by the
people of the State. He voiced that "the lifeblood of the Alaska
Railroad" is to utilize railroad capital to expand its lines. He
stated that the source of the railroad's capital is its net
earnings, and he advised, "if you don't invest capital back into
the asset, you don't exist."
Mr. Binkley referred to separate legislation being considered that
would provide for expansion of the railroad. He attested that,
while the Alaska Railroad supports expansion of its service areas,
it would be "extremely costly." He asserted that, were the Alaska
Railroad's net earnings to lower, the railroad would not be able to
expand. He noted that the Fairbanks North Star Borough Assembly is
on record in opposition to the taxation language in the bill
regarding the Alaska Railroad.
Senator Bunde voiced understanding of the Railroad's concern about
taxation on its rolling stock. He asked for further information
regarding the Alaska Railroad's motor fleet, specifically whether
the motor fleet fuel is purchased from a private entity and is
subject to the highway motor fuel tax.
Mr. Binkley replied that the Alaska Railroad does pay the motor
fuel tax for its vehicles using the State's highway system.
Furthermore, he noted that while the Alaska Railroad could request
a refund of that current highway motor fuel tax that it pays, it
has declined to do so.
Co-Chair Wilken voiced the intent to hold this bill in order to
entertain a committee substitute that would exclude the Railroad
from taxation. However, he voiced support for the establishment of
a dividend program whereby the Alaska Railroad would contribute
funding to the State to support its expansion plans. He voiced the
belief that this could be implemented without damaging the Alaska
Railroad. He suggested that implementation of a ten-dollar user fee
could fund the contribution, which he calculated could amount to
approximately four million dollars based on current ridership
numbers. He encouraged the Alaska Railroad to address instituting a
dividend program, as he asserted, "it is the right thing to do and
it could be done without damaging our Railroad."
Mr. Binkley voiced that this is a legitimate public policy issue,
and he asked that the legislature provide the Railroad "with the
forum" to address the Dividend issue.
Co-Chair Green asked whether the original bill, SB 112, Version 23-
GS1118\A, would adequately address some of the concerns raised by
the Version 23-GS1118\U committee substitute.
KEVIN JARDELL, Assistant Commissioner, Department of
Administration, communicated that, in addition to eliminating the
motor fuel tax exemption for the Alaska Railroad, the Version "U"
committee substitute would authorize the "recoupement of fees"
through the use of a State credit card system.
Senator Taylor asked whether use of the State credit card would be
limited to the Department of Transportation and Public Facilities.
Mr. Jardell clarified that primarily the Department of
Transportation and Public Facilities employees would use the credit
card for fuel purchases. He explained that the credit card would
enable a State employee to purchase fuel, including the motor fuel
tax, from a retailer. He continued that the credit card company
would compute the amount paid toward fuel tax fees and request the
State to reimburse them that amount.
Mr. Jardell qualified that currently a fuel retailer is required to
pay the motor fuel tax to the wholesaler at the time of purchase,
and in turn, the wholesaler pays the State. He continued that one
of two things currently occurs at the time a State employee
purchases fuel from the retailer: one, they can pay the motor fuel
tax; or, two, if a contract is in effect with the retailer, no tax
is collected. In that latter case, he explained, the retailer must
submit a statement to the Department of Revenue asking that the tax
paid to the wholesaler be returned. He stated that current statute
designates that a retailer could only recoup the paid tax. He
stated that the amendment adopted in the Senate Transportation
committee substitute, Version "U" would allow the credit card
company to be able to recoup the sales tax paid for the fuel, but
for which the State would not pay them.
Senator Taylor stated therefore that the amendment would allow the
State to reimburse either a retailer or the credit card company for
the motor fuel tax paid.
Mr. Jardell concurred. He stated that the credit card could be used
at any retailer.
Co-chair Wilken ordered the bill to be HELD in Committee.
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