Legislature(2005 - 2006)CAPITOL 124
03/29/2005 08:00 AM House COMMUNITY & REGIONAL AFFAIRS
| Audio | Topic |
|---|---|
| Start | |
| HB28 | |
| HB36 | |
| HB2 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 2 | TELECONFERENCED | |
| *+ | HB 36 | TELECONFERENCED | |
| *+ | HB 28 | TELECONFERENCED | |
HB 2-TAX ON COMMERCIAL VESSEL PASSENGERS The committee took an at-ease from 9:17:38 AM to 9:26:45 AM CO-CHAIR OLSON announced that the final order of business would be HOUSE BILL NO. 2, "An Act relating to taxes regarding certain commercial passenger vessels operating in the state; and providing for an effective date." 9:26:53 AM CO-CHAIR THOMAS moved to adopt CSHB 2, Version 24-LS0003\G, Kurtz, 2/17/05, as the working document. There being no objection, Version G was before the committee. 9:27:07 AM REPRESENTATIVE CARL GATTO, Alaska State Legislature, sponsor, explained that this legislation simply reimburses the state for a portion of the expenses that are incurred due to the presence of a certain industry. 9:28:29 AM CODY RICE, Staff to Representative Carl Gatto, Alaska State Legislature, presented a PowerPoint presentation, which began by addressing the ability of the cruise ship industry to pay these taxes. Mr. Rice highlighted statements by the senior vice president of Royal Caribbean Cruises Ltd. regarding the impact of taxes on the cruise ship industry as well, as a Juneau Empire news article dated 5/19/03, which reported a lawsuit against [Royal Caribbean Cruises, Ltd.] for fraudulent head taxes. The aforementioned suit was ultimately settled out of court for $125 million in cruise vouchers. Mr. Rice then related 2004 financial data, which will be updated soon, although the information seems to be in line with 2005 annual reports. For instance, the net profit for Carnival this year is up 53-56 percent and the net income for Royal Caribbean Cruises [is up] 66 percent. He then turned attention to a Juneau Empire article, which relates that people are still cruising although prices for cruises have risen, on average, 20 percent. Yet, testimony in the House Finance Committee [from Charlie Ball, President of Princess Lines] related that a $50 increase on a $1,200 package would be a significant increase. MR. RICE then pointed out an actual brochure for Mexican cruise, which specifies government fees totaling approximately $191.26 per person. The legislation before the committee proposes a $50 per person tax that is only applicable once in 30 days. He then turned attention to the slide in his PowerPoint that related Carnival Cruise Lines revenues, which he related would be updated over the next few days. He noted that on the aforementioned slides and others the timeframe between 2003 and "2003-b" refers to one quarter of 2003. He highlighted that although around September 11, 2001, there was a dip in profits, Carnival Cruise Lines responded fairly well, particularly in light of the fact that it and Royal Caribbean were building a significant amount of ships. Mr. Rice moved on to the chart specifying the number of passengers Carnival Cruise Lines carried from 1995-2003, which specifies the companies 500 percent growth in the number of passengers carried, with a significant amount of that growth occurring between 2001-2003. He informed the committee that Carnival Cruise Lines increased its total number of ships from just over 40 to over 70 ships between 2002-2003. He noted that part of that was due to Carnival Cruise Lines acquisition of Princess tours. MR. RICE highlighted that the cruise ship industry does contribute to charities in Alaska in the amount of more than $500,000 a year and pays $844,750 to DEC for air and water quality monitoring. However, [the charge for air and water quality monitoring] is just less than $1.00 per passenger. He then turned the committee's attention to a table entitled, "Costs Attributable to the Cruise Ship Industry as Determined by OMB and the Department of Revenue," which was created last year in relation to House Bill 537, the governor's tourism tax. The chart outlines the costs potentially attributable to the cruise ship industry's presence in Alaska, which amounts to approximately $115 million in costs to the state. 9:36:05 AM CO-CHAIR THOMAS pointed out that the chart specifies that about $60 million [of that $115 million] comes from airports, although there is no airport head tax. Therefore, although those might be tourism dollars, they wouldn't be from the cruise ship industry. MR. RICE said that he's not an accountant, and therefore he couldn't speak to the process behind this table. However, he related his understanding that the assumption was that most cruise ship passengers do use one or more of the major airports because most passengers cruise one way and fly one way. Therefore, there is some usage of airports by cruise ship passengers. 9:37:14 AM REPRESENTATIVE GATTO related his understanding that airport security systems are designed around peak loads and some portion of the peak loads are attributable to tourists who arrive on a cruise ship and fly home. "And so they've proportioned the amount that the airport had to, essentially, have in place as that amount that is attributable only to this group of people [cruise ship passengers]." 9:38:09 AM MR. RICE turned to the final issue of legality, in particular how it relates to the Maritime Transportation Security Act (MTSA). The MTSA specifies that only reasonable fees charged on a fair and equitable basis can be charged and can only be "used solely to pay for the cost of a service to the vessel or watercraft; enhance the safety and efficiency of interstate commerce; do not impose more than a small burden on interstate or foreign commerce." Version G reiterates much of that language with regard to how the state will distribute those funds. He informed the committee that the disposition of receipts is modeled after the Cruise Ship Initiative because it's substantial and similar and falls in line with Attorney General Renkes' opinion. He pointed out that the committee packet should include an October 6, 2003, memorandum from the attorney general regarding legal questions. He quoted the following excerpt from the aforementioned memorandum: "While there are limitations imposed by federal law on the purposes for which the excise tax in section 1 of the proposed bill can be used, it would be a mistake to interpret this federal restriction as creating a dedicated fund." Mr. Rice explained that current legislation has a subaccount to meet the standards required in the MTSA, the receipts are placed in the subaccount and are used to pay the $5 a port fee at the first five ports. He noted that there is also a regional subaccount of which 25 percent of the receipts will cover the costs of regional areas that may or may not necessarily be a port, but still be impacted by the cruise ship industry. The remainder is placed in the state GF for usage only on such projects as enhanced safety and efficiency of interstate commerce. Mr. Rice acknowledged that there is the question as to whether the subaccounts create a dedicated fund by state standards. An attorney general opinion in 2003 specified that while the subaccounts did satisfy federal standards for creating a dedicated fund, they didn't violate state standards for creating a dedicated fund. 9:41:53 AM REPRESENTATIVE GATTO returned attention to the PowerPoint slide entitled, "Issues for Discussion." He highlighted that the cruise ships are enormously profitable. However, the cruise ships continually say that any $50 tax would hurt business, although the facts haven't borne that out. He related that passenger interviews have shown that most passengers shrug off a $50 tax because taxes in other places are substantially more. For instance, when one cruises to Mexico, the port fees are about $150, which amounts to about $50 per port. However, the proposal in HB 2 would charge a fee of $50 for the first five ports in Alaska. The current contributions to the state are essentially zero. With regard to the cruise ship industry's ability to continue to prosper in Alaska, Representative Gatto pointed out that Alaska is a primary destination. Fully 10 percent of [cruise passengers] come to Alaska, which he opined would continue to increase for some time. In fact, the building of ships wouldn't continue unless the prospects of filling those ships was clear and convincing. With regard to the illegality of [a tax such as that proposed in HB 2], he said that's not a decision that can be made in committee or can be made by the cruise ship industry; "that's why we have a court system." He indicated that [whether the tax is illegal] isn't of concern [for the committee] unless the statute clearly specifies that cruise ship taxes, in any form, are illegal. Representative Gatto said his concern is that if the Department of Revenue projections are correct, the state is already spending a certain amount of money to support the cruise ship industry. However, the argument [of the department] is that it doesn't like targeted taxes, although the taxes on mining, timber, tourism, and oil and gas are such. Representative Gatto said that he is at a loss to find a non targetted tax. The cruise ship industry has said it would support a sales tax and an income tax for the state, which he opined is because they don't pay any part of those. The idea [with HB 2], he stressed, is to recover a portion of the state's costs on behalf of the cruise ship industry. 9:48:08 AM REPRESENTATIVE LEDOUX inquired as to whether any other states have cruise ship taxes. REPRESENTATIVE GATTO answered that Hawaii does. He informed the committee that Bermuda, Jamaica, and the Virgin Islands also charge cruise ship taxes. Representative Gatto also informed the committee of the cruise ship industry's ability to do the practice of "port pulling," which the community of Whittier experienced with its minimum tax. However, this legislation collects a certain amount of money up-front and distributes it to the first five ports, and thus the ports aren't left in the "wing." Representative Gatto opined that Alaska provides the cruise ships arguably the most beautiful scenery in the world for free and they sell it. He indicated that if other industries in the state are going to be taxed, then it's only fair to [tax the cruise ship industry]. "And if you're really worried about the legality, let's concentrate on the legality question in the courts," he opined. 9:51:25 AM REPRESENTATIVE LEDOUX restated her question as to whether any other states have head taxes and if so, have they met constitutional challenges. MR. RICE answered that he isn't aware of any other states that have head taxes. However, discussions with the drafter of the MTSA provision and the Legislative Legal and Research Division attorneys have viewed the MTSA as so broad that it invalidates quite a few existing taxes, such as riverboat taxes and individual port taxes in Florida and Hawaii. Mr. Rice said that most other states don't have a statewide head tax, which he opined is fitting in relation to the size and number of ports. 9:52:47 AM MR. RICE, in response to Representative LeDoux, specified that whether [a tax] meets MTSA clauses depends upon how the receipts are spent. If the receipts aren't spent solely on costs attributable to the vessel and to enhance the safety and efficiency of interstate commerce, then it doesn't meet the MTSA. This legislation, he opined, would meet the aforementioned standards and require the legislature to appropriate receipts only in ways that meet those standards. REPRESENTATIVE GATTO informed the committee that a lot of shipping occurs in San Pedro, California, besides cruise ships. Therefore, San Pedro already has its infrastructure in place to handle large vessels. However, if it weren't for the cruise ships, Alaska wouldn't have a need for large vessels and thus an infrastructure has to be constructed to accommodate the only large vessels arriving in the state. 9:54:22 AM CO-CHAIR THOMAS turned to the notion that Juneau is the impacted community, and pointed out that those coming in from other Southeast communities are fairly well displaced when they come to shop in Juneau. With regard to the impact funds that can be given to municipalities, Co-Chair Thomas opined that the funds should go to those communities outside of the port. 9:55:35 AM REPRESENTATIVE CISSNA surmised that Co-Chair Thomas was referring to the impact on communities to which the cruise ship industry decides not to visit. However, she questioned whether the money [from the cruise ship industry] makes up for the expense of the port facilities. REPRESENTATIVE GATTO informed the committee that the cruise ship industry has categorized Juneau as a must see, and therefore it doesn't matter how much money Juneau charges the cruise ships because the industry won't bypass Juneau. The concern, he related, is in regard to the other communities [that aren't must see stops]. He highlighted that the subaccounts will take care of those impacted communities. MR. RICE explained that 25 percent of [head tax] receipts are placed in a regional subaccount, which is specifically designed to go to those communities impacted although they may not be a port of call. The aforementioned happens so long as the money is used to meet the safety and efficiency of interstate commerce. 9:57:59 AM CO-CHAIR THOMAS highlighted the graph specifying the $60 million in impacts of [the Interior], which would result in funds being generated in Southeast and sent to Fairbanks and Anchorage. MR. RICE said that he can't predict where future legislatures will send the money. 9:58:54 AM REPRESENTATIVE SALMON recalled that over the past couple of years those in Fairbanks have complained that there aren't enough tourists. He opined that a $50 head tax will impact those up north and thus that should be reviewed. He said that tourists shouldn't be taxed to the point of not wanting to come to Alaska. 10:00:19 AM CO-CHAIR OLSON announced that HB 2 would be held over.
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