Legislature(2003 - 2004)

04/15/2003 09:06 AM House CRA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
HB 216-MUNI TAXATION OF REFINED FUEL PRODUCTS                                                                                 
CHAIR MORGAN announced  that the only order of  business would be                                                               
HOUSE BILL  NO. 216,  "An Act relating  to municipal  taxation of                                                               
refined fuel products."                                                                                                         
Number 0113                                                                                                                     
REPRESENTATIVE  ANDERSON moved  to  adopt CSHB  216, Version  23-                                                               
LS0822\I, Cook,  4/14/03, as the  working document.   There being                                                               
no objection, Version I was before the committee.                                                                               
REPRESENTATIVE  ANDERSON,  speaking as  the  sponsor  of HB  216,                                                               
explained  that initially  HB  216 was  written  to prohibit  any                                                               
property tax,  sales tax, or  other tax on refined  fuel products                                                               
or  constituents of  fuel products.   However,  the language  has                                                               
been narrowed  considerably, narrowed such that  it prohibits the                                                               
collection  of  wholesale sales  or  wholesale  transfers of  any                                                               
refined petroleum product.  He  noted that Representative Samuels                                                               
has an  amendment that he will  be offering to prohibit  the levy                                                               
or collection  of a sales transfer  or use [fee] on  fuel used in                                                               
turbine-powered aircraft.                                                                                                       
REPRESENTATIVE ANDERSON highlighted the  addition of Section 4 in                                                               
Version I.  Section 4 is  designed to increase the maximum amount                                                               
of loans from the bulk fuel  revolving loan fund from the current                                                               
$200,000 to $300,000.   This change is necessary due  to the rise                                                               
in  fuel prices  nationwide and  in particular  in rural  Alaska.                                                               
Representative Anderson noted his support  of the addition of the                                                               
language in Section 4.                                                                                                          
Number 0458                                                                                                                     
MARCIA DAVIS,  Vice President and General  Counsel, ERA Aviation,                                                               
Inc., said that  she would speak to  the turbine-powered aircraft                                                               
exemption.  She  informed the committee that she  has spoken with                                                               
representatives from  the Alaska Municipal League  (AML) and some                                                               
municipalities.   She related her understanding  that the concern                                                               
is to  not entirely  cut off municipalities  who own  and operate                                                               
airports and have  come to depend upon revenue  from that source.                                                               
Ms.  Davis  stated  that  ERA isn't  opposed  to  supporting  the                                                               
airports;  however, ERA's  preference is  to do  so at  the state                                                               
level.  Because Anchorage is the  primary hub where almost all of                                                               
the  fueling operations  for ERA  take place  and because  of the                                                               
existing federal law,  ERA doesn't see a limitation.   As the law                                                               
is written  Anchorage [would only] be  able to impose a  fuel tax                                                               
on aviation  fuel within  its boundaries and  use those  funds to                                                               
support the Merrill Field operation,  the only legal use of those                                                               
funds.   That isn't fair  because there  is no nexus  between the                                                               
taxes collected in Anchorage and  their support of Merrill Field.                                                               
She proposed that  the solution may lay in what  is known as fuel                                                               
flowage  fees,   which  are  necessarily  tied   to  fuel  that's                                                               
delivered or  sold on the  airport property.  Ms.  Davis informed                                                               
the  committee that  Juneau has  a fuel  flowage fee  as do  many                                                               
other municipalities  that own or  operate an airport.   The fuel                                                               
flowage fees are used to  generate revenue to support the airport                                                               
that the  [municipalities] own  or operate.   This is  done under                                                               
the federal law.   However, when municipalities try  to use sales                                                               
taxes on fuels  or other devices not tied to  the fuel flowing on                                                               
their  airport, the  municipalities are  in legal  trouble.   Ms.                                                               
Davis  suggested  including  language   that  would  specify  the                                                               
borough's authority  to collect a  fee on fuel delivered  or sold                                                               
at  a   borough-owned  or  operated   airport.     Including  the                                                               
aforementioned  language   would  address  ERA's   concern  while                                                               
leaving municipalities free to collect  the costs associated with                                                               
the fuel flowing at their airports.                                                                                             
Number 0852                                                                                                                     
MS.  DAVIS added  that  the airline  industry  is heavily  taxed.                                                               
Currently, just looking at federal  taxes and fees, 26 percent of                                                               
the  average $200  roundtrip ticket  is  a federal  tax and  fee.                                                               
That 26 percent tax doesn't  include the state charges, the state                                                               
fuel tax  as well as any  landing fees and other  charges imposed                                                               
at the  state-owned airports.  She  said she feels that  adding a                                                               
local tax  is dangerous because  tourism is a state  industry and                                                               
as  such the  state is  in the  best position  to monitor  it and                                                               
ensure its economic  viability.  Therefore, the  crux of taxation                                                               
on  commercial  aviation  fuel  should  reside  with  the  state.                                                               
However,  Ms. Davis  said that  [ERA]  appreciates the  conundrum                                                               
that municipalities  are in when  they own or operate  an airport                                                               
within their  boundaries and  need to  pay for  those facilities.                                                               
She reiterated  the need  to restrict  the municipal  and borough                                                               
taxation on aviation fuel to a  fuel flowage fee so that there is                                                               
a logical and  geographical nexus between the funds  paid and the                                                               
airport at which those funds are used.                                                                                          
REPRESENTATIVE CISSNA  asked if the  26 percent of  federal taxes                                                               
was  that high  before  the terrorist  attacks  of September  11,                                                               
2001, tragedy.                                                                                                                  
MS. DAVIS  answered that the  statistics were from 2002  and thus                                                               
she  assumed  that  it  included some  of  the  security  changes                                                               
resulting  from  the terrorist  attacks  of  September 11,  2001,                                                               
Number 1095                                                                                                                     
MARK  SMITH,  Yukon Fuel  Company,  announced  that he  would  be                                                               
speaking to  Section 4 of Version  I.  He informed  the committee                                                               
that  Yukon Fuel  Company deals  with a  lot of  western villages                                                               
that use  the bulk fuel revolving  loan fund.  In  February 2003,                                                               
the  world fuel  prices increased  by  about $.60  a gallon  over                                                               
historical prices and  prices for the summer of 2002.   Mr. Smith                                                               
expressed concern that the users  of the bulk fuel revolving loan                                                               
fund  would experience  diminished  buying  power.   Furthermore,                                                               
there are  many new Denali  Commission farms coming on  and these                                                               
farms  are  designed  to  take  13  months  of  fuel.    This  is                                                               
beneficial to  the community, which can  sometimes see efficiency                                                               
in potential reduction of prices  by obtaining a single delivery.                                                               
Also,  some  villages are  ill-prepared  to  deal with  increased                                                               
consumption  and   the  additional  funds  required   to  support                                                               
additional infrastructure.   As  more projects occur  in [western                                                               
Alaska],  there  is more  activity  with  the Denali  Commission.                                                               
Therefore, the hope  is that [this legislation]  will provide the                                                               
Alaska Energy Authority  (AEA) the flexibility to  offer a higher                                                               
loan fund  amount to those  communities that  need it.   The bulk                                                               
fuel revolving loan  fund is a good program  that has experienced                                                               
good response  and repayment.   He recalled that  there shouldn't                                                               
be a financial  impact due to the $5 million  in additional funds                                                               
that was  included last year.   "The fund should be  well able to                                                               
handle this increased limit," he said.                                                                                          
Number 1325                                                                                                                     
ALLAN  HEESE,  Airport  Manager,  Juneau  International  Airport,                                                               
informed  the committee  that although  he has  spoken with  city                                                               
representatives who  have similar  concerns regarding HB  216, he                                                               
can  only represent  the airport.    Mr. Heese  pointed out  that                                                               
Juneau International  Airport does  have a  fuel flowage  fee and                                                               
the  language  in  the  legislation   seems  to  preclude  Juneau                                                               
International  Airport  from  charging  that  fuel  flowage  fee.                                                               
Therefore, Mr. Heese expressed hope  that there would be a change                                                               
in that  area of  the legislation.   He explained  that typically                                                               
airports have  a very complex  negotiation process in  which they                                                               
try  to  develop  finances  that are  equitable  across  a  broad                                                               
spectrum  of air  carriers.   For instance,  Juneau International                                                               
Airport has air carriers ranging  in size from Alaska Airlines to                                                               
smaller carriers  and general aviation.   Historically,  the fuel                                                               
flowage fee  is a  way in  which the  finances are  arranged, and                                                               
therefore it's a  very important part of  the airport's financial                                                               
picture.      Mr.   Heese    acknowledged   the   concerns   that                                                               
municipalities   shouldn't   be   precluded   from   using   this                                                               
traditional  funding  source  and  expressed the  hope  that  the                                                               
language would support the aforementioned.   He mentioned that he                                                               
had worked  with Representative Samuels  who he believes  will be                                                               
offering some language that is acceptable.                                                                                      
Number 1425                                                                                                                     
KEVIN  RITCHIE,  Executive   Director,  Alaska  Municipal  League                                                               
(AML), began  by thanking  Representatives Morgan,  Anderson, and                                                               
Samuels  and their  staff who  engaged in  problem-solving.   Mr.                                                               
Ritchie  related his  belief that  the language  [to be  offered]                                                               
won't negatively impact municipalities.                                                                                         
REPRESENTATIVE CISSNA asked  if the term fuel flowage  fee has to                                                               
be in the language or are there approximations that work.                                                                       
MR. RITCHIE  related his understanding  that fuel flowage  fee is                                                               
within the family of sales and transfer taxes.                                                                                  
REPRESENTATIVE SAMUELS  remarked that the  fuel flowage fee  is a                                                               
specific term.   He related his belief that  after the amendment,                                                               
which  leaves municipally-owned  airports whole,  is offered  any                                                               
language necessary  to move  from the fuel  flowage fee  to sales                                                               
tax  could be  done.   He characterized  the aforementioned  as a                                                               
semantics issue.                                                                                                                
CHAIR MORGAN,  upon determining  no one  else wished  to testify,                                                               
announced that public testimony would be closed.                                                                                
Number 1631                                                                                                                     
REPRESENTATIVE SAMUELS  moved that the committee  adopt Amendment                                                               
1, which read as follows:                                                                                                       
     Page 1, line 14, after "aircraft"                                                                                          
         Insert ", except for fuel that is transferred                                                                          
     into an aircraft at a municipal or private airport,"                                                                       
REPRESENTATIVE  SAMUELS explained  that Amendment  1 would  allow                                                               
the  municipally-owned airports  to continue  with their  current                                                               
[practices].   As  the  legislation moves  to  the House  Finance                                                               
Committee, the fuel flowage fee could be reviewed.                                                                              
CHAIR  MORGAN,  upon  determining   there  was  no  objection  to                                                               
Amendment 1, announced  that Amendment 1 was adopted.   He, then,                                                               
announced his  wish to  forward this legislation  on to  its next                                                               
committee of referral.                                                                                                          
Number 1705                                                                                                                     
REPRESENTATIVE  SAMUELS moved  to  report CSHB  216, Version  23-                                                               
LS0822\I,  Cook,  4/14/03,  as  amended  out  of  committee  with                                                               
individual recommendations and the accompanying fiscal notes.                                                                   
REPRESENTATIVE  CISSNA  objected  and  inquired as  to  why  this                                                               
committee wouldn't amend the legislation.                                                                                       
REPRESENTATIVE ANDERSON related his  belief that the matter [with                                                               
regard  to the  fuel  flowage  fee] had  been  resolved with  the                                                               
adoption of Amendment 1.   Representative Anderson said he didn't                                                               
believe the  words fuel  flowage fee  had to  be included  in the                                                               
legislation.    He  interpreted   Representative  Samuels  to  be                                                               
highlighting  that  the  legislation  has  another  committee  of                                                               
REPRESENTATIVE  CISSNA related  her  belief  that each  committee                                                               
should do the work falling under its purview.                                                                                   
REPRESENTATIVE  ANDERSON asked  Ms.  Davis if  Amendment 1  would                                                               
cover the fuel flowage fee issue.                                                                                               
Number 1826                                                                                                                     
MS.  DAVIS noted  that the  fuel  flowage fee  is a  term of  art                                                               
that's used nationwide.  Essentially,  fuel flowage is a transfer                                                               
style tax.   She  explained that  the charge  is based  upon fuel                                                               
flowing upon or  over the land owned by the  entity assessing it.                                                               
The fuel  simply has  to be  moved.   She informed  the committee                                                               
that the fuel flowage fee  [for the Juneau International Airport]                                                               
is  described  as  sales  of  aviation  fuel  and  aviation  fuel                                                               
delivery  services at  the airport.   The  Ted Stevens  Anchorage                                                               
International  Airport and  the  Fairbanks International  Airport                                                               
define  fuel  flowage  fees  as  charged  on  all  aviation  fuel                                                               
dispensed at  the Anchorage and  Fairbanks airports,  except fuel                                                               
dispensed  as  manifested  cargo.   She  said  that  Amendment  1                                                               
basically limits out cargo.   She reiterated that the language in                                                               
Amendment 1 would  simply require a transfer of fuel,  no sale is                                                               
required.   Therefore,  the language  would adequately  cover the                                                               
fuel flowage fee.                                                                                                               
REPRESENTATIVE SAMUELS informed the  committee that currently the                                                               
fuel  flowage fee  is part  of  the package  negotiated with  the                                                               
Fairbanks and  Anchorage International Airports.   Representative                                                               
Samuels  related his  belief  that Amendment  1  fixes the  [fuel                                                               
flowage  fee]  problem without  going  too  far.   He  said  that                                                               
specifying the  fuel flowage  fee in  the legislation  would have                                                               
the  unintended  consequence  of  precluding  Juneau,  Ketchikan,                                                               
Homer, Kenai, and Merrill Field  from their current practice with                                                               
the  fuel flowage  fee.   Representative Samuels  emphasized that                                                               
there is  no desire  to stop  municipalities from  continuing the                                                               
current  practice at  the  municipally-owned  airports, which  he                                                               
believes  the  amendment  achieves.     If  Amendment  1  doesn't                                                               
accomplish the  aforementioned, then adding or  [eliminating] the                                                               
fuel flowage fee could be done.                                                                                                 
REPRESENTATIVE  CISSNA commented  on  the  floor amendments  that                                                               
occur because  issues haven't been  thought through enough.   She                                                               
noted that  moving legislation rapidly  isn't the way  the system                                                               
was  established rather  it was  set up  to painstakingly  review                                                               
matters.   Representative  Cissna  expressed her  desire for  the                                                               
committee  to  put  in  the  time  [on  issues]  when  necessary.                                                               
Representative Cissna withdrew her objection.                                                                                   
Number 2116                                                                                                                     
CHAIR  MORGAN announced  that there  being no  further objection,                                                               
CSHB 216 as  amended, CSHB 216(CRA), was reported  from the House                                                               
Community and Regional Affairs Standing Committee.                                                                              

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