Legislature(2003 - 2004)
04/25/2003 02:53 PM House FIN
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
HOUSE BILL NO. 271
"An Act levying and providing for the collection and
administration of an excise tax on passenger vehicle
rentals; and providing for an effective date."
KRIS KNAUSS, STAFF, REPRSENTATIVE KOTT (SPONSOR) provided
information regarding the bill. He noted that the bill
implements a ten percent tax on rental cars, and a three
percent tax on recreational vehicles (RV's), for rentals
under 90 days. He highlighted the new fiscal note prepared
by the Department of Revenue that indicated revenue of $6
million annually. He referred to the changes on page 1,
line 7 of the bill and noted that the sponsor was happy with
these changes. He pointed out that the bill had been
changed from a 15% to a 10% tax, and now included RV's. He
confirmed that the Sponsor was in agreement with the
changes.
Representative Stoltze asked whether this might be
detrimental to the tourism industry. Mr. Knauss responded
that they would like to see tourists pay their fare share.
Representative Foster referred to the tax authorized by
Anchorage of 8 percent, and asked whether the proposed 15
percent would be added to that tax, totaling 23 percent.
Mr. Knauss confirmed that this was true, placing Alaska in
the top third of states in terms of car rental taxes. He
noted other states with higher rates of tax.
Co-Chair Harris asked whether the bill allowed for Alaska
residents to be excluded from the rental car tax. Mr.
Knauss stated that the only exemption was for governmental
employees. In response to a question by Co-Chair Harris,
Mr. Knauss confirmed that legislators would not pay the tax
when on business trips.
Vice-Chair Meyer reiterated that Anchorage would be in the
top third of states with the additional tax. He asked about
other communities, such as Fairbanks. Mr. Knauss confirmed
that other communities totaled different percentages.
Vice-Chair Meyer asked if the funding would be directed to
road maintenance. Representative Kott stated that page 2 of
the bill offered intent language, and noted that the revenue
would be placed within the General Fund to be appropriated
according to the legislature.
Vice-Chair Meyer noted that there is a dedicated bed tax in
Anchorage and questioned if that was the intent of the
proposed bill. Representative Kott indicated that the intent
language tax revenue might be directed toward tourism
marketing. He stated that he would like to see some of the
tax return to the industry. He pointed out that, even with
the 10 percent tax, Alaska would still be several percents
less than the amount charged in Seattle. He stressed that
the cost of car rentals in Seattle has never kept him from
renting a car there.
Vice-Chair Meyer observed that the tourism industry has
requested more funding and added that he would like to see
more money available.
Representative Croft referred to the state-by-state
comparison of rental car taxes and commented that the reason
that some of the percentages rose so high was due to
additional sales taxes. He noted that with a ten percent
state rental tax, Alaska would actually be in the top five
in terms of the rental tax alone. Representative Kott
confirmed that the addition of local airport tax placed
Alaska in the top third of the nation.
Representative Croft compared Alaska's aggregate rental tax
with other areas, such as Seattle, and maintained that the
new tax would place Anchorage substantially ahead of these
areas. Representative Knauss stated that in Illinois, the
maximum local tax rate was 18.5 percent. Representative
Croft observed that Anchorage paid 19 percent locally,
including airport charges, in addition to the 10 percent
proposed by the bill.
LARRY PERSILY, DEPUTY COMMISSIONER, DEPARTMENT OF REVENUE
noted that if the version of the bill [House Ways and Means
Committee] passed, it would add up to 29 percent in
Anchorage, which was the same combined tax and fees as
Seattle. He noted that all fees were not reflected in the
chart (copy on file).
Representative Croft also asked whether, apart from the
airport fees, Anchorage would still be ahead of Seattle.
Mr. Persily responded that if one included municipal sales
tax in Seattle as well as state sales tax, the rate of tax
was the same as Washington.
Representative Stoltze asked if this proposal had been
discussed by previous legislatures. Representative Kott
noted that a similar bill was introduced in 1999, both in
the Senate and House.
Representative Stoltze asked whether prices of rental cars
reflected the cost of taxes. Representative Kott observed
that the tax would implement approximately a $4.50 increase
in the price of the overall cost of a rental vehicle.
Representative Stoltze asked whether they had considered a
seasonal tax, effectively exempting Alaskans from rentals
during non-tourist season. Representative Kott maintained
that a seasonal tax would not be cost effective. He added
that the bill would not affect Alaskans since most Alaskans
did not need a rental car in the state for extended periods
of time, with the exception of state government work, which
is exempted.
Mr. Persily added that in Anchorage 75 percent of the
vehicle rentals occurred in the second and third quarter of
the year. He also pointed out that in footnote #2, there
had to be some basis for comparison, since states might have
various additional fees. He stated that the comparison was
based on a $50 per day average, but explained that this did
not necessarily represent the percent of charge.
Representative Moses asked why recreational vehicles were
charged at a different rate. Representative Kott noted that
originally the tax was proposed at the same rate. However
after speaking with car rental companies, it indicated that
a previous tax increase might have caused some companies to
go out of business. After reflection, they concluded that
the fee was lowered for RV's since their rental fee was
already substantially higher and this might discourage
business.
Representative Moses speculated that the vast majority of
the RV's were rented by non-residents, and proposed that the
fees should not be lower. Representative Kott maintained
that it should be kept equitable.
GARY ZIMMERMAN, GENERAL MANAGER-VICE PRESIDENT, AVIS RENT-A-
CAR, ANCHORAGE, commented that they have offices statewide.
He stated that his industry opposes HB 271. He read from a
HR 1 regarding the importance of economic development
throughout the State, particularly tourism. He questioned
why the bill was introduced to target the rental car
industry. He challenged some of the background information
contained in the sponsor statement. For example, he
maintained that the business climate in Alaska is very
different than that of Seattle. He noted the pressures on
his industry to increase their inventory during the tourism
season, and to decrease inventory during the rest of the
year. He pointed out that Seattle has an eleven to twelve
month season. There is a tremendous increase in business in
Alaska during the summer. He contended that adding
additional taxes to a price competitive market would have
drastic consequences for Alaskan rental car businesses.
Mr. Zimmerman noted that the sponsor statement indicated
that extra [rental] vehicles caused road damage. He
contended that motor homes cause far more damage in the
tourism field than a rental car, since they are a heavier
vehicle and create parking problems.
Mr. Zimmerman noted that the amount charged for the lease
would place Alaska in the top one or two most expensive
market places in the United States. He referred to the
earlier mentioned comparative table, and strongly questioned
the validity of its information. He pointed out that the
table lists local tax as "non applicable", while it had been
stated that Anchorage charges an airport tax. He noted that
local sales tax "up to 6 percent" was not correct, with a
total of 5 percent sales tax plus a 4 percent "vehicle
guided facilities fee" in areas like Sitka. He maintained
that the current tax rate in Anchorage was currently 19
percent, placing Alaska in the top ten nationwide, and added
that the proposed tax would then place Alaska at 29 percent
second in the nation.
Mr. Zimmerman concluded that the bill requires more correct
information. He listed additional taxes for specific
communities in addition to the proposed tax.
TAPE HFC 03 - 66, Side A
Co-Chair Williams encourage Mr. Zimmerman to speak with
Representative Kott and Mr. Persly regarding these facts.
He suggested that additional testimony could be heard on the
bill.
Mr. Zimmerman went on to note that the car rental industry
concern over the possibility of a statewide sales tax being
eventually added to the fee. He maintained that this would
be disastrous to the industry.
Mr. Zimmerman pointed out that just the Fairbanks and
Anchorage car rental industry paid the State of Alaska $4.5
million dollars per year, based on the gross 10 percent fee
paid to the state. In addition, he stated that $1.5 million
was paid in fees to the Department of Motor Vehicles.
Airport parking totaled $250 thousand, and customers pay in
the area $500 thousand dollars in state gas tax. He
concluded that the industry already paid fees totaling $6 to
$7 million, in a marketplace which grosses $45 million. He
noted that this therefore represented a fee of 10 percent of
gross receipts.
Mr. Zimmerman also stated that the car rental industry is
currently struggling. Nationwide, air travel is decreasing;
non-cruise passengers have decreased by six percent. The
projections for this summer are low and the market is not
growing. He also noted that the majority of car rental
agencies are locally owned and that some locations have been
closed recently.
Mr. Zimmerman stated that HEIA, the marketing branch of the
Alaska Tourism Industry Association is against targeted
taxes in the visitor industry. He quoted the Sponsor in
addition to the Governor as having stated they did not
support a cruise ship tax since it "targeted a single
sector".
Mr. Zimmerman recommended that the Legislature needs more
information on the negative impact of an additional tax on
the car rental business before making a decision.
Vice-Chair Meyer asked for a breakdown of car rentals for
the business sector and the tourism industry. Mr. Zimmerman
responded that the true tourist business comprised 60
percent of the summer business. During the winter, October
to late April, the bulk of business is corporate.
Vice-Chair Meyer noted that in Anchorage car rentals had
locations outside the airport. He asked if customers could
avoid airport tax by using other location. Mr. Zimmerman
confirmed that this was true, although they could not divert
business. He noted that some hotels had shuttle services
from the airport. Vice-Chair Meyer speculated that a
customer could avoid airport tax by choosing another
location.
Representative Moses noted that the proposed tax could not
be avoided.
Representative Whitaker asked whether the car rental
industry would support a broad based tax on all goods and
services. Mr. Zimmerman confirmed that they would support
such a tax.
Representative Croft asked if Mr. Persily's characterization
that 75 percent of businesses in the summer comprised three
quarters of the yearly business. Mr. Zimmerman observed
that Mr. Persily had referred to the second and third
quarters. He noted that the summer business spanned June in
the second quarter and July and August in the third quarter.
He confirmed that in a broad characterization, approximately
50 percent of business was during those three months.
HB 271 was heard and HELD in Committee for further
consideration.
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