Legislature(1993 - 1994)

03/04/1994 01:36 PM House FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
  HOUSE BILL NO. 406                                                           
       "An  Act  relating  to municipal  sales  and  use taxes                 
       involving air carriers; and providing for an  effective                 
  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                 
  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                 
  (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.                                                             
  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                 
  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                 
  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.                                                          
  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.                                
  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                 
  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.                                                                  
  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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