Legislature(2003 - 2004)
04/25/2003 02:53 PM FIN
* first hearing in first committee of referral
= bill was previously heard/scheduled
= 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.