Legislature(2003 - 2004)

04/25/2003 02:53 PM FIN

Audio Topic
* first hearing in first committee of referral
+ 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                                                                   
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                                                                   
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                                                                   
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                                                                   
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                                                                   
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                                                                   

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