Legislature(1993 - 1994)

03/15/1994 03:00 PM House L&C

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
  HB 453 - TAX ON RESIDUAL MARINE FUEL OIL                                     
  Number 070                                                                   
  REP. GARY DAVIS, Prime Sponsor of HB 453, presented the                      
  following sponsor statement on HB 453:                                       
  House Bill 453 is simple, straight forward legislation.                      
  House Bill 453 will attempt to create an equal playing field                 
  between Alaska's residual fuel oil industry and their                        
  counterparts in the Lower 48 and Canada.                                     
  Residual fuel oil is the residue from crude oil after the                    
  light oils, gasoline, naphtha, kerosine, and mid-                            
  distillates, are extracted in the refining process.  The                     
  only applications for residual fuel oil in Alaska are                        
  asphalt, cruise ship fuel and reinjection into the pipeline.                 
  This product is subject to the state's motor fuel tax.  The                  
  tax rate for residual fuel oil is five cents per gallon.                     
  As a result of the current rate of taxation on this product,                 
  Alaska's residual fuel oil is automatically noncompetitive                   
  with the same product available elsewhere.  The cruise ship                  
  industry is the prime potential market for this fuel oil.                    
  However, even though many ships cruise Alaska waters during                  
  the summer, minimal quantities of this extremely tax                         
  sensitive fuel oil are purchased in Alaska.  Consequently,                   
  the state receives minimal revenue from the tax.                             
  House Bill 453 will reduce the tax rate levied on the sale                   
  of residual fuel oil, which will stimulate sales of residual                 
  fuel oil and benefit Alaska's economy.  This legislation                     
  will increase job opportunities in the trucking and fuel                     
  industries.  Simultaneously, state revenues will likely                      
  remain consistent and possibly increase.                                     
  Number 170                                                                   
  REP. GREEN asked if the market would grow if the tax is                      
  Number 180                                                                   
  REP. DAVIS replied that he expected the market to grow as                    
  the cruise lines want to do business in Alaska.                              
  Number 220                                                                   
  REP. PORTER asked if it would be an advantage to the state                   
  to get commitments from the cruise lines.                                    
  Number 232                                                                   
  REP. DAVIS replied that it would be to the advantage of the                  
  state to get commitments, but the cruise lines have been                     
  resistent to that.                                                           
  Number 238                                                                   
  REP. PORTER answered that the legislature could be resistent                 
  to lowering prices also.                                                     
  Number 240                                                                   
  REP. DAVIS stated that the statute does provide for a sunset                 
  Number 247                                                                   
  C.J. ZANE, Director of Government and Community Relations                    
  for Holland America Lines/West Tours, Inc., testified via                    
  teleconference in support of HB 453.  Mr. Zane stated that                   
  Holland America Lines supported the concept of the bill,                     
  which is to make Alaska products competitive on the world                    
  MR. ZANE stated that it is understandable that the committee                 
  would want some commitment from the cruise lines regarding                   
  amounts of fuel purchased, but that would be difficult                       
  because price is not the only consideration in deciding                      
  whether or not to purchase in Alaska.  Another consideration                 
  is the time the cruise line has for bunkering in the various                 
  ports.  An additional consideration is the availability of                   
  supply which can be affected by weather.                                     
  Number 330                                                                   
  BERNIE SMITH, Tesoro, testified via teleconference in                        
  support of HB 453.  Mr. Smith stated that last year Tesoro                   
  had over 6.5 million barrels of No. 6 fuel oil that had to                   
  be shipped out.  He said that currently only about 1-1/2                     
  percent of that is being sold to the cruise ship industry.                   
  MR. SMITH stated that HB 453 would produce a number of jobs                  
  and revenue for the Kenai Peninsula.                                         
  Number 355                                                                   
  REP. GREEN commented that Tesoro will be saving money since                  
  they won't have to ship out the large amounts of No. 6 oil                   
  if HB 453 passed, so the state and Tesoro should share the                   
  Number 367                                                                   
  MR. SMITH responded that Tesoro's residual is already a loss                 
  that they couldn't lower their price any more.  He added                     
  that they do not have the option of putting their fuel back                  
  into the pipeline.                                                           
  Number 377                                                                   
  CHAIRMAN HUDSON asked Mr. Smith if Tesoro paid any tax on                    
  residual fuel that was being shipped out.                                    
  Number 382                                                                   
  MR. SMITH responded no.                                                      
  Number 385                                                                   
  CHAIRMAN HUDSON asked how many jobs this decrease in tax                     
  would result in.                                                             
  Number 389                                                                   
  MR. SMITH answered twelve jobs.                                              
  Number 394                                                                   
  JAMES BURNS, Senior Vice President, Petro Marine, testified                  
  in support of HB 453.  Mr. Burns explained the process of                    
  making No. 6 oil and the costs involved.                                     
  MR. BURNS noted that no other states levy a tax on this oil.                 
  Number 499                                                                   
  CHRIS GATES, Director, Division of Economic Development,                     
  testified in support of HB 453.  Mr. Gates stated that when                  
  ships fuel up in either Sitka or Seward the local economy                    
  benefits as the ship stays in port longer and passengers                     
  spend more money.                                                            
  MR. GATES read two sentences from a letter from Gary Paxon,                  
  Administrator, Sitka:                                                        
  "HB 453 is a very important issue to the City and Borough of                 
  Sitka.  If it passed we have a commitment from Pacific                       
  Northern Oil to refuel cruise ships in Sitka.  This will                     
  create important jobs for our community and in the long term                 
  will give us significant opportunities as a change port."                    
  Number 521                                                                   
  REP. MULDER asked how long it takes to fuel up a ship.                       
  Number 525                                                                   
  MR. GATES responded that it depended on how empty the ship                   
  was.  It could take anywhere from four hours to eight hours.                 
  Number 528                                                                   
  ROBERT ERICKSON, Teamsters Union, testified in support of HB
  453.  He stated it is estimated that if this bill passes it                  
  could mean up to fourteen new trucking jobs.                                 
  Number 550                                                                   
  KENT DAWSON, Princess Tours, testified in support of HB 453.                 
  He stated that Princess Lines has stated in writing that at                  
  least 1/3 of its fuel will be bought in Seward if this bill                  
  is passed.                                                                   
  Number 569                                                                   
  REP. PORTER moved the "O" committee substitute.  No                          
  objections were heard; it was so ordered.                                    
  CHAIRMAN HUDSON asked the committee to look at an amendment                  
  to tighten the definition of residual fuel oil.                              
  Number 580                                                                   
  MR. BURNS offered Amendment 1:  page 2, line 3, after "oil"                  
  insert "otherwise known as No. 6 fuel oil" and on page 2,                    
  line 6 after "viscosity" insert "rated by kinematic units."                  
  TAPE 94-23, SIDE B                                                           
  Number 023                                                                   
  REP. MULDER moved adoption of Amendment 1.  No objections                    
  were heard; it was so ordered.                                               
  REP. PORTER moved to pass CSHB 453(L&C) as amended out of                    
  committee.  No objections were heard; it was so ordered.                     

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