Legislature(2015 - 2016)BARNES 124

02/10/2016 03:15 PM LABOR & COMMERCE

Note: the audio and video recordings are distinct records and are obtained from different sources. As such there may be key differences between the two. The audio recordings are captured by our records offices as the official record of the meeting and will have more accurate timestamps. Use the icons to switch between them.

Download Mp3. <- Right click and save file as

* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
<Bill Hearing Canceled>
-- Testimony <Invitation Only> --
<Bill Hearing Canceled>
-- Public Testimony <Time Limit May Be Set> --
Heard & Held
-- Testimony <Invitation Only> --
Heard & Held
-- Testimony <Invitation Only> --
        HB 252-ELCTRNC TAX RETURNS; VESSEL PASSENGER TAX                                                                    
3:56:35 PM                                                                                                                    
CHAIR OLSON announced  that the final order of  business would be                                                               
HOUSE BILL NO. 252, "An  Act requiring electronic submission of a                                                               
tax return  or report with  the Department of  Revenue; repealing                                                               
the  tax reduction  for local  levies for  the commercial  vessel                                                               
passenger excise  tax; amending  the definition of  'voyage'; and                                                               
providing for an effective date."                                                                                               
3:56:59 PM                                                                                                                    
CHRIS HLADICK, Commissioner, Department  of Commerce, Community &                                                               
Economic   Development,   provided  a   PowerPoint   presentation                                                               
entitled,   "Commercial  Passenger   Vessel  Tax   HB252,"  dated                                                               
2/10/16.  Commissioner  Hladick informed the committee  HB 252 is                                                               
an  act   requiring  electronic  submission  of   a  tax  return,                                                               
repealing the tax  reduction for local levies  for the commercial                                                               
vessel  passenger   excise  tax,   amending  the   definition  of                                                               
'voyage,' and  providing an effective  date [slide 2].   He noted                                                               
the cruise ship  head tax was created by the  [Alaska Cruise Ship                                                               
Tax  Initiative,   Measure  2,  approved  8/22/06   (cruise  ship                                                               
initiative)], and  major changes to  it made  in 2010 were:   tax                                                               
reduced from  $46 to  $34.50 per  passenger; increased  number of                                                               
ports  that can  receive  $5 per  passenger  sharing; credit  for                                                               
municipal port  fees added; tax  restricted to voyages  that were                                                               
in Alaska  waters for at  least 72 hours  [slide 3].   He further                                                               
explained the proposed  bill repeals credit for  local head taxes                                                               
of $8  in Juneau and  $7 in  Ketchikan, amends the  definition of                                                               
'voyage' thereby restoring  the tax to all trips  greater than 72                                                               
hours,  and requires  electronic filing,  including an  exemption                                                               
process [slide  4].   The Department  of Revenue  (DOR) estimates                                                               
increasing  the commercial  passenger  vessel tax  will raise  an                                                               
additional $16.6 million  per year, of which  $14.8 million would                                                               
be   kept  by   the  state,   and  $1.8   million  would   go  to                                                               
municipalities.  The  increase in municipal share  is largely due                                                               
to the  change to the  72-hour rule  [slide 5].   The assumptions                                                               
behind  the revenue  estimates  are as  follows:   900,000  total                                                               
passengers before the tax change;  12 percent increase due to the                                                               
repeal of the 72-hour rule; $34.50  per passenger, for a total of                                                               
$34.5 million; 3.5  ports per voyage receive  $5 municipal share;                                                               
and  the number  of  voyages and  passengers  would stay  roughly                                                               
constant  [slide 6].    In  a similar  manner  to  the other  tax                                                               
initiatives, DOR  must update the  Tax Revenue  Management System                                                               
(TRMS),  the Revenue  Online  (ROL) filing,  and  create the  tax                                                               
return  forms.    There  is a  one-time  implementation  cost  of                                                               
$100,000 to  recreate the tax  forms, and reprogram and  test the                                                               
tax system, and  there are no additional costs  to administer the                                                               
tax program  [slide 7].   Slides 8  and 9 illustrated  the fiscal                                                               
year 2016 (FY16) budget, and  the revenue from tourism adding $15                                                               
million to total  reductions and new revenue.  The  impact of the                                                               
cruise ship tax proposal would  be that voyages are slightly more                                                               
expensive  for  the  passengers   and/or  companies  [slide  10].                                                               
Commissioner Hladick began the sectional  analysis [slides 11 and                                                               
   · Section 1 adds a $25 or 1 percent tax penalty for failure                                                                  
     to file electronically                                                                                                     
   · Section 2 requires electronic submission of tax returns,                                                                   
     license applications, and other  documents submitted to DOR;                                                               
     changes  all  tax statutes  and  applies  to all  tax  types                                                               
     administered  by  DOR;  provides  a process  to  request  an                                                               
     exemption  if a  taxpayer  does not  have the  technological                                                               
     capability to file online                                                                                                  
   · Section 3 amends the definition of voyage to mean any trip                                                                 
     or itinerary lasting more than 72 hours                                                                                    
   · Section 4 repeals current law which allows for a tax                                                                       
     reduction in the amount of certain local levies - this is                                                                  
     the most important section of the bill                                                                                     
   · Section 5 adds transitional language allowing for                                                                          
   · Section 6 is the immediate effective date for the                                                                          
     transitional regulatory language                                                                                           
   · Section 7 sets the effective date                                                                                          
4:01:28 PM                                                                                                                    
REPRESENTATIVE LEDOUX  recalled that  when head taxes  were first                                                               
addressed by  a previous legislature  there was a  question about                                                               
the constitutionality of head taxes.                                                                                            
COMMISSIONER HLADICK deferred to the Department of Law.                                                                         
4:02:12 PM                                                                                                                    
CHRIS PELOSO, Assistant  Attorney General, Environmental Section,                                                               
Civil  Division  (Juneau),  Department  of Law,  in  response  to                                                               
Representative LeDoux, informed the  committee that in 2009 there                                                               
was  a  lawsuit filed  by  the  Alaska Cruise  Association  (ACA)                                                               
following  the establishment  of  the original  head  tax by  the                                                               
cruise  ship  initiative.    In 2010,  the  lawsuit  was  dropped                                                               
because there  was a settlement  agreement between the  state and                                                               
ACA  that  the  state  would  lower the  tax  rate  from  $46  to                                                               
[$34.50],  and  provide  an exemption  to  municipalities.    Mr.                                                               
Peloso  opined  that if  the  state  makes further  changes,  the                                                               
settlement  agreement is  still valid  because the  settlement is                                                               
related  to  legislative  action  taken in  2010.    However,  he                                                               
cautioned that ACA may revisit its  stance which was based on "an                                                               
obscure  constitutional provision  called the  Duty of  Tonnage -                                                               
the  tonnage clause.   Without  endorsing  their argument,  their                                                               
argument was  that any  fee ...  any tax  collected by  the state                                                               
that  doesn't  go  towards  docks   or  other  ship  expenses  is                                                               
REPRESENTATIVE LEDOUX  questioned whether the debate  was related                                                               
to interstate commerce laws.                                                                                                    
MR.  PELOSO stated  that  the  tonnage clause  is  in Article  1,                                                               
Section  10  of  the  U.S.   Constitution,  and  there  are  also                                                               
interstate commerce  issues.  He  advised that the  issues raised                                                               
in  2009  would be  the  same  whether the  head  tax  is $46  or                                                               
REPRESENTATIVE LEDOUX surmised  that if the state  raises the tax                                                               
and nullifies the  settlement, the state may win  [a new lawsuit]                                                               
and collect more tax, or may lose and get no tax.                                                                               
MR.  PELOSO  agreed  with  that  result  if  the  tax  were  held                                                               
unconstitutional,  however, he  could  not speak  to whether  the                                                               
cruise industry would revisit a lawsuit,  or to a court ruling in                                                               
this regard.                                                                                                                    
4:05:51 PM                                                                                                                    
REPRESENTATIVE  LEDOUX observed  that  the state  entered into  a                                                               
settlement  agreement and  asked whether  that creates  a problem                                                               
with legally raising the tax.                                                                                                   
MR.  PELOSO informed  the committee  that a  court case  does not                                                               
affect  legislative  actions.    All of  the  provisions  of  the                                                               
settlement agreement have  been fulfilled, thus HB  252 would not                                                               
be  in  violation  of  the  settlement  agreement.    In  further                                                               
response  to Representative  LeDoux, he  advised that  the cruise                                                               
association dropped  its lawsuit  with prejudice,  although there                                                               
are potentially ways  it could start a new lawsuit,  and he could                                                               
not speak for the cruise association.                                                                                           
4:07:34 PM                                                                                                                    
KEN  ALPER,  Director,  Tax   Division,  Department  of  Revenue,                                                               
advised that  the possibility of  the state losing a  lawsuit and                                                               
being held to  a retroactive liability are somewhat  limited.  He                                                               
pointed  out  that during  the  years  2007-2010, the  state  was                                                               
receiving about $25  million per year from the head  tax, and the                                                               
funds  were  defined in  a  section  of  the capital  budget  for                                                               
projects expressly  for dock and  harbor projects, as  related to                                                               
the tonnage clause.  Since  enactment of the legislation in 2010,                                                               
the state  receives about $2  million per year after  the reduced                                                               
tax  and increased  municipal sharing,  and the  money is  easily                                                               
identified as supporting dock and harbor projects.                                                                              
4:08:40 PM                                                                                                                    
REPRESENTATIVE HUGHES  directed attention to slide  10, and urged                                                               
for the  administration to think  about the proposal's  impact to                                                               
the people of Alaska.   She remarked:                                                                                           
     My  understanding was  back after  the initiative  that                                                                    
     the  number  of  passengers  did  go  down  by  15,  20                                                                    
     percent, there  were fewer ships coming  into our ports                                                                    
     and you  might think that just  impacted Southeast, but                                                                    
     it actually impacted up in  my area ... it impacted the                                                                    
     whole   state  and   it  particularly   impacted  small                                                                    
REPRESENTATIVE HUGHES  expressed her  disappointment at  the lack                                                               
of analysis  on the  proposal's impact  to communities,  and then                                                               
asked whether  the money can only  be used for ports  and harbors                                                               
or can be deposited to the general fund (GF).                                                                                   
MR. ALPER  explained that  the lawsuit  was never  resolved, thus                                                               
restrictions on  the use of  the funds are unknown;  however, the                                                               
state  intends  to  use  the money  to  pay  for  tourism-related                                                               
expenditures, and  could be targeted  "towards things  that would                                                               
meet any  sort of theoretical  constitutional restriction  on the                                                               
use of the funds."                                                                                                              
REPRESENTATIVE HUGHES said there  are strict federal requirements                                                               
on the use of  the funds.  She asked, "What is  being paid out of                                                               
the general  fund right now for  those, those kind of  things, my                                                               
understanding it's, there's not, money  coming out of the general                                                               
fund for, being  paid for those kind of things,  and so now we're                                                               
going to be doing things that we might not otherwise be doing."                                                                 
MR. ALPER  explained that the state  does not spend as  much from                                                               
the  capital budget  on  grants to  municipalities  for dock  and                                                               
harbor  projects as  in prior  years.   He acknowledged  that the                                                               
state does  spend money in  support of tourism marketing,  and in                                                               
support of DCCED tourism activities.                                                                                            
REPRESENTATIVE HUGHES  expressed her  concern that it  is unknown                                                               
whether these funds  can be put in  GF and used in a  way to help                                                               
close  the  budget  gap.     She  requested  additional  specific                                                               
information in this regard.                                                                                                     
4:12:11 PM                                                                                                                    
COMMISSIONER HLADICK  agreed with Representative  Hughes' request                                                               
for  additional  information  because  as  the  city  manager  of                                                               
Unalaska, he received  grants for its harbor  from the Department                                                               
of Transportation & Public Facilities.                                                                                          
CHAIR OLSON  asked whether HB 248  or HB 252 are  included in the                                                               
Institute of  Social and Economic Research  (ISER), University of                                                               
Alaska Anchorage, study of economic impact.                                                                                     
MR.  ALPER  said  yes,  the   ISER  request  for  proposal  (RFP)                                                               
contained "the  suite of  possible revenue  measures that  we put                                                               
together over the summer."                                                                                                      
CHAIR OLSON asked when the ISER report would be received.                                                                       
MR. ALPER responded  that either an executive summary  or a first                                                               
draft is due  [2/15/16].  In further response to  Chair Olson, he                                                               
said the  executive summary would be  a summary of impacts  and a                                                               
table of key data.                                                                                                              
4:14:06 PM                                                                                                                    
REPRESENTATIVE  JOSEPHSON  noted  the  "totally  valid"  comments                                                               
about  the impacts  of the  governor's  plan on  industry and  on                                                               
citizens, and pointed out that  cuts also have tremendous impact,                                                               
such as  those to the  University of  Alaska, which has  lost 500                                                               
employees.  He  returned to the settlement  agreement between the                                                               
cruise  ship industry  and the  state, and  observed that  if the                                                               
settlement was with  prejudice, there could not  be a retroactive                                                               
rescission of the settlement agreement.                                                                                         
MR. PELOSO  agreed; however, another  party that was not  part of                                                               
the lawsuit  could file a  similar lawsuit based on  the original                                                               
REPRESENTATIVE  JOSEPHSON  asked  what  taxes  were  received  by                                                               
municipal and state governments prior to 2010, and after 2010.                                                                  
MR. ALPER  stated that at  the time  the state was  receiving the                                                               
$46 head tax  - approximately from 2007 through 2010  - the state                                                               
received $15  million to  $20 million  per year.   He  offered to                                                               
document a complete  history thereof.  One of the  changes in the                                                               
2010 amendment increased  the number of ports  that could receive                                                               
the  "shared $5"  which totaled  $15.5 million  in the  operating                                                               
budget last year.   He  stressed that the important difference is                                                               
to the portion that  is kept by the state, which  was made by the                                                               
legislative change  that reduced  the tax  to $34.50  and created                                                               
the offset.   For example, in 2008, a cruise  ship passenger paid                                                               
$61:  $46 to  the state, $8 to Juneau, and $7  to Ketchikan.  The                                                               
tax cut  to $34.50,  less the Juneau  and Ketchikan  taxes, meant                                                               
the state is  now receiving $19.50.  Almost all  of the reduction                                                               
of $26.50  per passenger came out  of the state's portion  of the                                                               
4:18:19 PM                                                                                                                    
REPRESENTATIVE  LEDOUX inquired  as  to  how much  municipalities                                                               
receive each year through this tax.                                                                                             
MR.  ALPER  offered   to  provide  a  report   which  shows  each                                                               
municipality that receive $5 per  taxable passenger.  He recalled                                                               
that the  total for the  current year  is $15.5 million,  and the                                                               
amount  each  municipality  receives  is  disparate  because  the                                                               
amount is  based on the  number of each  municipality's visitors.                                                               
In response  to Chair Olson,  he said  he would provide  a 5-year                                                               
history of payments.                                                                                                            
REPRESENTATIVE  LEDOUX  posited  that if  the  state  incorrectly                                                               
assumes  that  the  cruise  ship   industry  would  not  bring  a                                                               
successful lawsuit,  the result would  impact not only  the state                                                               
but each community as well.                                                                                                     
MR.  PELOSO   stated  that   is  impossible   to  say   what  the                                                               
repercussions of a lawsuit would  be; however, a court may decide                                                               
the  tax is  acceptable as  long as  the state  ensures that  the                                                               
money goes to municipalities.                                                                                                   
REPRESENTATIVE HUGHES  asked how much  the head tax  would affect                                                               
fares on tourists from California or Washington.                                                                                
MR. ALPER  said he was unsure  about docking fees and  head taxes                                                               
outside of  the state's jurisdiction,  or how they  are collected                                                               
by the industry.                                                                                                                
[HB 252 was held over.]                                                                                                         

Document Name Date/Time Subjects
HB248 ver A.pdf HL&C 2/10/2016 3:15:00 PM
HB 248
HB248 Sponsor Statement-Governor's Transmittal Letter 1-15-16.pdf HL&C 2/10/2016 3:15:00 PM
HB 248
HB248 Fiscal Note-DOR-TAX-01-13-16.pdf HL&C 2/10/2016 3:15:00 PM
HB 248
HB252 ver A.pdf HL&C 2/10/2016 3:15:00 PM
HB 252
HB252 Sponsor Statement-Governor's Transmittal Letter 1-15-16.pdf HL&C 2/10/2016 3:15:00 PM
HB 252
HB252 Sectional Analysis.pdf HL&C 2/10/2016 3:15:00 PM
HB 252
HB252 Fiscal Note-DOR-TAX-01-13-16.pdf HL&C 2/10/2016 3:15:00 PM
HB 252
HB252 DOR-Presentation to HLAC 2-9-16.pdf HL&C 2/10/2016 3:15:00 PM
HB 252
HB248 DOR-Presentation to HLAC 2-9-16.pdf HL&C 2/10/2016 3:15:00 PM
HB 248