Legislature(2003 - 2004)

04/22/2003 07:00 AM W&M

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
HB 271-PASSENGER VEHICLE RENTAL TAX                                                                                           
CO-CHAIR HAWKER announced that the  first order of business would                                                               
be 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."                                                                          
Number 0110                                                                                                                     
REPRESENTATIVE PETE  KOTT, Alaska  State Legislature,  sponsor of                                                               
HB  271,  testified on  the  purpose  of  the bill  and  answered                                                               
questions  from the  members.   He  explained that  HB  271 is  a                                                               
fairly simple  mechanism which calls  for the establishment  of a                                                               
statewide car rental  tax of 15 percent on all  vehicles that are                                                               
rented for a period of less than 90 days.                                                                                       
Number 0217                                                                                                                     
REPRESENTATIVE WEYHRAUCH  moved to  adopt the  proposed committee                                                               
substitute (CS) for HB 271,  Version 23-LS0936\H, Kurtz, 4/16/03,                                                               
as the  working document.   There being  no objection,  Version H                                                               
was before the committee.                                                                                                       
Number 0238                                                                                                                     
REPRESENTATIVE  KOTT  explained  that  the major  change  in  the                                                               
proposed  CS is  the exemption  for recreational  vehicles (RVs).                                                               
The rationale behind this exemption  is that the last increase in                                                               
the rental tax in the  Anchorage area, [resulted in] three rental                                                               
companies going  out of business.   He pointed out that  with the                                                               
price of  a rental for an  RV at $150  per day, there would  be a                                                               
$20-plus increase  in cost at  a 15  percent rate.   He commented                                                               
that he believes that may  be somewhat excessive.  Although there                                                               
is no conclusive evidence that  the increase in rental tax caused                                                               
the  businesses  to  fail,  there  may  be  some  merit  to  that                                                               
REPRESENTATIVE  KOTT told  the members  that  this proposal  came                                                               
about at  the suggestion of  the administration.  He  pointed out                                                               
that if  this increase  were to  go into  effect [the  tax] would                                                               
still be  lower than the state  of Washington's.  Alaska  is tied                                                               
for the  47th [lowest] place  in terms of  car rental taxes.   He                                                               
told members  that tomorrow during  public testimony  the members                                                               
will  hear  from companies  that  a  tax  will  run them  out  of                                                               
business.  However,  he recalled traveling in  Seattle, and while                                                               
he  did   not  like   the  tax,  there   was  no   other  option.                                                               
Furthermore, it did  not stop the companies  from doing business.                                                               
In most  cases there would be  a $4-5 increase at  the 15 percent                                                               
level.   Of  course, that  would depend  on the  type of  vehicle                                                               
being  rented.    Representative  Kott commented  that  this  tax                                                               
mirrors what  has been  done in  Anchorage through  an ordinance.                                                               
This  measure would  raise  slightly over  $5  million the  first                                                               
year, and $7 million the second  year.  The amount would increase                                                               
as tourism  increases.   He noted  that government  employees are                                                               
exempted from the tax.                                                                                                          
Number 0634                                                                                                                     
CO-CHAIR  HAWKER  clarified  Representative Kott's  statement  on                                                               
government  employee exemptions  by  saying  that exemptions  are                                                               
only  in  effect  when government  employees  are  on  government                                                               
business.  The proposed 15 percent  [sales tax] is just above the                                                               
mean and  medium of rates  across the country [as  illustrated in                                                               
the chart  in the  bill packet].   Co-Chair  Hawker asked  if the                                                               
proceeds would  be placed  in a separate  account in  the general                                                               
fund where they  may be used for tourism  development and highway                                                               
Number 0744                                                                                                                     
REPRESENTATIVE KOTT  responded to  Co-Chair Hawker's  comments by                                                               
saying that a State of Alaska  employee ID card must be presented                                                               
when renting a vehicle while on  state business.  Use of ID cards                                                               
is on  an honor system,  he said.  Representative  Kott explained                                                               
that while funds  could not be dedicated, the  money raised would                                                               
be placed in  a specific account within the general  fund.  There                                                               
could be some  intent language or a statement on  the record that                                                               
these  funds should  be used  for the  maintenance of  roads, and                                                               
development  of  the  tourism industry  through  marketing.    He                                                               
pointed  out that  80 percent  of the  tax will  be paid  by non-                                                               
Alaskans.   He asked  the members  to think  about the  last time                                                               
they rented  a car in Alaska.   Usually, it is  when traveling on                                                               
business or when the car is  in the shop and an insurance company                                                               
pays for  the rental.   He asked the  members to recall  the last                                                               
time they rented a car and had to pay for it.                                                                                   
CO-CHAIR HAWKER commented that he  has rented vehicles in most of                                                               
the 50  states in  the last  five years, and  he had  noticed the                                                               
lack of taxes on vehicle rentals in Alaska.                                                                                     
Number 0926                                                                                                                     
REPRESENTATIVE  KOTT   noted  that   some  communities   such  as                                                               
Anchorage, Fairbanks,  Juneau, and Kenai  already have a  form of                                                               
tax in place.                                                                                                                   
Number 0954                                                                                                                     
REPRESENTATIVE  WEYHRAUCH  said  he  assumes the  tax  would  not                                                               
include  RVs  because  they  fall outside  the  definition  of  a                                                               
passenger  vehicle.   He surmised  that Alaska  is in  47th place                                                               
with respect to car rental  taxes because local taxes are already                                                               
in place.                                                                                                                       
REPRESENTATIVE KOTT responded that he is correct.                                                                               
REPRESENTATIVE  WEYHRAUCH  said that  many  people  rent cars  in                                                               
Alaska and then  drive to Canada or outside, where  they turn the                                                               
car in.  How does the sales tax apply in these cases, he asked.                                                                 
REPRESENTATIVE KOTT  replied that the  point of origin  where the                                                               
vehicle was rented establishes the tax  rate.  For example, if an                                                               
individual rented  a car in Alaska,  drove it to Los  Angeles and                                                               
turned it in a week later,  the individual would be charged seven                                                               
days of  tax at the  Alaska rate.  He  reiterated that it  is the                                                               
point of origin that determines the tax.                                                                                        
REPRESENTATIVE WEYHRAUCH noted that the  dealer would pay the tax                                                               
to state.                                                                                                                       
CO-CHAIR HAWKER noted for the  record that Representative Ogg has                                                               
joined the committee.                                                                                                           
Number 1130                                                                                                                     
REPRESENTATIVE   HEINZE  asked   if  the   car  rental   tax  for                                                               
individuals  coming  into the  city  from  the Bush  for  medical                                                               
reasons could be exempted.                                                                                                      
REPRESENTATIVE  KOTT responded  that  there is  always  a way  to                                                               
address special exemptions if there is  the will to do it.  Often                                                               
times  those individuals  who travel  for  medical attention  are                                                               
having the tab picked up.                                                                                                       
REPRESENTATIVE HEINZE replied  that she knows there are  a lot of                                                               
folks coming into  the city from the Bush  for medical attention;                                                               
however,  she said  she cannot  imagine that  their tab  would be                                                               
picked up.                                                                                                                      
REPRESENTATIVE KOTT explained that he  knows that the BIA [Bureau                                                               
of Indian Affairs]  has a contract that  provides for individuals                                                               
who come  from the Bush  for medical  treatment to be  housed and                                                               
provides for  shuttle service  to and from  the place  where they                                                               
receive treatment.   He said that [if an  exemption were provided                                                               
for]  individuals  who  may  or  may  not  be  receiving  medical                                                               
treatment,  it  would  open  the  door  for  the  possibility  of                                                               
inappropriate activity.                                                                                                         
Number 1341                                                                                                                     
REPRESENTATIVE  KOHRING  said  he disagrees  with  Representative                                                               
Kott and asked how this  legislation would benefit the economy of                                                               
Alaska.  He opined that taxes are  more of a strain to an economy                                                               
rather than  something that will  benefit an economy in  terms of                                                               
contributing to growth.   Benefits from tourists in  terms of the                                                               
money  spent in  hotels, restaurants,  gas stations,  gift shops,                                                               
and grocery  stores offset loss  of revenue that might  be gained                                                               
by a tax of this nature, he said.                                                                                               
Number 1509                                                                                                                     
REPRESENTATIVE KOTT acknowledged that it  is unusual [for him] to                                                               
be advocating  for a  tax bill,  since he has  spent the  last 10                                                               
years advocating against taxes.   However, he believes it is time                                                               
to face reality.   He said he  is trying to do that  in the least                                                               
painful way possible.   This is one way to impose  a small tax on                                                               
Alaskans who  may rent a  car, although in most  cases, Alaskan's                                                               
will not  be affected.   Representative Kott  stated he  does not                                                               
believe there  will be any  loss of  tourism as a  consequence of                                                               
implementing  this  tax.    Tourists  who  come  to  Alaska  rent                                                               
vehicles, recreate, and participate  in various activities, which                                                               
provide revenue for tourism operators  or restaurants.  The state                                                               
does  not impose  any tax  on tourist  at this  point.   Although                                                               
there may be  an indirect relationship with  respect to corporate                                                               
income  tax,  there is  no  direct  tax.   He  said  there is  no                                                               
negative  impact  to  local small  businesses  or  restaurateurs.                                                               
Infact,with  this legislation  the  state would  receive a  small                                                               
amount of  money, $5-10  million, which could  be used  to offset                                                               
some of  the damage to  roads and  parks by tourism.   Certainly,                                                               
part of the  money could be set aside for  tourism marketing.  It                                                               
is  important to  reinject some  of  that money  to attract  more                                                               
Number 1838                                                                                                                     
CO-CHAIR  HAWKER pointed  out that  this bill  does not  apply to                                                               
commercial motor vehicles [as defined in AS 28.41.100] or RVs.                                                                  
Number 1930                                                                                                                     
REPRESENTATIVE  WEYHRAUCH  responded  that the  definition  of  a                                                               
commercial  motor   vehicle  as   described  in   Alaska  Statute                                                               
28.41.100 means:                                                                                                                
     A motor  vehicle or  a combination  of a  motor vehicle                                                                    
     and one or more other  motor vehicles used to transport                                                                    
     passengers and property, used upon  a land or vehicular                                                                    
     highway,  and  that  has  a  gross  vehicle  weight  or                                                                    
     combination  weight rating  greater than  26,000 pounds                                                                    
     designed   to  transport   more   than  15   passengers                                                                    
     including the  driver or is used  in the transportation                                                                    
     of   materials  found   by   the   U.S.  Secretary   of                                                                    
     Transportation  to   be  hazardous,  except   that  the                                                                    
     following  vehicles meeting  of the  criteria, that  he                                                                    
     just mentioned in (a) and  (c) of the paragraph are not                                                                    
     commercial  vehicles,   emergency  or   fire  equipment                                                                    
     necessary for  preservation of  life or  property, farm                                                                    
     vehicles controlled  or operated  by a farmer,  used to                                                                    
     transport  agricultural  products, farm  machinery,  or                                                                    
     farm supplies, not  used in the operation  of common or                                                                    
     contract  motor carrier,  or RVs  (recreation vehicles)                                                                    
     used for the purposes other than commercial purposes.                                                                      
CO-CHAIR  HAWKER  commented  that [the  definition]  did  include                                                               
vehicles used  to transport either  passengers or property.   The                                                               
gross vehicle  weight limit  of 26,000 pounds  appears to  be the                                                               
key requirement.                                                                                                                
REPRESENTATIVE KOTT commented  that a bus could  be exempted from                                                               
the tax.                                                                                                                        
Number 2112                                                                                                                     
REPRESENTATIVE WILSON  noted that  the definition mentions  a 15-                                                               
passenger vehicle.   Would the definition  include a 12-passenger                                                               
van, she asked.                                                                                                                 
Number 2153                                                                                                                     
CO-CHAIR  HAWKER  commented  that   the  statutes  define  a  15-                                                               
passenger  van  [as a  commercial  vehicle].    He said  his  own                                                               
experience  in  renting  12- and  15-passenger  vans,  which  are                                                               
comparable to the one-ton Budget or  U-Haul vans, is if there are                                                               
seats  in them,  they are  considered a  15-passenger van,  while                                                               
those without seats are considered a cargo van.                                                                                 
Number 2213                                                                                                                     
REPRESENTATIVE  WILSON  pointed  out   that  some  schools  drive                                                               
cheerleaders to  events in 12-passenger  vans.  She said  she has                                                               
no idea whether these vans meet the weight requirement.                                                                         
REPRESENTATIVE  HEINZE asked  if  there is  any forward  thinking                                                               
about  how  these  funds  could be  funneled  back  into  tourism                                                               
marketing.  She  pointed out that these taxes  are mainly tourism                                                               
user fees.                                                                                                                      
Number 2311                                                                                                                     
REPRESENTATIVE KOTT commented that  she made a correct assessment                                                               
regarding  forward  thinking.    The funds  cannot  be  dedicated                                                               
directly into a  specific arena unless there  is a constitutional                                                               
amendment  authorizing  dedicated  funds.    Representative  Kott                                                               
reiterated  his  earlier comments  that  intent  language can  be                                                               
included  in the  bill that  would suggest  that the  legislature                                                               
wants a percentage of the  proceeds which are generated from this                                                               
excise tax  to go toward some  other method of doing  business in                                                               
the state of  Alaska.  He stated  that he believes it  would be a                                                               
good thing to include intent  language for "tourism marketing" in                                                               
the bill.   Representative Kott  told the members that  he cannot                                                               
promise any  money raised from this  excise tax will ever  end up                                                               
in tourism marketing.                                                                                                           
Number 2416                                                                                                                     
REPRESENTATIVE  HEINZE  explained  that   those  in  the  tourism                                                               
industry  will  be  on  the  outside  watching  these  user  fees                                                               
[accumulate].  How  can the tourism industry get  an answer about                                                               
more  funds for  tourism  marketing,  she asked.    How will  the                                                               
[Department]  of  Community  and  Economic  Development  will  be                                                               
REPRESENTATIVE KOTT pointed to the  fiscal note and said that the                                                               
details are comprehensive.  He  commented that there are entities                                                               
in the  tourism field that are  cognizant of this bill  and other                                                               
measures  that will  generate  money  from non-Alaskans,  whether                                                               
they are  working on the  North Slope  or visiting as  a tourist.                                                               
Representative Kott said  that at some point the  state will have                                                               
to  provide  some level  of  support  for the  tourism  industry.                                                               
There  will be  a request  for dollars  for marketing  activities                                                               
because  without marketing,  the industry  will become  stagnate.                                                               
For example, after [the terrorist  attacks of September 11, 2001]                                                               
Las  Vegas  [as  a  tourism  destination]  was  on  the  decline;                                                               
however, the city opted to spend  $14 million for marketing.  Las                                                               
Vegas  is one  of few  cities that  showed a  marked increase  in                                                               
tourism to  their city.  There  is a nexus between  marketing and                                                               
the   number   of   tourists   who   visit   a   specific   city.                                                               
Representative  Kott commented  that he  would not  have expected                                                               
Las  Vegas  to  do  so  well  considering  the  fact  that  large                                                               
properties would be targets for terrorism.                                                                                      
Number 2722                                                                                                                     
REPRESENTATIVE  KOHRING  reminded  the members  of  contributions                                                               
made by  tourists to the  economy.  If the  primary justification                                                               
for  this  tax  is  to  raise  dollars  for  marketing  and  road                                                               
maintenance,   it  would   be  interesting   to  know   what  the                                                               
administration  has  in the  way  of  quantifying the  costs,  he                                                               
commented.   Representative  Kohring opined  that there  has been                                                               
negligible cost  to the state  on wear  and tear of  the highways                                                               
and use of public facilities by  tourists.  He said he would like                                                               
to hear  from the  administration regarding  what costs  this tax                                                               
would try to offset.                                                                                                            
Number 2844                                                                                                                     
CO-CHAIR  HAWKER announced  that  there will  be public  hearings                                                               
tomorrow on  HB 271.   He  told the members  that as  the session                                                               
grows short  and the workload is  heavy, he wants to  keep moving                                                               
forward as quickly as possible.   With that in mind, he announced                                                               
that  anyone  who  would  like   to  raise  concerns  or  propose                                                               
amendments  to the  bill  should provide  them  to the  committee                                                               
today,  so  they can  be  considered  tomorrow before  and  after                                                               
public hearings.                                                                                                                
REPRESENTATIVE  KOTT cautioned  the members  who might  propose a                                                               
change in the definition of  commercial vehicles or exemptions to                                                               
be  aware  of the  potential  conflict  a  change might  have  in                                                               
municipalities and  the confusion  that might follow  with rental                                                               
car  companies.    He  pointed  out that  HB  271  has  basically                                                               
extracted language  and regulations  [that are currently  used to                                                               
avoid unnecessary confusion].                                                                                                   
[HB 271 was held over.]                                                                                                         

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