Legislature(1993 - 1994)
02/17/1994 09:05 AM Senate CRA
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SENATOR RANDY PHILLIPS thanked Mr. Guiley for his presentation on the school foundation formula. He then brought SB 261 (NO MUNICIPAL SALES TAXES ON AIR CARRIERS) before the committee as the next order of business and stated testimony would be taken over the teleconference network. Number 195 ROBERT HALLFORD, representing Northern Air Cargo in Anchorage, noted that over the last several years there have been several communities that have attempted to impose a local tax on air transportation, and it has been costly for the air carriers involved to mount a response to defeat them. He also noted that the City and Borough of Juneau is opposed to SB 261 because it would like to enact a tax on flight seeing and the bill would impede the ability to do so. Mr. Hallford read a portion of a letter he received from Edmund W. Burke, recently retired Justice of the Alaska Supreme Court, in which Justice Burke concludes that the federal preemption statute renders the city sales ordinance invalid and unenforceable with regard to transportation services sold and provided by Northern Air Cargo and other air carriers similarly situated. Mr. Hallford said SB 261 is not intended by the air carriers nor the sponsor to deprive any community of its right and ability to derive revenue from the sources normally available to it, but, rather, it is to put an end to the extremely costly process of defending themselves against these revenue raising methods that are preempted by federal law. Number 320 SENATOR ADAMS asked Mr. Hallford if he knows when the decision on the St. Marys versus Northern Air Cargo and Alaska Airlines lawsuit will be made. ROBERT HALLFORD responded that no case has been formally filed in the courts, and the reason they don't want to wait is because every day that passes costs more money to fight a battle that they believe has already been decided a number of times. Number 330 TIM TROLL, City Manager, City of Sand Point, stated he was the former city attorney in St. Marys, and he confirmed that no lawsuit has been filed by St. Marys against anybody, but they are posturing at this point with the air carriers in trying to resolve the issue without having to go to court. He added that the air carriers are trying to resolve the issue at the legislative level rather than at the negotiating level. Mr. Troll read sections of the federal law and a section which stated that nothing in the section shall prohibit a state or political subdivision to levy or collect taxes other than those enumerated in a previous subsection. That particular section of federal law was looked at by the U.S. Supreme Court and the court stated that section showed "that to the degree that Congress considered the power of state to tax air travel, it expressly and unequivocally permitted the states to exercise that authority." Mr. Troll voiced his concern that passage of SB 261 may lead to more litigation because it goes beyond what is involved in federal law. Number 429 STEVE VAN SANT, State Assessor, Department of Community & Regional Affairs, speaking to the department's fiscal note, said the minimal impact that he came up with in preparing the fiscal note was based on currently levied sales taxes in municipalities of the state. Number 456 TOM BOEDEKEV, a Kenai Peninsula Borough attorney, stated that SB 261 is not a clarification; it is clearly an expansion on the federal exemptions. The exemption under federal law, or the preemption question is the carriage of passengers; it has nothing to do with freight. He suggested that if air carriers are to have the hauling of freight exempt, then any other form of transportation that hauls freight should also be addressed. Number 606 JOHN HARTLE, Assistant City Attorney, City & Borough of Juneau, stated opposition to SB 261 because it goes beyond the federal law in that it includes prohibition on taxes on carriage of freight and on head taxes. Mr. Hartle pointed out that municipalities have to provide municipal services to air carriers, but if the Legislature were to pass SB 261, the state would be precluding the municipalities from locally deciding whether or not to tax them. The City & Borough of Juneau's biggest concern is the broadness of language "use tax on an activity that directly involves the carriage of individuals or goods." Mr. Hartle said that could include landing fees, and the City & Borough Juneau collects $850,000 in landing fees. They are also concerned that "federally certificated" is too broad. TAPE 94-15, SIDE A Number 005 Mr. Hartle noted that the federal law has recently been changed to allow passenger facilities charges, and SB 261 would clearly prohibit that. Number 032 PAUL BOWERS, Airport Manager, City & Borough of Juneau, testifying in opposition to SB 261, said the passenger facilities charges are not imposed today anywhere in the state, but the likelihood is that they will be in Juneau, Anchorage and Fairbanks within the next several years. There is concern that SB 261 not preclude that. Number 056 ROBERT JACOBSEN, representing Wings of Alaska, said when he first learned of the introduction of SB 261, he felt it wasn't necessary because there is a federal preemption on states and local jurisdictions implementing sales and use taxes on air carriers. However, he then recalled how many times in the last ten years he has had to deal with city administrators (new ones) in the jurisdictions that Wings flies to, and then decided that it probably was a good idea that the state clarify the policy. Mr. Jacobsen said in considering the Airport Development Acceleration Act of 1973, the Senate Commerce Committee was concerned with primarily two issues: (1) the impact of state and local taxes; and (2) the urgent need for federal involvement to encourage local governments to construct new and improved airport facilities. In the purposes section of the Senate report, the committee states: "The legislation to provide increased federal participation in airport development grants is required because of the serious financial difficulties being experienced by many of local government agencies who bear the responsibility to build, operate and maintain the nation's system of publicly owned airports. The funds required to increase the federal share of airport development grants will come from the airport and airway trust fund established by the Airport and Airway Revenue Act of 1970. The fund is funded from revenues from user taxes and aviation system users and contains and will contain adequate revenues to cover the cost of the increased federal assistance. No new taxation and no expenditure of general U.S. funds will be required as a result of the legislation. The bill prohibits any government agency, other than the United States, from establishing or levying a passenger head tax or use tax. This prohibition will ensure that passengers and air carriers will be taxed at a uniform rate by the United States and that local taxes will not be permitted to inhibit the flow of interstate commerce and the growth and development of airport transportation." The report also reads: "The bill provides that the cost of this increased federal participation will be born by the users of the system, not the general taxpayer. The airlines, the airline passengers and shippers and aircraft owners and operators all contribute to the development of the system by paying user taxes established in 1970." The report further reads: "In accepting a greater federal role and responsibility in airport development, the committee has also acted to prohibit local taxation. We believe local taxation to be inimical to the development of a national system funded in large part by uniform federal taxes. The committee views S. 38 as a aviation development package, the components of which cannot be separated. Therefore, by prohibiting state taxation on passengers or on air transportation, the committee has accepted greater responsibility for U.S. assistance believing that the two actions must be viewed together and that neither should stand alone. " Mr. Jacobsen pointed out that a Florida circuit court has most recently held that Section 1113 of the Federal Aviation Act prohibits states from taxing air cargo, and struck down a Florida provision assessing a 5 percent tax on intrastate air freight and a 2.5 percent tax on intrastate shipments. Mr. Jacobsen asserted that the aviation community is paying a lot of taxes to the federal government. He said he would much rather pay 4 percent to the City & Borough of Juneau and have that money stay within the local community. Presently, Wings is paying the federal government 10 percent on passengers and a 6.25 percent cargo tax on all cargo shipments. That money comes back to the communities throughout the state in a big way. Over the last five years, Juneau has received over $8 million from the airport and airway trust fund. Concluding, Mr. Jacobsen said it might be timely and good public policy for the Legislature to intervene and help define this issue. Number 166 SENATOR RANDY PHILLIPS asked for the pleasure of the committee on SB 261. SENATOR ADAMS and SENATOR ZHAROFF agreed that the bill needs more work and SENATOR TAYLOR said he was willing to abide by the decision of the Chair on the bill. SENATOR PHILLIPS stated he wanted to move the bill out of committee, but the votes weren't there to do so. He then stated the bill would be back before the committee the following week, and he suggested the members prepare any amendments they may wish to offer at that time.
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