Legislature(1997 - 1998)

01/22/1997 01:38 PM CRA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
           SB 23 EXCISE TAXES ON TRANSIENT LODGING                           
  CHAIRMAN MACKIE  called the Senate Community & Regional Affairs              
 Committee meeting to order at 1:38 p.m.  Also in attendance were              
 Senator Wilken and Senator Phillips.                                          
  CHAIRMAN MACKIE  brought SB 23 before the committee as the first             
 order of business, and noted testimony would be taken over the                
 teleconference network from various sites around the state, as well           
 as from two individuals who would be testifying from Los Angeles,             
 California and Seattle, Washington.                                           
 Number 060                                                                    
  SENATOR BERT SHARP , prime sponsor of SB 23, said introducing this           
 tax bill is a first for him, but it is an issue that he believes              
 has to put on the table for discussion.                                       
 Senator Sharp said SB 23 is a straight forward bill which would               
 levy a 2 percent excise tax on the amount charged for occupancy or            
 use in hotels, motels, rooming houses, bed and breakfasts, and                
 other facilities providing temporary lodging or living quarters.              
 These revenue dollars are intended to be use, subject to                      
 appropriation, for Alaska tourism marketing and promotional                   
 activities, as stated in the legislative intent in the bill.                  
 This is an option to provide revenue from the industry to support             
 the marketing of Alaska in the tourism world.  Presently, this                
 activity is primarily being paid from the general fund.  This is an           
 option that is offered as a step toward self-pay by the third                 
 largest business in Alaska for promotional efforts benefiting their           
 enterprises.  This action has been recommended by previous                    
 legislative audits, special legislative reports, other findings by            
 other legislative examination and testimony before finance                    
 committees and years of industry promises.  Senator Sharp added               
 that as of this date, he does not know of any occasion where the              
 industry has come forward with any specific revenue proposals to              
 fund tourism marketing for the state of Alaska.                               
 Senator Sharp directed attention to an amendment which was drafted            
 to address some concerns that arose after the legislation was                 
 introduced.  It will remove a trailer or recreational vehicle camp            
 from the definition of "transient lodging", as well as clarifying             
 that "transient lodging" is not applicable to employees of remote             
 construction camp facilities and that type of facility provided by            
 an employer.                                                                  
 Number 182                                                                    
  JACK CHENOWETH , legal counsel and drafter of SB 23, explained that          
 the bill, as originally drafted, left some gray areas, and the                
 amendment expands the list of places or situations in which the tax           
 is not applicable.                                                            
 In the original bill there is a reference to premises covered by              
 the Uniform Residential Landlord and Tenant Act, which gives the              
 right of occupancy of 30 or more days.  It was agreed that the                
 reference to 30 or more days should be deleted because there are              
 situations that are covered by the Act that are not tied to a                 
 minimum number of days.  In other words, it takes out from under              
 the tax any occupancy if it is covered by the Uniform Residential             
 Landlord and Tenant Act.                                                      
 The amendment also includes an exemption for people like the Alaska           
 State Troopers and others if the lodging is offered in conjunction            
 with educational, training, or similar services.                              
 As stated by Senator Sharp, the amendment will also exempt those              
 situations where housing is provided by an employer for his                   
 The exemption of vessels of the Alaska Marine Highway System has              
 been broadened to include lodging aboard all vessels.                         
 Finally, the definition of "transient lodging" is rewritten to                
 exempt reference to trailers and recreational vehicle situations.             
 Number 217                                                                    
  CHAIRMAN MACKIE  asked for clarification on exactly who is covered           
 by the tax.   MR. CHENOWETH  said it covers  hotels, rooming or               
 apartment houses, lodges, motels, beds and breakfasts, and similar            
 facilities or similar arrangements.                                           
 Number 230                                                                    
  CHAIRMAN MACKIE  stated he would entertain a motion to adopt the             
  SENATOR PHILLIPS  moved the following amendment be adopted:                  
 Amendment No. 1                                                             
 Page 2, lines 16-22:  Delete all material and insert:                         
   "Sec. 43.52.120.  Tax not applicable.  The provisions of                    
 as 43.52.100 - 43.52.199 do not apply                                         
    (1)  to occupancy in premises if occupancy is under                        
 a lease or rental agreement subject to AS 34.03 (Uniform                      
 Residential Landlord and Tenant Act);                                         
    (2)  to lodging at an institution, public or                               
 private, if incidental to provision of educational, training, or              
 similar services;                                                             
    (3)  to occupancy by an employee whose right to                            
 occupancy is conditioned upon the occupant's employment; and                  
    (4)  to lodging aboard vessels."                                           
 Page 2, line 30, through page 3, line 4:  Delete all material and             
    (2)  "transient lodging" means a lodging or space                          
 provided in a hotel, rooming or apartment house, lodge, motel, bed            
 and breakfast, or similar lodging facility or under a similar                 
 arrangement that provides temporary lodging or living quarters."              
 Hearing no objection to Senator Phillips' motion,  CHAIRMAN MACKIE            
 stated the amendment was adopted and would be incorporated into a             
 C&RA committee substitute                                                     
 Number 260                                                                    
 The meeting was then opened to public testimony over the                      
 teleconference network.  Because there was a number of people                 
 waiting to testify on SB 23, the chairman requested that the                  
 testimony be limited to two minutes, if possible.                             
  BILL ELANDER , President and Chief Executive Officer of the                  
 Anchorage Convention and Visitors Bureau (ACVB), testified from Los           
 Angeles, California in opposition to SB 23.                                   
 Mr. Elander said the two percent tax proposed in SB 23 would add to           
 Anchorage's current 8 percent tax, which would place them in a less           
 competitive position in marketing both conventions and travel                 
 trade.  He noted ACVB dedicates more than half of its promotional             
 funds to convention marketing, and their success has been proven on           
 many occasions as based upon their fair tax level.                            
 Mr. Elander pointed out that Alaska is at the end of the line, and            
 the marketing end that has to transpire to bring the convention               
 trade into the state is very cost sensitive, particularly in the              
 tax roles.  Tourism marketing remains equally as difficult by                 
 increasing these taxes.                                                       
 ACVB feels that the state is infringing upon the municpality's and            
 the community's revenue source, for not just tourism marketing, but           
 tourism servicing as well.  He said ACVB's budget is part of the              
 marketing program for the state.   Their organization has been                
 working directly with the state and they have stretched their                 
 resources to help the state in its fiscal responsibilities.  They             
 feel strongly that if this bill is passed that the state is turning           
 against them.                                                                 
 In his closing comments, Mr. Elander said SB 23 is taking the tax             
 rate up to the point where they will begin to lose business, and              
 the revenue source will go into the general fund to be spent                  
 regardless of what the legislative intent for it is.  He suggested            
 the legislation should be withdrawn as soon as possible.                      
 Number 322                                                                    
  SENATOR SHARP  commented that legislative intent on other bills has          
 held up pretty good in the eight years he has been in the                     
 Legislature, and he doesn't know of any money that hasn't gone to             
 where the legislative intent specified it should go.   MR. ELANDER            
 responded that he thinks the industry would feel much more                    
 comfortable if they were to sit down together with some legal                 
 discussions on tourism taxation.  He said $120 million a year is              
 being collected through the tourism industry that goes into local             
 and state government programs.  That $120 million amount has gone             
 up $40 million over the last four years, and, yet, the tourism                
 marketing budget has gone down consistently.  He doesn't think                
 there is much confidence that legislative intent will hold in this            
 matter because there hasn't been any recognition on what the                  
 industry is contributing today.                                               
 Number 345                                                                    
  BRAD PHILLIPS , Chairman of the Tourism Marketing Council,                   
 testifying from Seattle, Washington, said historically, the bed tax           
 has been a source of revenue for the local communities that has               
 been used directly for promoting their community and attracting               
 Mr. Phillips said he served in elected office for 17 years, and he            
 knows that legislative intent language goes away when a bill passes           
 and is codified into law.  There is no way that one legislature,              
 regardless of its intent, can tell the next legislature what to do            
 with the money.  He suggested this problem won't be solved until we           
 face the issue of changing the constitution to be able to raise               
 funds for a purpose and to dedicate them.  He said the industry has           
 volunteered to support broad based taxes if there is some legal               
 assurance that monies can be dedicated to the promotion for getting           
 tourists and visitors to Alaska.                                              
 Concluding, Mr. Phillips said SB 23 is another way to extract                 
 revenues out of communities that they could use directly for the              
 purpose of attracting visitors.                                               
 Number 390                                                                    
  MAX LOWE , General Manager of the Regal Alaskan Hotel in Anchorage,          
 in voicing opposition to SB 23, said the increased taxation will              
 result in less travel to Anchorage and to Alaska.  As a                       
 destination, the state is already in a perceived cost disadvantage            
 to those contemplating trips to Alaska.                                       
 Mr. Lowe stated he took great exception to the sponsor's statement            
 that presently the marketing of Alaska in the tourism world is                
 primarily being paid for from the general fund.  He said he doesn't           
 think that could be further from the truth.   He thinks the state's           
 just over $4 million contribution to ATMC's activities pales in               
 comparison to the revenue that comes privately from the industry              
 for the marketing of Alaska.                                                  
 Number 414                                                                    
  BOB SOUTHHULL , General Manager of the Anchorage Hilton Hotel, said          
 he spends a great deal of time selling the state of Alaska in                 
 Washington, D.C. to national and regional associations.  He agrees            
 with Mr. Elander that they need to have as many tools as possible             
 to win these conventions, and he strongly believes that the passage           
 of SB 23 will put them at a disadvantage.  He suggested there needs           
 to be discussions on how to market the state before considering a             
 bill like SB 23.                                                              
 Number 430                                                                    
  JOHN KREILKAMP  of Anchorage who serves of the board of the                  
 Anchorage Convention and Visitor's Bureau, said ACVB has a                    
 tremendous track record of going toe to toe with some of the most             
 popular convention sites nationwide.  This is business that                   
 predominantly is brought in during the fall, winter and spring, and           
 the key to their success is the favorable tax climate.  Raising the           
 bed tax by 2 percent only dulls their competitive edge, and in the            
 long run, hurts business during the time of year when it is sorely            
 needed.  He also questioned whether these additional monies would             
 be reinvested to promote the state.                                           
 Number 450                                                                    
  ANN RITTAL , owner of the Lakeside Bed and Breakfast in Anchorage,           
 stated her opposition to SB 223.  She said right now they are                 
 fighting the bed and breakfast tax for small B&B's in Anchorage.              
 A permit is not required for operating a bed and breakfast,                   
 although it is highly recommended, so she questions how the state             
 plans on gathering taxes from all beds and breakfasts when they               
 won't know who they are.  She also questioned why cruise ships are            
 exempted since they are one of the largest bed providers of the               
 state during the tourism season.                                              
 Number 470                                                                    
  FRANK ROSE , Chairman of the Alaska Hotel-Motel Association,                 
 testifying from Fairbanks, said while it may seem reasonable in an            
 emergency to increase a tax on outsiders, it really could be a                
 self-imposed disaster; the occupancy tax can cost state and local             
 governments more than it takes in.   He said when travelers do not            
 visit our state and they do not pay any number of other taxes that            
 are assessed either directly on the traveler or indirectly on the             
 property, it results in reduction in revenues.                                
 Mr. Rose said the hotel and visitor industry is not opposed to                
 paying its fair share, in fact, some two million hard dollars were            
 invested directly in the state's marketing effort by private                  
 enterprise this past year.  He said Alaska's problem is not unique,           
 and he suggested working together to explore the alternatives.  He            
 declared that a tax that is imposed on one industry and does not              
 have some direct relation towards it use in advancing the visiting            
 industry is not acceptable.                                                   
 Number 520                                                                    
  ELSAN ZIMMERLY , a bed-and-breakfast owner in Ketchikan, voiced her          
 opposition to SB 23.  Ketchikan already has a 6 percent bed tax,              
 which in addition to their city tax is 11.5 percent on transient              
 lodging.  She suggested the need to consider the question of scale            
 and appropriateness; for every activity there is a certain                    
 appropriate scale, which she believes is being exceeded right now             
 and will be more so if the bed tax is increased.  If specific                 
 communities or municipalities need to include a lodging tax, then             
 she thinks it should be done at the local level instead of imposing           
 a statewide tax.                                                              
 Concluding, Ms. Zimmerly said she sees SB 23 as a greed issue and             
 greed will eventually cultivate a paralysis on tourism in this                
 Number 545                                                                    
  BOB KOENITZER , manger of the Ingersoll Hotel and chairman of the            
 Ketchikan Hotel-Motel Committee, testifying in opposition to SB 23,           
 echoed previous speakers' comments that higher taxes reduce                   
 Mr. Koenitzer pointed out that bed taxes do not come strictly from            
 visitors.  Ketchikan, like other cities in the state, acts as a hub           
 for a lot of urban communities in that area, and these people                 
 comprise about 60 percent of his year-round business, so Alaskans             
 are being taxed any time the bed tax is increased.                            
 Mr. Koenitzer believes there is a need to increase funding for                
 destination marketing for Alaska, but the funding vehicle has to be           
 spread out over the entire industry, not just the overnight                   
 hospitality segment.                                                          
 Number 560                                                                    
  JOLENE KING , owner of Harborview Bed and Breakfast in Seward and            
 vice president of the Kenai Peninsula Tourism Marketing Council,              
 said while many businesses benefit almost exclusively from tourism,           
 lodging businesses would be discriminated against by being asked to           
 collect this tax.  Other businesses such as gift shops,                       
 restaurants, etc., may sympathize with the lodging business, but              
 they will not be required to contribute anything in the way of this           
 new tax revenue.                                                              
 Ms. King related that when the City of Seward created its bed tax,            
 the annual gross rate in taxable sales dropped from an 8 percent              
 annual increase to eight-tenths after the new tax while all other             
 Kenai Peninsula cities without new taxes continue to thrive.                  
  TAPE 97-2, SIDE B                                                            
 Ms. King urged the committee to vote against SB 23.  She suggested            
 that if the goal is to balance the budget, stop spending.  She also           
 suggested no new taxes.                                                       
 Number 584                                                                    
  HANK NEWHOUSE , owner of Simply Solitude Enterprises testifying from         
 Ketchikan, explained that his business involved sailing charters,             
 yacht and lot management, and bed and breakfast activities.  Mr.              
 Newhouse suggested that the future of Southeast Alaska lay partly             
 in diversifying the economy which could be achieved by catering to            
 independent travellers.  He contends that the independent traveller           
 spends more money than tourists arriving by cruise ships.  Mr.                
 Newhouse opposed SB 23.  Ketchikan already has a five and a half              
 percent sales tax as well as a six percent bed tax; practically               
 everything a visitor does in Ketchikan from a tour to eating is               
 taxed.  He feared that with more taxes, the independent tourism               
 business would be hurt in Alaska as well as the business generated            
 by the many Alaskan residents who utilize Ketchikan as a regional             
 distribution area.  Mr. Newhouse reiterated the need to meet with             
 the tourism industry in order to discuss other manners in which to            
 generate money for advertising to attract tourists.                           
  ANNE   HICKOCK , Executive Director of the Sitka Convention & Visitor        
 Bureau, opposed SB 23.  Adding the two percent tax to the current             
 nine percent tax charged to visitors lodging in Sitka would hamper            
 Sitka's marketing efforts to attract conventions and organized                
 visitors.  Furthermore, the two percent tax would effect the local            
 bed tax which helps to fund the Sitka Convention & Visitors Bureau.           
 Ms. Hickock felt that the two percent tax was discriminatory,                 
 short-sighted, and not broad based.  This tax would fall short of             
 generating enough revenue to market Alaska efficiently and                    
 effectively.  Ms. Hickock echoed comments regarding the need to               
 meet with the tourism industry on this issue.                                 
 Number 524                                                                    
  WINETTA AYERS , Executive Director of the Kodiak Island Convention           
 & Visitors Bureau, opposed SB 23.  Currently, Kodiak has a six                
 percent city sales tax as well as a five percent bed tax.  With the           
 additional two percent tax, the total would be a thirteen percent             
 tax which Ms. Ayers felt an unreasonable amount.  Recently, Kodiak            
 has imposed a borough wide bed tax and any additional tax would be            
 unreasonable.  Ms. Ayers explained that cities' and borough's have            
 been able to utilize a bed tax in order to fund the local                     
 destination marketing for more than 20 years.  This additional tax            
 would hurt local efforts for destination marketing and economic               
 development for tourism.  She indicated that the purchase of a                
 hotel property and building new hotel property seem to have been              
 effected by the possibility of the tax increase encompassed in                
 SB 23.  Ms. Ayers encouraged the committee to work with the tourism           
 industry in order to determine an equitable form of funding for               
 tourism marketing.                                                            
  KELLY LEE  informed the committee that she represented Raven's Nest          
 Bed & Breakfast and the 32 members of the Kenai/Soldotna area Bed             
 & Breakfast Association as well as various hotels in the Kenai                
 area.  Ms. Lee expressed opposition to SB 23.  SB 23 has too narrow           
 of a focus and exempts the Alaska Marine Highway, the cruise ships            
 and the RV industry which are major portions of the tourism                   
 population.  Bed and breakfasts, hotels and other standard                    
 accommodations will bear a significant burden under this tax.                 
 Furthermore, the money from this tax are to be placed in the                  
 general fund which means that the money is not specified for                  
 tourism marketing.  Ms. Lee suggested that an across the board tax            
 involving the entire visitor industry would be more amenable.                 
 Number 375                                                                    
  ALAN LEMASTER , owner of Gakona Junction Village in the Copper               
 Valley, recognized that revenues are declining statewide.  He noted           
 that in order for the visitor industry to grow and remain healthy,            
 the marketing funding provided by the state are very important.               
 This funding is of prime importance to the small business operator            
 with limited money for advertising.  SB 23 appears to be                      
 discriminatory and calls for a small, struggling portion of the               
 industry to carry the burden for the industry as a whole.  There              
 are no guarantees that those paying the tax will benefit which                
 seems to lack fairness and equity.  The language in SB 23 does not            
 mandate that the money collected from this tax will be allocated to           
 tourism marketing and promotion.  Mr. Lemaster felt that the two              
 percent tax on top of the tax many cities, boroughs and                       
 municipalities already collect would discourage tour operators and            
 individuals from coming to Alaska.  Travelling to and operating in            
 Alaska is already expensive.  Mr. Lemaster suggested that a one or            
 two percent sales tax on all consumers would be a more equitable              
 solution.  Another option could be forming a task force to                    
 determine a solution.                                                         
  SENATOR RANDY PHILLIPS  complimented Mr. Lemaster on his alternative         
  JULIE KRAFFT  stated that she was with the Alaska Municipal League,          
 who had not yet taken a formal position on SB 23.  Ms. Krafft                 
 pointed out that the policy statement adopted by the Alaska                   
 Municipal League in November of 1996 states that, "The League                 
 opposes any action that would diminish the existing statutory                 
 authority of local government to raise revenues through the levy of           
 taxes."  The policy statement further says, "The League opposes the           
 incursion of the state into current municipal taxes such as sales             
 and property taxes.  The League supports the states' right to enact           
 sales and/or property taxes in the unincorporated areas of the                
 state.  The League also supports legislation that facilitates the             
 collection of sales tax on out of state purchases such as catalog             
 sales."  Ms. Krafft noted that many municipalities have adopted               
 both sales and bed taxes.  Ms. Krafft extended appreciation to                
 Senator Sharp for introducing the discussion on raising new                   
 revenues and indicated the League's desire to work with the state             
 on the development of acceptable revenue options.                             
 Number 315                                                                    
  BOB ENGLEBRECHT , President of the Alaska Visitors Association               
 (AVA), stated that the visitor industry is willing to pay its share           
 in taxes.  A recent study by the McDowell Group found that the                
 visitor industry pays $124 million in taxes and fees per year.  Of            
 that $124 million, $52 million includes taxes, fees and program               
 receipts to the general fund.  Revenue to other state entities                
 totals $18 million and revenue to local governments totals about              
 $54 million.  These taxes have doubled over the past five years.              
 AVA has supported taxes in the past, including the local bed taxes            
 for visitor promotion and increased motor fuel taxes for highway              
 maintenance.  Mr. Englebrecht informed the committee that AVA's               
 Destination Alaska Plan identified sales and fuel taxes as the most           
 equitable manner to capture visitor spending.  Mr. Englebrecht                
 indicated that taxing methods that effect visitor spending should             
 distribute the tax burden equally through all visitor types and               
 sectors.  AVA opposed SB 23.  He echoed the sentiment that SB 23 is           
 discriminatory, clearly taxes one segment of the visitor industry,            
 and would not raise enough revenue for a marketing program.  Mr.              
 Englebrecht discussed problems regarding receipt authority.  In               
 conclusion, he suggested a broad based approach such as a statewide           
 sales tax.                                                                    
  SENATOR RANDY PHILLIPS  asked if Mr. Englebrecht was aware of the            
 Long Range Fiscal Planning Commission's recommendation of a $20               
 million tax increase on tourism.  What is AVA's position on that              
 recommendation?   BOB ENGLEBRECHT  said that any increased taxes              
 should go to tourism related programs and projects such as ATMC.              
 The tourism industry is more than paying its way.  Mr. Englebrecht            
 informed the committee that the City and Borough of Juneau had                
 commissioned a study which illustrated the same point as the                  
 statewide study.  In response to Senator Phillips, Mr. Englebrecht            
 stated that he would look into AVA's position on that                         
 recommendation and report back to the committee.                              
 Number 239                                                                    
  CHAIRMAN MACKIE  requested that Mr. Englebrecht provide the                  
 information to the committee in writing so that it could be                   
 distributed for future meetings.  Chairman Mackie   inquired as to            
 the status of this discussion within the visitor industry regarding           
 how much the industry could contribute to marketing efforts.   BOB            
 ENGLEBRECHT  explained that the industry has been involved with this          
 issue in the past.  For example, the visitor industry was involved            
 in a legislative task force with Senator Pearce and Representative            
 McLean which produced a list of alternatives for taxation.  Mr.               
 Englebrecht noted that the problem with this issue seems to be that           
 some group tends to be omitted.  This problem lead Destination                
 Alaska to identify a statewide sales tax as an option since it is             
 broad based.  Mr. Englebrecht said that AVA was willing to work               
 with the legislature and the administration on this issue.                    
  RICK BARRIER , President of the Alaska Campground Owner's                    
 Association and owner of Gold Nugget Campground Park in Anchorage,            
 appreciated the committee's amendment eliminating the campground              
 industry.  Mr. Barrier acknowledged that campgrounds are a member             
 of AVA and agreed that there are better ways to generate general              
 fund revenues for the state.  Marketing the state as a destination            
 does benefit other sectors besides tourism.  Mr. Barrier agreed               
 with previous statements that a more broad based tax would be                 
 Number 165                                                                    
  JOAN BUDAI , bed-and-breakfast owner in Anchorage, explained that            
 she does not have repeat visitors; most have saved all there life             
 to come to Alaska.  Ms. Budai wanted to keep her prices down for              
 these people which would require that she absorb the cost of this             
 tax if passed.  With this new tax, many of the smaller operators              
 would be put out of business.  Ms. Budai was offended by Senator              
 Sharp's statement that this tax could generate funds to meet the              
 $66 million of new revenues in the 1998 fiscal year budget plan.              
 Why are new revenues in the budget?  Why is the budget not being              
 reduced to recapture that money instead of initiating new taxes?              
 Ms. Budai reiterated the sentiment that SB 23 is discriminatory.              
 She reminded the committee of previous communities' efforts to tax            
 tourism and the negative effects that resulted.                               
  JAMES ROUSEY , testifying from Anchorage, said that others had               
 answered his questions and comments and yielded his time to the               
 next witness.                                                                 
  DENNIS LAVEY , owner of the Day's Inn in Anchorage, opposed SB 23.           
 Over 60 percent of Mr. Lavey's total revenue is generated from in-            
 state residents illustrating that the tax increase would effect               
 Alaskan residents.  Mr. Lavey informed the committee of a study               
 that concluded that room/occupancy taxes fall disproportionately on           
 smaller properties and higher mill rates.  Increased taxes does not           
 bring in more business.                                                       
  CHAIRMAN MACKIE  thanked everyone for there testimony.  He announced         
 that SB 23 would remain in committee.                                         

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