Legislature(1999 - 2000)
04/19/2000 12:00 PM Senate FIN
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SENATE BILL NO. 308
"An Act relating to certain passenger vessels
operating in the marine waters of the state."
This was the first hearing for this bill in the Senate
Finance Committee.
Co-Chair Parnell moved to adopt CS SB 308, 1-LS1617\D as a
workdraft. There was no objection and the committee
substitute was ADOPTED.
JOE GELDHOF, Juneau Attorney, retained by the legislature
to advise on constitutional issues relating to a tax on the
cruise ship industry, explained the committee substitute.
Mr. Geldhof told the Committee a proposed tax is contained
in Section 1 of the committee substitute. He said this tax
is simple and strait forward on passengers who come to
Alaska in commercial cruise ships.
Mr. Geldhof noted there are some legal concerns, such as an
equal protection issue related to an exemption for vessels
that have less than 50 berths. However, in his opinion,
there is no problem with equal protection. He stated this
is because the legislature has discretion to set certain
standards and that this exemption is well within that
constitutional authority.
Mr. Geldhof explained the liability for payment of this tax
falls on the vessels that are engaged in commercial
activities within Alaskan waters. In that sense, he
surmised this is a self-executing tax the operators collect
on behalf or from the passengers and pay to the Department
of Revenue.
Mr. Geldhof pointed out that this legislation avoids some
of the difficulties under the "nearly archaic and perhaps
almost dead" tonnage clause in the US Constitution, since
the tax is not related to the length or the weight of a
vessel. He explained that under the clause, any revenues
generated under a tonnage tax must be used to fund
services, such as fireboats, that are directly related to
the marine trade.
Mr. Geldhof described how revenues generated by the tax
proposed in this bill would be deposited into the general
fund and would pre-empt municipalities and other local
governments from engaging in other passenger head taxes. In
this sense, he said, the state tax is rationalized because
the industry is not subject to multiple tax schemes at
different rates.
Mr. Geldhof continued that this bill provides that the
Department of Revenue directs a portion of the collected
taxes to the affected communities where the cruise ships
visited.
Co-Chair Torgerson clarified that of the total tax
collected for each passenger, $5 is given to the first five
ports of call.
Mr. Geldhof affirmed and emphasized that this legislation
also places a prohibition on local levies.
Co-Chair Torgerson wanted to know if the municipalities are
also blocked from imposing a wharfing or docking fee.
Mr. Geldhof answered the bill would not restrict municipal
fees for those activities relating to providing a service,
such as delivering water.
Co-Chair Torgerson asked if this legislation would prohibit
a municipality from charging a disembarking tax.
Mr. Geldhof responded that there are a variety of different
ways to describe this type of charge, such as fees, taxes,
embarkation, disembarkation, etc. but that "a tax is a
tax." He stated that this legislation creates the state tax
and prohibits municipalities from imposing a similar charge
although a portion of the revenues would be shared with
those municipalities.
Mr. Geldhof next addressed the definitions prescribed in
the bill. He said the intent is to enact this legislation
directed at the large cruise ships that travel in Alaska.
He noted that the language specifically exempts dayboats
and the small vessels that have 50 berths or less.
Mr. Geldhof shared that an argument could be made that the
vessel size stipulations violate the US Commerce clause,
but countered that no violation is committed so long as
favor is not granted to local commerce. He commented that
legislatures repeatedly get into trouble when they try to
favor local commerce over businesses from other states.
Co-Chair Torgerson said the remainder of the bill,
beginning on page three, addresses environmental concerns
and provide record keeping requirements and emissions.
Mr. Geldhof affirmed but stated that he was not
knowledgeable on this portion of the bill.
Senator Phillips asked how much revenue this tax would
generate.
Mr. Geldhof responded that although a fiscal note had not
yet been prepared, he knew that approximately 600,000
passengers passed through Juneau, which is the largest port
of call in the state.
Senator Phillips asked if $30 million was the approximate
amount that this tax would collect.
Mr. Geldhof replied that amount is a useful approximate
figure.
Co-Chair Torgerson clarified that the legislation imposes a
$50 fee per passenger per voyage. He continued that the
first five ports the vessel visits would receive $5 each
from the $50.
Mr. Geldhof affirmed.
Co-Chair Torgerson asked if some vessels visited less than
five ports would the tax remain $50.
Mr. Geldhof said the tax would be the same amount
regardless of the number of stops a vessel makes. He
explained this bill puts an excise tax on the commodity of
Alaska. He stressed that the cruise ship is responsible to
pay the $50 tax even if the vessel begins its voyage in
Canada, travels directly to Glacier Bay without making any
ports of call. However, he noted that no municipality would
receive a $5 portion of that fee. He explained that the
state is still "selling the water."
Amendment #1: This amendment makes the following changes to
the committee substitute.
Page 1, line 4
Insert new bill sections to read:
Sec. 1. AS 43.20 is amended to read:
Sec. 43.20.021. Internal Revenue Code adopted by
reference. (a) Sections 26 U.S.C. 1 - 1399 and 6001 -
7872 (Internal Revenue Code) as amended, are adopted
by reference as part of this chapter. These portions
of the Internal Revenue Code have full force and
effect under this chapter unless excepted to or
modified by other provisions of this chapter.
(However, nothing in this chapter or in AS 43.19
{multistate tax compact} may be construed as an
exception to or modification of 26 U.S.C. 883.)
Sec. 43.20.074. All business income of a taxpayer
engaged in the cruise ship industry derived from
gambling operations and activities as allowed by
federal law in the State Of Alaska shall be taxed at
the rate of 2% of the gross revenues of the gambling
operations and activities conducted in Alaska.
Renumber following sections accordingly.
Senator Adams moved for adoption.
Co-Chair Torgerson objected.
Senator Adams explained this amendment allows the cruise
ship industry an opportunity to provide an "entertainment
donation" by imposing a tax on the proceeds of gambling
operations conducted on board ships. He spoke to the well-
defined restrictions on gambling in Alaska except for the
unknown amount of gambling done aboard cruise ships
traveling in state waters. He told the Committee how the US
Congress allowed gambling in Alaska waters at the request
of the cruise ship industry. He was concerned about the
federal government's interjection on this matter saying it
raises issues about state sovereignty since congress
authorized an activity that the state does not endorse. He
thought it important that the state extract a small portion
of the wealth generated by gambling within the state's
waters that otherwise goes to foreign-owned corporations.
Senator Adams continued that funds collected could be used
for future cleanup of oil spills or other pollution damage
or perhaps to fund ports and harbor facilities. He reminded
the Committee that this issue was considered in 1998 at
which time it was estimated this tax would generate between
$3 to $8.5 million. However, he pointed out that with the
increase in cruise ship activity the minimum amount
collected would be $8.5 million.
A roll call was taken on the motion.
IN FAVOR: Senator Phillips, Senator Leman, Senator Adams,
OPPOSED: Senator Wilken, Senator P. Kelly, Senator Green,
Co-Chair Parnell and Co-Chair Torgerson
ABSENT: Senator Donley
The motion FAILED (3-5-1)
The amendment FAILED to be adopted.
Amendment #2: This amendment changes the title of the
committee substitute and adds a new bill section as
follows.
Page 1, line 1
Delete:
"An Act relating to certain passenger vessels
operating in the marine waters of the state."
Insert:
"An Act relating to certain vessels operating in the
marine waters of the state."
Page 1, line 4
Insert a new bill section to read:
Section 1. AS 46.03 is amended by adding a new section
to read:
Sec. 46.03.072. Exception for certain United
States Navy vessels from state marine water quality
standards applicable to the discharge of hydrocarbons.
(a) Until September 1, 2010 the state's water quality
standards, adopted as regulations under authority of
AS 46.03.020(10) to effectuate the purposes of this
chapter and under authority of other sections of this
chapter, establishing limits on the total aqueous
hydrocarbons and total aromatic hydrocarbons
permissible in the marine water column that are more
stringent than the requirements of comparable water
quality standards set out in federal law or adopted in
federal regulation do not apply to a vessel of the
United States Navy operating in the marine waters of
the state if the vessel uses a seawater compensation
system.
(b) Notwithstanding the exemption provided by (a)
of this section, a vessel of the United States Navy
operating in the marine waters of the state that uses
a seawater compensation system may not discharge oil
into state waters in violation of 33 U.S.C. 1321 (sec.
311, Federal Water Pollution Control Act, as amended)
and regulations adopted under authority of that
section.
Senator Leman moved for adoption.
Co-Chair Torgerson objected for an explanation.
Senator Leman explained that current Department of
Environmental Conservation regulations require that
discharged sea water used by marine vessels for stability
contain less than 15 parts per billion hydrocarbons. He
stated that this standard is significantly more stringent
than federal law, which dictate that no vessel may leave a
visible sheen. He said that in recent years, the US Navy
has curtailed operations in Alaska because of the strict
regulations. He listed the three classes of Navel vessels
equipped with seawater compensating systems and saying that
this amendment is an opportunity to invite the Navy back to
the state.
In response to the department's concerns with this
amendment, Senator Leman said he found part of the argument
compelling.
Senator Leman moved to amend the amendment to change the
sunset date of the exemption from "2010" to "2005". He said
this would provide ample opportunity to conduct the
necessary scientific studies to determine if a further
extension would be necessary.
Without objection the amendment was AMENDED.
There was no objection and the amended amendment was
ADOPTED.
Amendment #3: This amendment adds a new subsection to the
committee substitute as follows.
Page 2, line 6
Insert:
(a) The proceeds from the tax on travel on
commercial passenger vessels providing overnight
accommodations in the state's marine water shall be
deposited in a special commercial vessel passenger tax
account in the general fund. The legislature may
appropriate money from this account for the purposes
described in (b) of this section and for state-owned
port and harbor facilities.
(b)
Senator Phillips moved for adoption and stated this issue
is commonly called "a white picket fence approach." He
explained it isn't exactly a dedicated fund but does
indicate to future legislatures that the money may be
appropriated for the purposes of state-owned ports and
harbor facilities. He expressed that because the tax is
derived from vessels, it is appropriate to use the funds
for facilities the vessels use.
Co-Chair Parnell asked if this amendment applies only to
the portion of the head tax retained by the state and if it
in any way circumvents the local government's portion.
Senator Phillips surmised that the amendment would not
utilize the local portion of the tax because of the word
"may" in the language.
The amendment was ADOPTED without objection.
Amendment #4: This amendment adds an effective date of July
1, 2000 to the legislation.
Co-Chair Parnell moved for adoption.
Co-Chair Torgerson explained this amendment establishes the
effective date of the bill.
There was no objection and the amendment was ADOPTED.
ROBERT REGIUS, Attorney, spoke in favor of the bill on
behalf of the non-profit organization, Cruise Control. He
told of his 15 years practicing environmental and natural
resources law. He stated that he is pleased with Section 1
and that the state is "stepping up to the plate" to get
fair market value for Alaskans of the "experience of a
lifetime" that is sold to the hundreds of thousands of
visitors.
Mr. Regius next addressed Section 2 of the committee
substitute emphasizing it is intended to ensure that non-
Alaskans take as good of care of the state as local
citizens do. He spoke of the other industries, including
mining, oil development, municipal water supply, etc, that
must provide information about the wastes produced by their
operations. He stressed that this section of the bill does
not impose performance standards.
Co-Chair Parnell offered a motion to report from Committee,
CS SB 308, 1-LS1617\D as amended.
Senator Adams objected. He stated that he did not know the
impact this legislation would have on tourism, and that no
fiscal note was presented to show the revenues the tax
would generate.
A roll call was taken on the motion.
IN FAVOR: Senator Green, Senator Phillips, Senator Leman,
Senator Wilken, Co-Chair Parnell and Co-Chair Torgerson
OPPOSED: Senator Adams, Senator P. Kelly and Senator Donley
The motion PASSED (6-3)
The bill MOVED from Committee.
Senator Phillips asked if a fiscal note would be prepared
for this bill.
Co-Chair Torgerson answered a fiscal note would be
available before the Senate body hears the bill.
AT EASE 10:21 PM / 10:22 PM
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