Legislature(2003 - 2004)

05/20/2003 10:38 AM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
     CS FOR HOUSE BILL NO. 271(FIN)(efd am)                                                                                     
     "An  Act   levying  and  providing   for  the  collection   and                                                            
     administration  of excise taxes on the rental  of passenger and                                                            
     recreational  vehicles usable  on highways and vehicular  ways;                                                            
     and providing for an effective date."                                                                                      
This  was the first  hearing  for this  bill in  the Senate  Finance                                                            
Co-Chair Wilken  stated that this bill, relating to  a "personal and                                                            
recreational vehicle  rental tax", "imposes a ten-percent  State tax                                                            
on rental or lease  of passenger vehicles and a three-percent  State                                                            
tax  on  lease  or  rental  of  recreational  vehicles.   Commercial                                                            
vehicles and farm equipment  are exempt and vehicles leased for more                                                            
than 90 consecutive days are also exempt."                                                                                      
KRIS KNAUSS, Staff to Representative  Pete Kott, testified that this                                                            
bill was introduced  at the request of the Governor  with the intent                                                            
to generate approximately  $6 million in revenue with  a ten percent                                                            
tax on rental  cars and three percent  tax on recreational  vehicles                                                            
(RVs). He remarked  that with over  1.6 million visitors  to Alaska,                                                            
the Administration  determined  "it would be  good to get  something                                                            
back from the tourism industry."  He informed that approximately 100                                                            
businesses   would  be  impacted   and  that  government   employees                                                            
conducting  government  business would  be exempt  from the tax.  He                                                            
noted an amendment  adopted by the House of Representatives  changed                                                            
the effective date from July 2003 to January 2004.                                                                              
LARRY  PERSILY,   Deputy   Commissioner,   Department  of   Revenue,                                                            
testified he was available to answer questions.                                                                                 
Amendment  #1: This amendment  deletes the  following language  from                                                            
page 1 line 14 and page 2 lines 1 - 3 in Section 1.                                                                             
          Sec. 43.52.030. Levy of recreational vehicle rental tax.                                                              
     There is  imposed an excise tax on the charge  for the lease or                                                            
     rental of a recreational  vehicle in this state if the lease or                                                            
     rental of the recreational  vehicle does not exceed a period of                                                            
     90 consecutive days.                                                                                                       
Senator Bunde moved for adoption.                                                                                               
Co-Chair Wilken objected for an explanation.                                                                                    
Senator Bunde remarked  that the majority of RV rentals occur within                                                            
the  Municipality  of Anchorage,  which  already imposes  an  eight-                                                            
percent  tax. He  calculated that  another three-percent  tax  would                                                            
"undoubtedly  be  burdensome  on the  industry".  He  informed  that                                                            
because of the current  eight percent tax, customers are renting RVs                                                            
in Canada for travel in Alaska.                                                                                                 
Senator Bunde  reported that an RV typically rents  for $200 per day                                                            
or $4,200  for a two-week  rental. He calculated  the current  eight                                                            
percent tax for this rental  is $338 and the proposed additional tax                                                            
would be $126, totaling $464 total tax.                                                                                         
Co-Chair Wilken  expressed these figures  are "compelling"  and that                                                            
business should  not be directed to Whitehouse, Yukon  Territory. He                                                            
removed his objection to the adoption of the amendment.                                                                         
Co-Chair Green objected.                                                                                                        
A roll call was taken on the motion.                                                                                            
IN FAVOR: Senator Taylor, Senator Bunde, and Co-Chair Wilken                                                                    
OPPOSED:  Senator Hoffman,  Senator Olson,  Senator B. Stevens,  and                                                            
Co-Chair Green                                                                                                                  
The motion FAILED (3-4)                                                                                                         
The amendment FAILED to be adopted.                                                                                             
Amendment  #2:  This amendment  changes  the  proposed  tax rate  on                                                            
rental cars from  ten percent to seven percent on  page 1 line 12 of                                                            
Section 1.                                                                                                                      
Senator Bunde moved for adoption.                                                                                               
Co-Chair Wilken objected for an explanation.                                                                                    
Senator  Taylor relayed the  national average  is approximately  5.9                                                            
percent.  He  commented  that although  "everything  costs  more  in                                                            
Alaska" "nearly  doubling the tax  is probably not appropriate".  He                                                            
surmised that collecting  a seven percent tax would generate revenue                                                            
from this  source without  becoming burdensome  to the industry.  He                                                            
added that  some rental car companies  are "economically  stressed".                                                            
Senator  Taylor  estimated  he  pays a  higher  taxation  rate  when                                                            
renting vehicles in Seattle,  Washington and that he definitely pays                                                            
a higher rate in the State of Hawaii.                                                                                           
Senator Bunde  pointed out  that many airports  impose drop-off  and                                                            
pick-up fees separate from the tax.                                                                                             
Co-Chair  Wilken  directed  attention to  a  chart compiled  by  the                                                            
Montana Department  of Revenue and  provided by Representative  Kott                                                            
titled, "Table  2, Rental Car Tax, State-by-State  Comparison" [copy                                                            
on file.]  This chart,  Co-Chair Wilken pointed  out, indicates  the                                                            
State of Illinois  levies the highest rental car tax  combination in                                                            
the nation  at  31.7 percent,  the State  of Washington  levies  the                                                            
sixth  highest  tax  at  21.5  percent,  and  Alaska  ranks  47at                                                               
approximately six percent.                                                                                                      
Co-Chair  Wilken maintained  his objection  to the  adoption of  the                                                            
GARY  ZIMMERMAN,  General  Manager,   Avis  Rental  Car  of  Alaska,                                                            
testified via  teleconference from  an offnet location to  challenge                                                            
the six percent  total rental car tax in Alaska. He  cited the eight                                                            
percent Municipality  of Anchorage  tax as well as a ten-percent  of                                                            
gross fee paid  to the State as an airport concession  fee, which is                                                            
passed  along to  the consumer.  He  stated that  rental  agreements                                                            
currently list the total  tax paid by the lessee at 18 percent. This                                                            
legislation,  he calculated,  plus  a proposed  statewide sales  tax                                                            
would make  the total rental car tax  30 percent. He expressed  this                                                            
would be detrimental  to business operations in Alaska.  He spoke to                                                            
the seasonality  of  the visitor industry  in Alaska  that does  not                                                            
occur in other states.                                                                                                          
Co-Chair  Wilken  requested  Mr.  Persily  reconcile  the  witness's                                                            
testimony  with  the information  contained  in  the aforementioned                                                             
Mr.  Persily explained  that  the  chart  does not  include  airport                                                            
concession fees  or municipal car rental taxes. He  stated the chart                                                            
reflects  the highest  sales  tax six percent  levied  in Sitka  for                                                            
rental cars in Alaska.  He agreed that the total current tax for car                                                            
rentals  in Anchorage  is  18 percent.  He  noted that  the  airport                                                            
concession fee could be avoided by renting vehicles off site.                                                                   
Senator Bunde  directed attention to the column on  the chart titled                                                            
"state sales tax" and suggested  that if a seven percent State sales                                                            
tax were imposed, Alaska would be equal to the highest tax.                                                                     
Mr. Persily  informed  that several  states  impose a  flat fee  per                                                            
rental,  rather than  a tax  percentage.  He stated  that the  chart                                                            
calculated  the flat fee  as a percentage  of the average $50  daily                                                            
car rental rate,  and therefore varies based on the  actual price of                                                            
each car rental.                                                                                                                
Senator Taylor recalled  discussions on other tax proposals, such as                                                            
a tax on pull tab operations  where it was debated whether the State                                                            
should  exercise  exclusive  taxation  authority.  He  suggested  an                                                            
alternative amendment to  Amendment #2 to limit tax authority on car                                                            
rentals to the State.                                                                                                           
Co-Chair  Wilken requested  the witness continue  with testimony  on                                                            
the legislation.                                                                                                                
Mr.  Zimmerman  reported  the  car  rental  agencies   operating  in                                                            
Anchorage  and Fairbanks  currently  pay over  $4.5  million to  the                                                            
State in  the form  of a percentage  of revenues.   In addition,  he                                                            
estimated $1.5 million  is paid to the Division of Motor Vehicles in                                                            
the  form of  vehicle  registration  and  another $.25  million  for                                                            
"coveted  parking spaces"  at the  two airports.  He challenged  the                                                            
assertion  that the  car rental  industry  or its  customers do  not                                                            
contribute  to the State economy.  He opined that the proposal  is a                                                            
"very  targeted  tax" and  that  "a  certain  fairness issue  is  at                                                            
Mr. Zimmerman  found it "inconceivable"  that a customer  renting an                                                            
RV at $200 per day would  pay less tax than a customer renting a car                                                            
for $70 per  day. He furthered those  travelers who rent  cars would                                                            
stay at hotels and pay  local bed taxes, as opposed to travelers who                                                            
rent  RVs and  do  not stay  at  hotels. He  noted  Senator  Bunde's                                                            
comments regarding  the burden of the proposed tax  on the RV rental                                                            
industry and stressed  that the burden would also  exist for the car                                                            
rental industry.  He compared  the percentage  of the total  vehicle                                                            
rental charges  on a two-week  RV rental to  that of a two-week  car                                                            
Mr. Zimmerman  described the impacts,  informing that 90  percent of                                                            
transactions  involve credit  cards,  in which the  bank collects  a                                                            
percentage of the total  charge. He stated that the rental companies                                                            
therefore pay  an amount equal to a portion of the  tax to the bank,                                                            
thus increasing  operating expenses.  He pointed out that  this bill                                                            
contains no  provisions to help offset  that cost to the  car rental                                                            
and motor home rental businesses.                                                                                               
Mr. Zimmerman cautioned  that the vehicle rental industry is "facing                                                            
very  bleak   market  conditions",   noting  that  deplanements   in                                                            
Anchorage has only increased  four percent in the past six years. In                                                            
Fairbanks,  he  furthered,  the  number  of  deplanements  has  been                                                            
unchanged in the past six  years and in the current year, Juneau and                                                            
Kenai are experiencing  decreased  numbers of deplanements  over the                                                            
previous  year. He  stated that  the situation  is  not expected  to                                                            
improve and relayed general  concerns relating to tourism as well as                                                            
the "general business climate"                                                                                                  
Mr. Zimmerman addressed  discussions held amongst members of the car                                                            
rental  industry several  years prior  about  developing an  offsite                                                            
rental  facility in  Anchorage. However,  he  stated that  customers                                                            
would have  to pay  for construction  of such  a facility through  a                                                            
"pass through fee". He  expressed that the proposed tax in this bill                                                            
is poorly timed, given the current economic situation.                                                                          
BOB DINDINGER, President  and Chief Executive Officer, Alaska Travel                                                            
Adventures,  testified via  teleconference  from an offnet  location                                                            
about  RV  rental  facilities  located  in  Anchorage,  Skagway  and                                                            
Seattle.  He  informed  that the  bulk  of this  business  has  been                                                            
primarily  in European travelers  but has not  fared well in  recent                                                            
years due to travel conditions.  He agreed with Senator Bunde that a                                                            
"major   shift"  of  business   has  occurred   from  Anchorage   to                                                            
Whitehouse,   Yukon  Territory,  caused   by  the  passage   of  the                                                            
Municipality of  Anchorage rental tax. Mr. Dindinger  also explained                                                            
that it  is more  economical for  travelers to  fly from Germany  to                                                            
Whitehorse  and tour Alaska,  returning to  Whitehorse to return  to                                                            
Mr. Dindinger  stated that four of his competitors  have gone out of                                                            
business  and  he   listed  the  changing  numbers   of  rentals  in                                                            
Whitehorse  and  in  Alaska.  He  furthered  that  his  company  has                                                            
downsized  its fleet. He  expressed concern  that a State tax  would                                                            
provide an additional disincentive for renting RVs in Alaska.                                                                   
TERRY PARKS,  Dollar Rental Car, testified  via teleconference  from                                                            
an offnet location about  the negative impacts on the industry since                                                            
the events  of September 11, 2001  and the more recent outbreaks  of                                                            
the  Severe  Acute  Respiratory  Syndrome  (SARS).  He  stated  that                                                            
national rate  reductions, despite  no changes to fixed costs,  have                                                            
also impacted  the Alaska businesses. He spoke to  the difficulty in                                                            
keeping employees employed and the need to increase the fleet.                                                                  
Mr. Park assured that he  was willing to contribute to the State and                                                            
to pay taxes, as he attributed this as a responsibility.                                                                        
Mr. Parks  noted  the cruise  industries  are owned  outside of  the                                                            
United States  and although  they pay port  fees, they pay  no State                                                            
taxes. He asserted  that the cruise  industry earnings are  spend by                                                            
the  companies and  it  employees  out of  State, in  comparison  to                                                            
locally  owned business  in  which the  earnings  are reinvested  in                                                            
Mr. Parks emphasized the  burden on rental industries to collect the                                                            
funds and process the taxes,  reiterating that the companies are not                                                            
reimbursed  for the additional credit  card transaction charges.  He                                                            
also pointed out that some  computer systems do not account multiple                                                            
ANDREW  HALCRO,   President,  Alaska   Rental  Car,  testified   via                                                            
teleconference  from offnet location about the 100  employees of the                                                            
company  located in  nine communities  in  Alaska. He  spoke to  the                                                            
economic  development  at the Ted  Stevens  Anchorage International                                                             
Airport and  reminded that  three years prior  the State  authorized                                                            
the sale of bonds to finance  the $230 million expansion. He relayed                                                            
that the car  rental industry was  not included in this process  and                                                            
identified problems  with the project.  As a result,  he stated that                                                            
the car rental  industry formed a  consortium to design and  propose                                                            
the construction  of a  four-story parking  garage with two  stories                                                            
occupied by  rental companies and  financed by the rental  industry.                                                            
Mr. Halcro  calculated a State tax  coupled with existing  taxes and                                                            
fees  would total  28 percent.  He  estimated the  proposed  parking                                                            
garage would cost $40 million  and would require a customer facility                                                            
charge of  approximately $3.50  per day for  each rental  agreement.                                                            
The  market, he  stressed  could not  support this  combination  and                                                            
therefore the  parking garage project  would not be constructed.  He                                                            
warned  that the  consequence  of not  proceeding  with the  private                                                            
parking facility  would be the rental  industry and customers  would                                                            
be  "at the  mercy of  the  State at  an airport  that  is now  $150                                                            
million over budget and really no solution in sight."                                                                           
Mr. Halcro  also spoke to the fairness  issue, telling the  co-chair                                                            
that a Fairbanks  resident traveling to Anchorage  and renting a car                                                            
for one  day would  pay a 20 percent  State tax,  plus an 8  percent                                                            
local tax. He compared  this to a traveler from out of State renting                                                            
an   RV,   impacting   the   parks,   highways   and   other   State                                                            
infrastructure,  and paying only three percent in  tax. He suggested                                                            
that if  the intent  is to generate  revenue from  those who  impact                                                            
roadways and the State's  infrastructure, the proposed tax should be                                                            
implemented equally to all vehicle rentals.                                                                                     
SFC 03 # 106, Side B 11:26 AM                                                                                                   
Mr.  Halcro contended  that  the RV  industry concern  the  business                                                            
would  "bleed" to  Canada  is no  different  than his  concern  that                                                            
business would  be lost to taxi cabs, shuttle buses  and car rentals                                                            
located away from airports.                                                                                                     
Mr. Halcro expressed  he understood the State's fiscal  gap and as a                                                            
result the car rental industry  should "take full responsibility and                                                            
my customers to  take full responsibility in getting  the State on a                                                            
straight and narrow."  He stated that in the previous  year, the car                                                            
rental   businesses   located   at   the   Ted   Stevens   Anchorage                                                            
International Airport paid  over $3.7 million in direct taxes to the                                                            
Department of Transportation and Public Facilities.                                                                             
Mr. Halcro  told  of recent  purchase of  land in  Fairbanks by  his                                                            
company off airport property  and the intention to construct a state                                                            
of the  art service  facility.  He stated  that a new  tax would  be                                                            
factored into any capital investment decisions.                                                                                 
Senator Olson asked former  State Representative Halcro's opinion on                                                            
Amendment #2.                                                                                                                   
It   was  determined   Mr.   Halcro   had  disconnected   from   the                                                            
teleconference network.                                                                                                         
Senator Bunde  speculated on Mr. Halcro's  position surmising  that,                                                            
"seven percent is better than ten percent."                                                                                     
A roll call was taken on the motion to adopt Amendment #2.                                                                      
IN FAVOR: Senator Olson, Senator Bunde and Senator Hoffman                                                                      
OPPOSED: Senator B. Stevens,  Senator Taylor, Co-Chair Green and Co-                                                            
Chair Wilken                                                                                                                    
The motion FAILED (3-4)                                                                                                         
The amendment FAILED to be adopted.                                                                                             
Amendment #3:  This conceptual amendment limits authority  to levy a                                                            
tax  on  car   rentals  to  the  State;   clarifying  that   airport                                                            
authorities and  municipalities are not authorized  to impose such a                                                            
Senator Taylor moved for  adoption and stated that varying tax rates                                                            
and user  fees exist  in Anchorage  and Fairbanks  and subsequently                                                             
this legislation would  impact communities differently. He clarified                                                            
this amendment provides  that municipalities would be precluded from                                                            
imposing taxes and fees on car rental businesses.                                                                               
Senator Taylor  spoke to  various taxes imposed  on alcohol  and the                                                            
confusion  it creates.  He talked  about different  taxing  entities                                                            
that do not communicate  with each other and the eventual  situation                                                            
whereby  a  business  could  no  longer  operate  due  to  excessive                                                            
taxation.  He characterized  this  amendment  as a  policy call.  He                                                            
suggested  that more revenue  could be generated  for the State  and                                                            
that in some communities the overall tax rate would be reduced.                                                                 
Senator B.  Stevens moved to amend  the amendment to include  cruise                                                            
ship destinations.                                                                                                              
It was  established  that the  amendment includes  all communities,                                                             
local governments and taxing authorities.                                                                                       
Mr.  Persily  asked  if this  would  abolish  those  existing  taxes                                                            
currently imposed  by local governments  and airport authorities  or                                                            
instead "freeze" the current taxes.                                                                                             
Senator Taylor  answered that  all taxes  would be eliminated,  thus                                                            
granting  the  State  sole authority  to  impose  taxes  on  vehicle                                                            
Mr.  Persily  noted   the  Municipality  of  Anchorage   would  lose                                                            
approximately  $4.5 million in revenues  beginning at the  effective                                                            
date of  this bill.  He asked  if the  intent is  to also  eliminate                                                            
airport  concession fees  paid to the Department  of Transportation                                                             
and Public Facilities.                                                                                                          
Senator  Taylor  responded  that State-imposed   fees would  not  be                                                            
affected.   He  remarked   that   revenues  collected   by   airport                                                            
authorities  are deposited to the  State general fund, although  the                                                            
legislature  always  "chooses"  to  appropriate  the  funds  to  the                                                            
Co-Chair  Wilken maintained  his objection  to the  adoption of  the                                                            
A roll call was taken on the motion.                                                                                            
IN FAVOR: Senator Taylor and Senator Hoffman                                                                                    
OPPOSED: Senator B. Stevens,  Senator Bunde, Senator Olson, Co-Chair                                                            
Green and Co-Chair Wilken                                                                                                       
The motion FAILED (2-5)                                                                                                         
The amendment FAILED to be adopted.                                                                                             
Senator Taylor  offered a motion to  report the bill from  Committee                                                            
with individual recommendations and new fiscal note.                                                                            
There  was no  objection  and CS  HB 271  (FIN)(efd  am) MOVED  from                                                            
Committee  with  a  $96,500  fiscal noted  dated  5/20/03  from  the                                                            
Department of Revenue.                                                                                                          
AT EASE 11:36 AM / 11:43 AM                                                                                                     

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