Legislature(2015 - 2016)BUTROVICH 205

03/26/2015 01:00 PM Senate TRANSPORTATION

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01:01:51 PM Start
01:02:31 PM SB66
01:22:33 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
-- Public Testimony --
+ Bills Previously Heard/Scheduled TELECONFERENCED
           SB  66-PASSENGER & REC. VEHICLE RENTAL TAX                                                                       
1:02:31 PM                                                                                                                    
CHAIR  MICCICHE  announced  SB  66 to  be  up  for  consideration                                                               
[version 29-LS0470\E was before the committee].                                                                                 
SENATOR  DUNLEAVY moved  to adopt  committee  substitute (CS)  SB
66(), version 29-LS0470\I, as the working document.                                                                             
CHAIR MICCICHE objected for discussion purposes.                                                                                
1:03:03 PM                                                                                                                    
FORREST   WOLFE,  staff   to   Senator   Giessel,  Alaska   State                                                               
Legislature,  Juneau,  Alaska,   said  this  legislation  further                                                               
clarifies that a  statute passed in 2003 intended to  place a tax                                                               
on vehicles  rented by tourists  visiting the state so  that they                                                               
would share in  the cost of wear and tear  their driving inflicts                                                               
on Alaska's roads.  It was quite clear that the  tax was intended                                                               
to be  imposed on the tourism  industry and visitors from  out of                                                               
state.  However, this  did  not  prevent unintended  consequences                                                               
from happening.                                                                                                                 
He explained  that over the  years, the statute had  been further                                                               
clarified by exempting taxi cabs,  motorcycles and U-Hauls rental                                                               
trucks.  And   in  2013,  a   full  decade  after   the  original                                                               
legislation  was passed,  the Department  of Revenue  (DOR) began                                                               
attempting to  retroactively apply  an overzealous  and misguided                                                               
interpretation  of  the  statute  to the  rentals  or  leases  of                                                               
industry vehicles  and equipment for transactions  not related to                                                               
tourism in any way.                                                                                                             
This interpretation  affected Alaskan businesses that  were doing                                                               
business with  one another in  industries like  mining, forestry,                                                               
oil  and  gas,  and  construction, and  whose  vehicles  operated                                                               
primarily on non-state maintained roads and areas.                                                                              
MR. WOLFE said that Chris  Knauss, former legislative staffer who                                                               
worked on  the original legislation  in 2003, states in  a letter                                                               
in their packets, that the intent  was for this tax to be applied                                                               
to  companies like  Avis,  Hertz, Alamo,  and  Dollar rental  car                                                               
He explained  that SB 66 reduces  the length of an  exempt rental                                                               
for passenger vehicles  from 90 to 28 days  while maintaining the                                                               
90-day period for  recreational vehicles such as  motor homes. It                                                               
also further  defines the types  of vehicles that will  be exempt                                                               
from the tax as  well as those that will not.  Passing SB 66 will                                                               
prevent these  companies from misguided and  overzealous taxation                                                               
and more explicitly define the  law in accordance with the intent                                                               
of the original legislation.                                                                                                    
1:05:00 PM                                                                                                                    
SENATOR BISHOP joined the committee.                                                                                            
1:06:22 PM                                                                                                                    
CHAIR MICCICHE, finding no questions, opened public testimony.                                                                  
1:06:32 PM                                                                                                                    
RANDY  JOHNSON, owner,  Tyler Rentals,  Inc., Ketchikan,  Alaska,                                                               
supported SB  66. He said Tyler  Rental had been in  business for                                                               
36  years  and they  operate  from  five locations  in  Southeast                                                               
Alaska and employ  more than 50 Alaskans. Their  core business is                                                               
focused  on  renting tools  and  equipment  to the  construction,                                                               
mining, and timber industries. Although  a majority of their home                                                               
business consists  of construction  equipment, they  rent pickups                                                               
to  support contractors'  needs  throughout  Southeast Alaska.  A                                                               
large  percentage of  them  are  for the  long  term and  support                                                               
remote  mining operations  such  as Kensington  and Greens  Creek                                                               
mines, which are not on the highway system.                                                                                     
Just last year  they became aware of the rental  vehicle tax from                                                               
another  Alaska-based equipment  rental  company.  They did  some                                                               
investigation and learned  that the intent was not  to apply this                                                               
tax to their type of  rental activity. For instance, the majority                                                               
of their  business is providing  equipment and pickup  rentals to                                                               
construction  and resource  extraction companies  versus tourism.                                                               
They  believe the  CS  goes a  long way  to  better defining  the                                                               
application of this tax.                                                                                                        
1:09:12 PM                                                                                                                    
JOHN  COOK,  Chief  Financial Officer  (CFO),  Airport  Equipment                                                               
Rentals, Inc., Fairbanks, Alaska, supported  CSSB 66 ( ). He said                                                               
they  are  one  of  the  largest  equipment  rental  and  leasing                                                               
companies in  Alaska, but incidental  to that they  rent vehicles                                                               
to  support oil  field  services and  construction  on the  North                                                               
Slope and  to construction companies  primarily working  on civil                                                               
projects  for   the  Department  of  Transportation   and  Public                                                               
Facilities (DOTPF)  throughout Alaska.  Although it  doesn't take                                                               
care of  everything, this CS takes  care of a lot  of ambiguities                                                               
that exist today.                                                                                                               
1:10:55 PM                                                                                                                    
KATHRYN  THOMAS,  Director,   Community  Relations  and  Business                                                               
Development, Alaska Pacific Leasing,  Kenai, Alaska, supported SB
66.   She said Alaska  Pacific Leasing is a  family-owned company                                                               
that  is   actively  managed  by  third   and  fourth  generation                                                               
Alaskans.   For  over   30  years   it   has  supplied   Alaska's                                                               
construction,   oil,  gas,   mining,  engineering   and  resource                                                               
development industries with vehicles and equipment.                                                                             
She  said  many  leasing  businesses   have  operated  for  years                                                               
providing vehicles under  a long term lease period of  90 days or                                                               
more and not  collected the tax. The  initial correspondence from                                                               
the  Department   of  Revenue   (DOR)  in   2003/05  specifically                                                               
addressed  car rental  agencies  and  targeted passenger  vehicle                                                               
rentals; it  simply defined  that the vehicle  rental tax  is not                                                               
levied on leased or rentals that exceed 90 days.                                                                                
As the  process of  asking for legislation  in 2015  was started,                                                               
she said there  was concern that once again only  a small segment                                                               
of the  vehicle leasing  issue was being  fixed and  perhaps they                                                               
should look  a little further down  the road. With that  in mind,                                                               
they  also   looked  at  defining  "commercial,   industrial  and                                                               
resource development"  for the tax  rules as that is  the essence                                                               
of   Alaska  businesses   doing   business   with  other   Alaska                                                               
businesses. She  said would also like  to see SB 66  more clearly                                                               
define "commercial and construction use."                                                                                       
The  State of  Alaska has  an easily  accessed licensing  process                                                               
which can  be used and  applied for tax purposes  and exemptions.                                                               
"Commercial  and  industrial use"  can  be  defined by  a  simple                                                               
requirement   to  provide   verification   of   a  valid   Alaska                                                               
occupational and professional license,  which can be specified to                                                               
include  which  commercial  businesses are  applicable,  such  as                                                               
engineers,  land surveyors,  construction contractors  or if  the                                                               
equipment is  used on a  resource project,  the end user  must be                                                               
licensed for  the primary  business of  mining, which  could then                                                               
include  oil and  gas  operations  on the  North  Slope and  Cook                                                               
MS. THOMAS said that vehicle leases  and rentals in the state are                                                               
layered and  varied and  that development  takes place  in remote                                                               
areas during short construction seasons  and in many cases are on                                                               
an as needed basis.                                                                                                             
SB 66  still needs  to clarify  exemption of  rentals from  tax a                                                               
second  time even  if  it  has already  been  collected under  an                                                               
initial rental agreement. Vehicles may  be billed on a daily rate                                                               
in commercial  construction and industrial work  and there should                                                               
be clear rules of tax and  exemption for it. The tax rules should                                                               
also be  clear for electrical  contractors working  for industry,                                                               
rural  electric associations  and  telephone  utilities that  are                                                               
billing  by day  rates.  In addition,  engineers, geologists  and                                                               
surveyors  bill daily  for pickup  and crew  trucks. Many  remote                                                               
locations  require  the need  to  rent  a  truck from  a  support                                                               
contractor who has transported vehicles  to remote locations. The                                                               
statute  should  be  clarified to  avoid  multiple  instances  of                                                               
taxation or double taxation for the same day.                                                                                   
1:15:43 PM                                                                                                                    
MS. THOMAS said  it would also be helpful to  the industry to use                                                               
a 20-day monthly  billing cycle for tax period  increments, as no                                                               
month has just 30 days.                                                                                                         
She said  the original 2003  legislation looked to  gross vehicle                                                               
weight to  define the  size vehicles and  set parameters  for the                                                               
tax rules, but manufacturers  are constantly redesigning vehicles                                                               
and the leasing  companies customers respond to the  cost of fuel                                                               
by looking  for more  efficiency and lower  costs. So,  the gross                                                               
vehicle weight may not be the most effective definition to use.                                                                 
She  pointed  out that  there  is  great concern  that  companies                                                               
contracting with  industry will receive no  legislative relief by                                                               
continuing to  ask for a  reduction in the gross  vehicle weight,                                                               
because of the fiscal note analysis  for SB 66. The Department of                                                               
Revenue (DOR)  says they don't  have enough  detailed information                                                               
from vehicle rental contracts to  determine how many rentals will                                                               
meet  the new  exemption criteria.  In  the next  line they  say,                                                               
"However,  based on  limited vehicle  tax data  from audits,  DOR                                                               
estimates that  10-15 percent of  total vehicle  rental contracts                                                               
may  meet the  new  criteria and  therefore,  vehicle rental  tax                                                               
revenues  are estimated  to  decrease by  $800  thousand to  $1.2                                                               
1:17:34 PM                                                                                                                    
What isn't  clear is  that the  referenced tax  data is  from the                                                               
audits  the leasing  industry has  been protesting  and is  still                                                               
reviewing or if  it is information from audits  of companies that                                                               
normally work in the passenger  vehicle arena of the airport-type                                                               
companies. Either way,  it may be an apple  to oranges comparison                                                               
and not a  fair way to ask  them to all make a  decision on gross                                                               
vehicle weight.                                                                                                                 
MS.  THOMAS  said   it  is  only  fair  that   this  fiscal  note                                                               
information  be clear,  because  the reduction  in gross  vehicle                                                               
weight was  important to companies  leasing in  Southeast Alaska,                                                               
Southcentral and would  accommodate the Cook Inlet  oil field. At                                                               
8,500   gross  vehicle   weight   the  North   Slope  is   easily                                                               
She said  they understand  the concern to  see large  SUVs, cargo                                                               
vans, recreational  vehicles fairly  taxed for passenger  use and                                                               
tourism and it's difficult to define  rules when some of the same                                                               
equipment  is used  for industrial  and commercial  applications.                                                               
That  is  why they  encourage  clearly  defining "industrial  and                                                               
commercial  use"  as it  may  prove  more definitive  than  gross                                                               
vehicle weight.                                                                                                                 
1:19:20 PM                                                                                                                    
CHAIR MICCICHE  asked her  if she  communicated with  the sponsor                                                               
about her issues.                                                                                                               
MS. THOMAS answered no, but she would.                                                                                          
CHAIR  MICCICHE  removed his  objection  and  finding no  further                                                               
objections, said CSSB  66( ), version I, was adopted.  He held SB
66 in committee and kept public testimony open.                                                                                 

Document Name Date/Time Subjects
SB 66 (S)TRA CS Ver. I.pdf STRA 3/26/2015 1:00:00 PM
SB 66