Legislature(2017 - 2018)BARNES 124
04/03/2018 11:30 AM House ARCTIC POLICY, ECONOMIC DEV., & TOURISM
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| Start | |
| HB383 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 383 | TELECONFERENCED | |
| + | TELECONFERENCED |
ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON ARCTIC POLICY,
ECONOMIC DEVELOPMENT, AND TOURISM
April 3, 2018
11:31 a.m.
MEMBERS PRESENT
Representative John Lincoln, Chair
Representative Bryce Edgmon
Representative Andy Josephson
Representative Chris Tuck
Representative Gary Knopp
Representative Mark Neuman
Representative David Talerico
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
HOUSE BILL NO. 383
"An Act establishing the Travel Alaska Board; relating to a
tourism marketing assessment; and establishing a tourism
marketing fund."
- MOVED CSHB 383(AET) OUT OF COMMITTEE
PREVIOUS COMMITTEE ACTION
BILL: HB 383
SHORT TITLE: TOURISM MARKETING:BOARD;ASSESSMENT;FUND
SPONSOR(s): REPRESENTATIVE(s) GRENN
02/21/18 (H) READ THE FIRST TIME - REFERRALS
02/21/18 (H) AET, FIN
02/27/18 (H) AET AT 11:30 AM BARNES 124
02/27/18 (H) Heard & Held
02/27/18 (H) MINUTE(AET)
03/06/18 (H) AET AT 11:30 AM BARNES 124
03/06/18 (H) Heard & Held
03/06/18 (H) MINUTE(AET)
03/15/18 (H) AET AT 11:30 AM BARNES 124
03/15/18 (H) -- MEETING CANCELED --
03/20/18 (H) AET AT 11:30 AM BARNES 124
03/20/18 (H) -- Meeting Postponed to 3/22/18 at
11:35 am --
03/22/18 (H) AET AT 11:35 AM BARNES 124
03/22/18 (H) -- MEETING CANCELED --
03/29/18 (H) AET AT 11:35 AM BARNES 124
03/29/18 (H) -- Meeting Rescheduled from 03/27/18 --
04/03/18 (H) AET AT 11:30 AM BARNES 124
WITNESS REGISTER
BROOKE IVY, Staff
Representative Jason Grenn
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Answered questions during the hearing on HB
383, on behalf of Representative Grenn, prime sponsor.
REPRESENTATIVE JASON GRENN
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: As prime sponsor, answered questions on the
proposed committee substitute (CS) for HB 383, Version 30-
LS1214\R, Nauman, 3/21/18.
JUDITH WHITE
Anchorage, Alaska
POSITION STATEMENT: Testified in opposition to HB 383.
DAN OBERLATZ, Owner
Alaska Alpine Adventures
Anchorage, Alaska
POSITION STATEMENT: Testified in support of HB 383.
JOHN WHITE, President
Nenana Raft Adventures
Denali Borough, Alaska
POSITION STATEMENT: Testified in opposition to HB 383.
MATTHEW ATKINSON
Northern Alaska Tour Company
Fairbanks, Alaska
POSITION STATEMENT: Testified in support of HB 383.
ROARK BROWN
Homer Ocean Charters
Homer, Alaska
POSITION STATEMENT: Testified in support of HB 383.
SARA LEONARD, President and Chief Executive Officer
Alaska Travel Industry Association (ATIA)
Anchorage, Alaska
POSITION STATEMENT: Testified in support of HB 383.
ERIC FULLERTON, VP and Director of Marketing
Alyeska Resort
Girdwood, Alaska
POSITION STATEMENT: Testified in opposition to HB 383.
JOHN LAMBETH, Industry Consultant
Alaska Travel Industry Association (ATIA)
Sacramento, California
POSITION STATEMENT: Testified during the discussion of HB 383.
BRETT CARLSON
Coldfoot, Alaska
POSITION STATEMENT: Testified in support of HB 383.
EMILY NAUMAN, Deputy Director
Office of the Director
Legislative Legal Services
Legislative Affairs Agency (LAA)
Juneau, Alaska
POSITION STATEMENT: Answered questions during the discussion of
HB 383, Version R.
KEN ALPER, Director
Tax Division
Department of Revenue (DOR)
Juneau, Alaska
POSITION STATEMENT: Answered questions during the discussion of
HB 383, Version R.
ACTION NARRATIVE
11:31:47 AM
CHAIR LINCOLN called the House Special Committee on Arctic
Policy, Economic Development, and Tourism meeting to order at
11:31 a.m. Representatives Lincoln, Edgmon, Tuck, Josephson,
Neuman, and Knopp were present at the call to order.
Representative Talerico arrived as the meeting was in progress.
HB 383-TOURISM MARKETING:BOARD;ASSESSMENT;FUND
11:32:37 AM
CHAIR LINCOLN announced that the first order of business would
be HOUSE BILL NO. 383, "An Act establishing the Travel Alaska
Board; relating to a tourism marketing assessment; and
establishing a tourism marketing fund." [Before the committee,
adopted as a working document on 3/29/18, was the proposed
committee substitute (CS) for HB 383, Version 30-LS1214\R,
Nauman, 3/21/18.]
11:33:30 AM
REPRESENTATIVE TUCK directed attention to language on page 10,
of Version R, lines 18-21, regarding weighted votes, which read
as follows:
Votes shall be weighted in proportion to the
assessment that each voting tourism business is
estimated to pay for the calendar year immediately
following the election, as determined under AS
44.25.260.
REPRESENTATIVE TUCK then referred to subsection (b), lines 25-
28, which read as follows:
(b) The department shall adopt regulations to
establish the method for determining weighted vote of
a tourism business for which the department has
insufficient information to determine the assessment
that business is estimated to pay for the calendar
year immediately following the election.
REPRESENTATIVE TUCK said it looks like there would be some
conditions in which the weighted vote would be determined by
looking forward while other times it would be determined by
looking backward. He asked, "When do we use one versus the
other?"
11:35:06 AM
BROOKE IVY, Staff, Representative Jason Grenn, Alaska State
Legislature, on behalf of Representative Grenn, prime sponsor of
HB 383, explained that those [tourism businesses] new to the
weighted vote process would be weighted on the estimation of
what they would pay in the calendar year immediately following
the initial election. She continued, "After the first year, ...
if there was an amendment vote or something along those lines
where they would need to make sure the votes were weighted
properly, they could look back to previously assessed ...
revenues and assessment payments to weight that vote
accordingly." She said under subsection (b), the Department of
Revenue (DOR) would be given authority to determine how to
weight a vote without sufficient information or for a business
that has yet to pay into an assessment, thus DOR would ensure
that the business gets to participate.
11:36:23 AM
REPRESENTATIVE TUCK summarized that the two circumstances under
which the weighted vote would be done by "looking forward" is
"initially" and "any time a new business comes into the market."
REPRESENTATIVE NEUMAN said Version R would create different tax
levels against different tourism marketing industries. He asked
the bill sponsor if he could remark upon the amount of taxes and
the structures.
11:37:10 AM
REPRESENTATIVE JASON GRENN, Alaska State Legislature, as prime
sponsor of HB 383, answered that different segments would have
different taxes; there would be varying tax levels and
assessments voted on, which he opined is appropriate.
REPRESENTATIVE NEUMAN said he was trying to figure out "where
we're going with this bill." He asked Representative Grenn
whether he had, since the last hearing on HB 383, held any
discussions with the industry about the amount of the tax rates
and whether they would be based off of gross or net. He asked -
since this has to do with credits against vehicle rental tax -
what would happen "if they don't rent vehicles."
REPRESENTATIVE GRENN suggested that some of the information
Representative Neuman was looking for could be found on page 6
of Version R, regarding "different levels of the percent of the
gross revenue related to the assessed segment" and how those
could be "the different percentages that they could vote on."
11:38:25 AM
REPRESENTATIVE JOSEPHSON, regarding Representative Neuman's
question, offered his understanding that under Version R, the
formula for paying the vehicle rental car tax would not be
changed; Version D would simply offer a credit for those who
wish to "forward their revenue to the new tourism marketing ...
board." There would be interfacing with DOR and the legislature
"may" appropriate the funds. He added, "It's believed that the
legislature would do that, because the intent of this is written
over every document."
REPRESENTATIVE GRENN answered that is correct. He noted that
Section 1 of Version R, [on page 1, beginning on line 10],
offers more information regarding the unused credits, as
follows:
An unused credit or portion of a credit not used under
this section for a tax year may not be sold, traded,
transferred, or applied in a subsequent tax year.
11:39:52 AM
REPRESENTATIVE NEUMAN stated:
Basically what we're doing is we have a vehicle rental
tax now that already goes in; the legislature uses
that against needs within the administration, ...
because particularly this year, funds generated have
been a determination [in] quite a few budgets, and if
the funds were generated within that particular
department, they have to go back to designated funds
within that department. So, now we're taking what
would be designated funds for this tourism credit tax
..., and then we're moving them, but ... they're still
going to have to be supplemented or replaced with
general fund dollars .... Why wouldn't you just give
the tourism marketing board general fund dollars
instead of replacing it from general fund dollars that
are already there?
11:40:48 AM
REPRESENTATIVE GRENN told Representative Neuman, "Obviously
you're well aware of ... the intent language a few years ago in
Finance that asked ... the tourism industry to move away from
using [general funds (GFs)] specifically towards, towards
marketing efforts." He said there is a policy call to be made
whether to put the vehicle rental tax (VRT) into the tourism
fund "and those efforts." He said there could be a loss to the
undesignated general fund (UGF) of the departments. He said
Version R proposes "to fulfill the intent of the language of
what the VRT should be used for," which he said he believes is
tourism marketing efforts. He indicated that those efforts
benefit local economies, as well as the state economy. He
asked, "As we've told the industry that they should stop relying
on general funds, how do we show to be good partners to maximize
dollars that are generated through tourists and continue to ...
increase our economy ...?" He said Representative Neuman's
question is legitimate, and the sponsor has considered that
question and thinks the funds could be used "in a more aligned
focus of what the intent language is regarding the VRT."
11:42:33 AM
REPRESENTATIVE NEUMAN explained the prior version of the
proposal was going to take another tax on vehicle rentals to
cover the costs of running parks and ferries. He said he thinks
it's been determined it is not a good idea because the general
fund (GF) dollars would have to be replaced anyway.
11:43:15 AM
REPRESENTATIVE TUCK directed attention to pages 4 through 6 of
the bill and noted the board would be able to acquire property
necessary to the administrative functioning of the board;
however, board expenditures may not be spent on capital or
infrastructure improvement projects. He asked whether any
improvements to properties held by the board would "come out of
the, just the regular membership fees that the board would get."
11:44:37 AM
REPRESENTATIVE GRENN answered the intent of the marketing fund
is to narrow the efforts of marketing, such as advertising and
promotion. He added he thinks it is appropriate to exclude
capital projects.
MS. IVY answered that the language in Version R, page 4, lines
23-25, was taken directly from the Alaska Seafood Marketing
Institute (ASMI) statute. She specified that Legislative Legal
Services, Legislative Affairs Agency did not express concern
with the language. She added that [the language in proposed AS
44.25.250, [paragraph] 2, would ensure the funds would be used
strictly for tourism improvement and marketing.
REPRESENTATIVE TUCK said his interpretation is it would come out
of membership fees.
11:46:56 AM
CHAIR LINCOLN opened public testimony on HB 383.
11:47:18 AM
JUDITH WHITE testified in opposition to HB 383. She suggested
the bill would add duties to the Division of Elections, Office
of Lieutenant Governor. She said that "it is not one vote
equals one vote" as votes would have to be "weighted." She
stated the bill would create expensive new bureaucracies in the
Division of Elections and in the Department of Revenue. She
highlighted "there would be thousands and thousands" [of
quarterly reports] that would require the hiring of additional
state workers.
REPRESENTATIVE JOSEPHSON said the legislature used to give [the
tourism] industry a grant of $16 million and in the previous
year around $1 million. He asked Ms. White how the bill would
affect her directly.
MS. WHITE said that many people save for years to take "the trip
of a lifetime" to Alaska. She indicated that money for the tax
is money taken away from their trip. She restated her concern
about unnecessary bureaucracy in state agencies.
REPRESENTATIVE NEUMAN asked Ms. White whether her business earns
enough to get a corporate tax credit.
MS. WHITE answered no.
11:53:28 AM
DAN OBERLATZ, Owner, Alaska Alpine Adventures, testified in
support of HB 383. He said Alaska can't compete with other
destinations in terms of growing economic benefits. He
suggested Alaska would lose market share to competitors from
around the world. He spoke to advertisements in national
magazines for other states. He suggested the proposed bill
would create a funding plan for tourism based on a time-tested
model. He reminded committee members that tourism returns $100
million to Alaska's general fund and contributes to city and
local budgets. He remarked the proposal would place the fate of
the tourism industry in its own hands, as well as free the
legislature from "having to consider yet another annual industry
ask."
11:55:56 AM
JOHN WHITE, President, Nenana Raft Adventures, testified in
opposition to HB 383. He shared he does not agree that Alaska
cannot compete with other destinations. He suggested that
tourism marketing being a function of government is "a bad
idea." He opined the proposed bill is unconstitutional as it
would create a dedicated fund. He remarked that taxing
authority cannot be delegated to an executive agency. He said
the Alaska Travel Industry Association (ATIA) is a "yellow pages
organization in the age of Amazon and Google."
11:58:55 AM
MATTHEW ATKINSON, Northern Alaska Tour Company, testified in
support of HB 383. He described his operation. He added that
in order to "get the message out, it is important to have state
backing. He mentioned other global competitors for his aurora
borealis viewing operations.
REPRESENTATIVE KNOPP asked Mr. Atkinson whether his is a Part
135 [14 CFR Part 135 - Operating requirements: commuter and on
demand operations and rules governing persons on board such
aircraft] business. He suggested his business may be exempt
from the tax.
MR. ATKINSON answered that it is a Part 135 operation but that
he is unsure whether he would be exempt. He remarked that every
Part 135 business is different and that there is a distinction
between commuter and on-demand operations.
12:02:46 PM
ROARK BROWN, Homer Ocean Charters, testified in support of HB
383. He remarked that targeted marketing can increase the
quality of visitors. He reviewed the history of state
involvement in the tourism marketing budget. He underlined that
"marketing works."
12:04:59 PM
SARA LEONARD, President and Chief Executive Officer, Alaska
Travel Industry Association (ATIA), testified in support of HB
383. She said ATIA appreciates the conversation regarding a
competitive [tourism] marketing budget.
12:06:17 PM
ERIC FULLERTON, VP and Director of Marketing, Alyeska Resort,
testified in opposition to HB 383. He paraphrased from his
written statement [included in the committee packet], which read
as follows [original punctuation provided]:
Dear Representative Lincoln:
We are writing to express our strong opposition to HB
383 and SB 110. While we appreciate the efforts of the
sponsors to support the tourism industry, as a member
of the Alaska Tourism Industry Association (ATIA) and
its pending Tourism Improvement District (TID)
committee, we are writing to voice our opposition to
this legislation. A review of the CS recently released
in the House indicates the bill remains too deeply
flawed to fix.
Given the state's budget situation, we believe the
Legislature and Governor have acted prudently in
recent years making reductions in state general
funding for tourism marketing. State subsidies for
tourism marketing were an amenity when the state had a
budget surplus. As elected officials, you have all
faced hard budget choices. In the current budget
situation, state funding should be focused on
essential services like public safety and education.
With regard to the HB 383 and SB 110, we are opposed
to these tax increases for the following
reasons:
1. These new taxes will overly burden the targeted, but
undefined, estimated 2000 businesses large and small
who will pay the new taxes. The vast majority of these
businesses are unaware that these taxes are even being
considered, and despite statements made in last week's
House hearing, these nebulous and as yet undefined
taxes will hit the gross revenues of these businesses
and largely cannot just be "passed on to the
customers" due to the complexities of previously
committed future contracts, commissions charged by 3rd
party package providers, and integrated product
offerings for tourism experiences
2. The DOR considers this to be a tax, pure and simple,
on those 2000 businesses. Hence their large fiscal
note, which includes the following explanation:
"If the bill becomes law, the tax division will need
to build a substantial new module within the Tax
Revenue Management System (TRMS). The $900,000 one-
time capital
appropriation is for this purpose. To implement and
run the program, we envision three new staff: a senior
auditor or audit supervisor, a tax technician to
engage with registration of what could be up to 2,000
new taxpayers, and an economist to provide research
support, pre-election levy estimates, and drafting
assistance with the annual report."
12:08:09 PM
3. The tax assessment model in HB 383 and SB 110 is based
on California's chaotic model, one that is a poor fit
for Alaska. Alaska's economy as a whole, and our
tourism industry, are vastly different. Alaska is not
California. Unlike in Alaska, TID funds in California
cannot be diverted by the government for other public
purposes.
4. These bills would outsource the state's powers of
taxation and appropriation. This is both poor policy,
legally unsound, and unconstitutional.
5. Funds designated for tourism marketing have been
collected from the Vehicle Rental Tax (VRT), but in
the current budget situation those funds were used for
other purposes. Alaska should use the money it has
already collected from the VRT rather than create a
new tax for the exact same purpose.
6. Additional statewide tourism marketing funds are not
needed. Despite reductions in state subsidies for
tourism marketing in recent years, tourism in Alaska
has grown in the exact same time period. That growth
is projected to continue for the next several years:
See Visitor Traffic Trends 2007-2016, Total Spending
2016 and Total Visitor Spending by Category attached
hereto.
Alaska Visitors Statistics Program (AVSP) VII shows a
4% growth in visitation to Alaska in 2016. Additional
data can be found here:
http://www.alaskatia.org/marketing/alaska-visitors
statistics-program-avsp-vii.
The number of cruise ship passengers visiting Alaska
has increased from 810,000
passengers in 2010 to 1.1 million passengers in 2017.
The Alaska Cruise Association projects a 12% growth in
passengers from 2018 to 2019. Additional statistics
regarding cruise passenger spend can be found on the
Cruise Lines International Association Alaska's
website at http://www.cliaalaska.org/economy/alaska-
cruisehistory and
http://www.cliaalaska.org/economy/alaska-at-a-glance/.
All this growth has occurred during an era of reduced
state funding for tourism marketing. Additional
statewide tourism marketing funds are unnecessary and
will not likely have a positive impact. The need for 3
additional full-time positions to administer and
collect this tax will negate the savings made by the
state when the decision was made
to eliminate tourism related positions for budget
reasons. This effort also does not take into account
the costs related to notifying via public ads/mailers,
voting on, and
administering results of the votes from the taxed
entities related to changes in the tax levels by the
board.
7. The tax cannot be dedicated to statewide tourism
marketing. Despite ATIA's representations, the funds
collected via this tax cannot be dedicated to the
purpose for which they were collected and will go into
the general fund. These funds can be, and very likely
will be in this current budget crisis, reallocated for
another purpose, just as has happened with the Vehicle
Rental Tax (VRT).
8. The bill lacks performance metrics. There is no
mechanism to track the performance of the Travel
Alaska Board or the effectiveness of its marketing
plan (e.g., website, social media, room nights
generated, occupancy rate, sales generated via
referrals, etc.). There is no certainty about how the
funds will be allocated to market Alaska, especially
in the "off seasons" to support growth of tourism for
year-round sustainability. Efforts to market Alaska as
a winter destination to date have been almost
nonexistent. Although the bill contains a provision
that the marketing plan must promote all assessed
tourism segments, "tourism segment" is undefined and
there is no clarity on how funds will be allocated to
the various segments. One of the many flaws in ATIA's
approach is to push for legislation that lacks a
mechanism to track the effectiveness of the board's
marketing plan and does not assure accountability.
Furthermore, less than half of ATIA's current
marketing budget is spent on advertising and a
majority of the budget is spent on the ATIA's
overhead, including payroll, research and personnel
travel. If the Travel Alaska Board is not accountable
for marketing performance, an increase in the amount
of funds allocated to statewide tourism marketing will
not guarantee additional, effective ad spend as their
metrics for success are by their own admission, not
statistically significant nor can be directly tied to
economic impact of businesses that would be taxed.
9. It is impossible to know which tourism businesses will
be assessed. There is no transparency about which
tourism businesses will be targeted and assessed.
ourism industry", "tourism business" and "tourism
segment" are undefined terms in the bill. The bill
proposes the Travel Alaska Board will propose
definitions for these terms for adoption by the
Department of Revenue and thus the Travel Alaska Board
has the power to determine which businesses will (or
will not) be taxed. However, the bill legislates that
an initial election will be held to nominate board
members and propose an assessment. It is not possible
to hold an election without knowing which "tourism
businesses" will vote, and which "tourism businesses"
and "tourism segments" will be assessed. Also, votes
cannot be weighted until an assessment is levied
because votes are weighted in proportion to the
assessment that each voting "tourism business" is
estimated to pay for the calendar year immediately
following the election (as determined under AS
44.25.260).
10. SB 110 and HB 383 focused on assessing only a
fraction of the tourism industry vehicle rentals,
tour activities and attractions, and accommodations.
Other sectors of the tourism industry would not be
assessed. Transportation, airlines, cruise ships,
restaurant and retail, to name a few, were excluded.
It is unfair that only some of the tourism sectors
might be assessed. There is no clarity in HB 383 and
SB 110 about which businesses might be assessed, which
leads to a circular problem in establishing the Travel
Alaska Board to implement this legislation.
12:08:57 PM
11. The tax will hit certain Alaskan residents the
hardest. A large percentage of the tax will come from
Alaskan residents who would utilize the services of
the assessed businesses year-round. This burdens
Alaskan residents with funding Alaska's campaign to
market the state as a summer tourist destination.
Alaskans travelling to annual Alaska Federation of
Natives (AFN) convention would, for example, likely be
one of the largest payers of this new tax. A tax for
which rural areas would receive little benefit. The
same would hold for travel for organizations like
school boards and sports teams. All would be taxed for
antiquated advertising designed to market tourists to
come visit already full cruise ships and urban hotels
in the summer months
Despite months of deliberation and eleven weeks of
this legislative session, ATIA still has many
questions to answer about an effective statewide
tourism marketing plan and how it should be
implemented before members of the tourism industry are
asked to give support to a new assessment to fund
statewide tourism marketing. ATIA and its members
should go back to the drawing board. As you consider
this legislation, we ask you obtain input from the all
parties impacted by any proposed assessment, and not
just ATIA whose governance is too heavily weighted
toward local visitor bureaus, which largely live off
of hotel bed taxes already. With half of the current
tourism marketing funds controlled by ATIA going
toward its overhead, administration and staffing, it
would be a step in the wrong direction to give ATIA
more money to support itself while it continues to
undertake antiquated, expensive and inefficient
marketing efforts.
12:09:23 PM
REPRESENTATIVE JOSEPHSON spoke to Mr. Fullerton's remark that
the proposal would hurt "Alaskan consumers the most." He asked
for confirmation that if he currently pays $100 for a kayak
excursion, with the proposal he would pay $102.
MR. FULLERTON replied that he believes that would be the case.
REPRESENTATIVE NEUMAN asked Mr. Fullerton about his profit
margin.
MR. FULLERTON answered that profit margins are already very
slim. He added that as a year-round resort in Alaska, there is
a need to create sustainability in the off-peak months. He
explained that a potential gross tax would send more money to
ATIA than he spends on marketing year-round.
REPRESENTATIVE NEUMAN reiterated that profit margins of
[tourism] companies are very slim.
12:11:44 PM
JOHN LAMBETH, Industry Consultant, Alaska Travel Industry
Association (ATIA), related his understanding that the committee
appreciates the importance of travel and tourism to the state,
noting that the tourism industry provides a tremendous job
generator and economic engine for Alaska. He offered to briefly
discuss tourism industry destination marketing. He identified
two compelling reasons for destination marketing. He said that
first, the primary motivator for a trip is the destination but
not for an individual business; and second, the motivator is
scale. He attested that no individual business can successfully
market the entire state so businesses must band together. Other
states have discovered that a lack of marketing results in lost
tourism dollars, which has been supported and proven by studies.
He acknowledged that it is very tempting for businesses to
consider tourism marketing as an amenity; however, what they
have found is that [absent tourism marketing] their businesses
will lose market share. He cautioned that tourism is a very
competitive business and competitors are eager to take customers
away from other businesses. In fact, competitors raise a lot of
money and work at a "feverish pace" to do so.
MR. LAMBETH offered his belief that the mechanism before the
committee [in HB 383] is proven and not solely based on the
California model, noting 14 other states have this model, which
is a proven tool that has been customized to fit the unique
nature of Alaska. Alaska has unique constraints and unique
opportunities and [HB 383] reflects that, he said.
MR. LAMBETH addressed the essential government function
concerns, noting that the proposal [in HB 383] reflects that the
industry has come together. In closing, he said that if HB 383
is defeated, those who would be the happiest will be [their]
competitors.
12:14:31 PM
BRETT CARLSON testified in support of HB 383. He stated he is a
lifelong resident of Alaska with 30-plus years of experience in
the travel industry in the Healy to Kaktovik areas of the state.
In response to Chair Lincoln, he said he works in Cold Foot as
part of a family of companies that operates tours throughout the
Interior and Arctic regions of Alaska.
MR. CARLSON highlighted the decision the committee faces is to
figure out how to monetize Alaska's travel resource in the
decade ahead to the maximum benefit for Alaska. The potential
associated with Alaska's travel resources is immense, and the
$4.17 billion in travel resources currently being exported from
Alaska is "just the tip of the iceberg," he said. He pointed
out that Alaska knows from its North Slope natural gas
experiences that "potential" remains as "potential" unless the
specific resource can be brought to market. He said the Alaska
travel experience represents a compelling offering in the global
travel market, as others have stated, yet the challenge is to
bring the Alaska travel resource to market - or in this case to
bring the market to the resources. Alaska's travel markets are
not next door, so the expense and time for travelers to reach
Alaska as a travel destination is significant. This market
access barrier can only be addressed through marketing, he said.
Alaska's true competitors in the global marketplace are those
with long-haul destinations who reinvest significant funds into
tourism marketing programs in an effort to maintain and grow
their market share.
12:16:23 PM
MR. CARLSON stated that he disagreed with the idea that Alaska's
travel industry will not grow unless the state robustly
reinvests in Alaska's tourism marketing effort, since multiple
factors impact the travel industry's growth rate. He identified
other factors, including global economic conditions, exchange
rates, travel trends, and geopolitical events. He suggested it
was reasonable to assume that without a well-funded tourism
marketing program, Alaska's travel industry could stagger along
with a 1-2 percent growth rate. However, he questioned whether
accepting slow growth would be responsible stewardship of
Alaska's travel resources and Alaska's economy as a whole. He
felt it was accurate to state that supporting the resource
development initiative in HB 383, with robust reinvestment of
travel industry dollars in the tourism marketing program will
result in an upward growth curve of Alaska's travel industry and
generate new wealth for Alaskans.
MR. CARLSON closed by stating that with an investment of $20
million he felt it was realistic to assume that the growth rate
would double from 1-2 percent to 3-4 percent, which would result
in $4.1-$4.75 billion [at 3 percent] to $5.7 billion at 4
percent. This would create a new billion-dollar industry in
Alaska within a decade, he said. For those who are concerned
about the $10 million reinvestment of the vehicle rental tax, he
emphasized that investing in marketing would benefit, but not
harm, the budget. He projected that a 4 percent growth rate
would result in $22 million additional dollars to the state one
decade from now. He thanked the committee for considering the
bill and urged them to pass [HB 383] to assist small businesses.
12:18:57 PM
CHAIR LINCOLN, after first ascertaining no one else wished to
testify, closed public testimony on HB 383.
REPRESENTATIVE TUCK referred to constitutional concerns about HB
383. He stated that one concern is the opportunity for
assessments to be determined for the future. He referred to
page 6, lines 16-26, HB 383, and asked Ms. Nauman, legislative
legal counsel, whether that language would alleviate some of the
concern. He said it appeared as though it was already
predetermined, much as the Alaska Seafood Marketing Institute
(ASMI) statutes provide, since ASMI's statutes also have a
definition.
12:21:07 PM
EMILY NAUMAN, Deputy Director, Office of the Director,
Legislative Legal Services, Legislative Affairs Agency (LAA),
acknowledged that she understood Representative Tuck's comment.
The set-out assessment rates on page 6, lines 18-26 of HB 383,
mirror the type of taxing for assessment structure that appears
in ASMI, she said. She highlighted that Version R concerns her
a bit more than the statutory structure for ASMI. She said that
other portions of the tax not determined in Version R would be
determined in statute and would affect who would be taxed, and
if they would be taxed. She pointed out it has been highlighted
in previous committee discussions that the bill does not define
the tourism industry; for example, whether the tourism industry
would include hotels or cruise ships or if they would be
excluded. She characterized this as a huge void in determining
who would be taxed, noting taxation is the purview of the
legislature, or the executive branch via regulation, but mainly
foundationally by the legislature. She related that [under
Version R] the legislature would release that power to a board
and to the department through regulation; however, it differs
and is very unlike the structure in ASMI. In statute pertaining
to ASMI, it is very clear who is taxed and on what product, she
said.
12:22:58 PM
REPRESENTATIVE JOSEPHSON, following up on Representative Tuck's
comments, acknowledged Ms. Nauman's point. He referred to Ms.
Nauman's legal memorandum [to Representative Chris Tuck dated
March 22, 2018, in members' packets]. He referred [to page 2,
paragraph 2], which read, "The legal theory underlying this
approach was that the legislature has imposed the tax contingent
upon the happening of the specified events." He asked for
further clarification that in this instance, the "specified
event" would be the election for an assessment.
MS. NAUMAN answered that is correct.
REPRESENTATIVE JOSEPHSON concurred with Representative Tuck that
the authority is expressed in language on page 6, lines [16]-26
[of proposed AS 44.55.255 (c)]. He stated that the language is
clear in paragraphs (1)-(9) that there can be a "zero to two
percent assessment on gross revenue." He asked for further
clarification if Ms. Nauman's concern was to whom [the
assessment would apply].
MS. NAUMAN clarified her concern and stated it was twofold. She
said she has a fundamental underlying concern that Version R
goes too far into a constitutional gray area just by setting out
tax rates. Secondly, she expressed her concern that it goes
farther than ASMI, since the amount of authority transferred
away from the legislature is even broader than ASMI's structure.
She characterized this as "constitutional creep." She said she
worried the little things could grow bigger and bigger and
eventually turn in an unconstitutional direction. She
reiterated that many things in [HB 383] would trigger a court to
fall into the "unconstitutional" realm as compared to leaning
toward the "constitutionality" of this bill.
12:25:28 PM
REPRESENTATIVE TUCK asked whether Ms. Nauman had expressed these
concerns when she drafted [Version R].
MS. NAUMAN stated that she was unable to discuss any
communications she might have had with individual legislators.
REPRESENTATIVE JOSEPHSON, referring to earlier testimony, said
that some testifiers had expressed concern that the bill would
create an illegal dedicated fund. He asked whether Ms. Nauman
disputed that view, although he understood she [has expressed]
other constitutional concerns.
MS. NAUMAN opined that the bill does not create an
unconstitutional dedicated use of funds as far as she could
tell. She characterized it as more of a bookkeeping function.
She described the flow of money, such that the department places
the funds into an account and the legislature receives a record
of the amount of funds deposited. The legislature has the
authority to appropriate the funds for whatever purposes it
chooses. She stated that the bill suggests that the legislature
appropriate it for tourism marketing.
12:27:13 PM
REPRESENTATIVE GRENN commended testifiers today for
demonstrating the impact and need for a marketing fund in the
state. These testifiers focused on the economic benefits to
Alaskans from tourism marketing from small businesses to
communities off the road system. He emphasized that the
proposed legislation was brought forth because something is
needed, and the tourism industry was told it needed to do
something. He said Version R is the industry's response and his
response to that intent language as the state moves forward in
the next decade. He characterized tourism as the second largest
private sector in the state. The bill before the committee asks
that the state partner with the tourism industry as the industry
assesses itself, and the industry wants to be part of the
solution, he said.
REPRESENTATIVE GRENN stated that lawmakers typically identify a
problem and are tasked to solve it. He stated that during the
state's fiscal crisis the legislature cannot fund the tourism
effort as it has done in the past. He offered his belief that
everyone agrees with that view. He stated that the bill has
raised some constitutional concerns, which have been brought up
several times before the committee. He referred to Ms. Nauman's
memo [of March 22, 2018, to Representative Chris Tuck), which
points out the concerns that the Legislative Legal Services has
with [HB 383]. He expressed hope that the conversation could
continue and find a way to raise awareness of this issue to all
legislators. He acknowledged that this [issue] is tricky but he
was confident that [solutions could be found] with more work on
the bill. He highlighted that the Department of Revenue (DOR)
has a task at hand with this bill, and it will fall under the
purview of the House Finance Committee to find a solution. He
emphasized that he would like to see the bill move forward but
deferred to the committee. He highlighted that tourism
marketing needs a solution. He concluded by stating he is
determined to find a solution to the problem, and he will work
with the tourism industry and other legislators to do so.
12:30:13 PM
REPRESENTATIVE NEUMAN explained, as a person in charge of the
[Fiscal Year 2017 (FY 17) operating budget that included intent
language] such "that the tourism industry [has] to become more
self-funded, it was because of the fact that we have a lot of
strains in this budget right now." As Representative Grenn
offered, some people consider this a crisis. The legislature is
currently trying to fund education, public safety, and adhere to
the requirements mandated by the Constitution of the State of
Alaska; in fact, funding the FY 17 budget required borrowing
billions of dollars and taking it out of the permanent fund
dividend. Yet, he said, the tourism industry came back with a
solution to backfill these funds with general fund dollars. He
emphasized the importance of the tourism industry and expressed
that the legislature let the industry down by not putting a plan
forward to assist the industry.
REPRESENTATIVE NEUMAN reiterated that tourism is the second
largest industry in this state. He said that he was
disappointed in the plans that have come forward and that he
would do everything he could to assist business owners who are
having difficulties. He stated, "The state cannot just afford
to put money and give private industry cash like this, basically
what we're doing. Some companies will be able to apply for this
or not; it is very unfair who would be able to apply for this
...." He then referred to Ms. White's testimony regarding
corporate tax credits against the investments she makes. He
opined that the legislature should continue to work on this with
public input at the meetings.
REPRESENTATIVE GRENN asked Ms. Ivy to provide additional
information related to corporate tax credits.
12:32:45 PM
MS. IVY clarified that the tax credit included in the
legislation regards the vehicle rental tax solely. She opined
that the intention of the industry is not to include the
entities subject to the vehicle rental tax currently under law,
as those entities are already paying a tax and passing that
through to their visitor customers when renting a vehicle.
Therefore, she explained, the idea is that as a part of the
tourism industry that is producing revenue and given that under
statute the assessment is for tourism development and marketing,
this simply allows those entities to participate toward tourism
marketing in the State of Alaska. It is unrelated to the
corporate income tax, she explained.
REPRESENTATIVE TUCK commented that, as this bill moves forward,
a few issues need to be addressed, such as sidebars on some of
the assessments, and defining the assessments; for example, who
is included under those segments, and what the segments are. He
recalled when the legislature prepared the energy policy for the
State of Alaska, there were numerous stakeholder meetings and
the policy then became "good to go." He offered concern that
many businesses would not "see this coming," and also expressed
concern about the weighted votes. Representative Tuck surmised
the more money someone makes in the industry, the more power
they will have over "the little guys." He suggested the idea of
one vote for one person.
REPRESENTATIVE GRENN responded that the weighted votes system is
used in every TID model throughout the previously mentioned 14
states. The philosophy behind that, he explained, is that an
entity has more votes because it ends up contributing more money
through the assessment. He said if a certain entity was going
to vote yes or no on an assessment, it knows it will be impacted
to a larger degree through the bottom line.
12:36:43 PM
REPRESENTATIVE JOSEPHSON commented that the above system is
similar to the United States House of Representatives wherein
votes are determined by population. It is a policy call, and it
would be concerning if the big players overwhelm the small
players by dictating to them but, he pointed out, the
legislation requires public meetings prior to any assessment.
REPRESENTATIVE JOSEPHSON explained that Section 1 of Version R
dictates that credits cannot be sold or transferred. He said
DOR would retain the power to adopt or amend board definitions
of segments in tourism business and industry. He explained that
the assessment could be left to the discretion of the tourism
trade and fully paid for by the customers, which is
theoretically designed to "hold the business harmless." The
travel industry is willing to roll the dice and, he opined, that
is a risk worth taking as the industry knows this fund cannot be
dedicated and may or may not be appropriated. This is taking
place with the vehicle rental tax where the legislature, under
AS 43.52.080, stated that the remaining balance of the fund may
be appropriated for tourism development and marketing.
REPRESENTATIVE JOSEPHSON offered that he shares Representative
Neuman's concern that "those" agencies will need their $9
million. In the event this legislation moves along, the two
bodies would have to come together to cover those needs. He
offered that those needs have "pretty thoroughly usurped this
fund" and turned it into something that is quasi-tourism, but
not truly tourism. He explained that tourism trades can appeal
under AS 43.05, and the Alaska Tourism Marketing Board is
sunsetting, so the only connection the executive branch would
have to tourism would be "through this" unless the legislature
reinvigorates the Alaska Tourism Marketing Board.
REPRESENTATIVE JOSEPHSON said Version R of HB 383 broadly
complies with legislative intent, and he opined that it makes
sense that Representative Grenn would bring the bill forward
since he represents the House "on the travel board." He
referred to a previous testifier who seemed to discount the idea
that HB 383 was needed at all, and he opined that "the other 48
states or whatever," must know what they are doing with regard
to marketing. There are issues to iron out, but the committee
understands the bill and the legislation is sufficient to pass
muster, he said.
12:41:26 PM
REPRESENTATIVE KNOPP referred to the assessment and asked how to
make it work, whether it was actually somewhat like an income
tax but called an assessment. He asked whether it is on the
honor system, if they must file a tax return, and whether this
is bordering on an income tax that the state does not have at
the state level. The gross revenue component concerns him, he
said, and net revenue is substantially different at the end of
the year than gross revenue. He added that he is more concerned
about the collection of this revenue.
12:42:58 PM
KEN ALPER, Director, Tax Division, Department of Revenue (DOR),
explained that under Version R, DOR is charged with collecting
and administrating the assessment, and from the Tax Division's
perspective, it is a tax. He described that it would not be
considered an income tax, and in many ways, it is a miniature
sales tax because it is at the gross transaction level. The Tax
Division would perform certain outreach to the members of the
industry to get them enrolled and licensed, which is why the Tax
Division has a relatively robust [Fiscal Note Identifier: DOR
TAX HB 383 version 1 (fiscal note)]. The Tax Division envisions
the necessity of building a module onto its overarching tax
management software to be able to take care of this. The fiscal
note adds three positions that would be running this new tax,
thus giving the Tax Division the ability to "take care of the
people," communicate with them, make sure everything is done
right, help with regulations, and provide possible economic
analysis and reporting. The scale of this is more like some of
the smaller receipts-type taxes, for example, wholesale
cigarette merchants or alcoholic beverage distributors. There
is an online form through which they make monthly or quarterly
payments. When the system flags anything that does not look
right, the Tax Division will put resources into auditing them to
make sure they pay correctly.
REPRESENTATIVE GRENN opined that funds are allowed through this
assessment to cover the cost of the fiscal note, and if
something was already in place, this would be easier to roll
out.
MR. ALPER agreed with the sponsor and explained the changes made
in Version R reacted to the fiscal note, which came in based on
the original bill version and clarified that the Tax Division
could use some of those funds. The revenue side of this bill is
indeterminate because the rate is not yet set and the segments
that will be taxed are not set, but the industry is looking for
something in the $10-$15 million range. The fiscal note, once
the systems are set up, is approximately $300,000 to $400,000
per year to put that into scale. The legislature could
appropriate from the fund the amount the Tax Division requires
for its budgetary needs, and the rest would go to the tourism
marketing entity. In the event the state already had a sales
tax, the Tax Division would have already had a tax relationship
with most of these businesses and would be collecting the tax at
their point of sale. He offered that the hardest part for the
Tax Division is not the ongoing administration but the initial
outreach in locating all of these businesses, making initial
contact, and asking them to estimate what their revenue might be
next year for the purpose of weighting the votes, so that when
the vote does occur, the Tax Division can help the Division of
Elections count and determine whether it was a successful
election.
12:46:39 PM
CHAIR LINCOLN inquired as to the benefit of using gross revenue
rather than net revenue.
MR. ALPER responded the sponsor may have better insight as to
why gross revenue was selected. He stated that this is typical
for the TID, but once it goes to a net-based tax, a much deeper
set of information is required, such as people's tax returns and
expenses. The net-based tax would require someone to determine
what is and what is not an allowable expense. The Tax Division
has a massive track record in the subject area of corporate
income taxes and oil and gas production taxes, and he said he
would not like to have to replicate that for an industry-
specific tax such as this; it just is not big enough to warrant
the effort. He said the intent of multiple assessment rates
within the bill is the option of different rates, it allows the
possibility that one industry segment might come in at a
proposed rate different from another industry segment, and that
would be done to reflect the inherent profitability differences.
For example, someone who is a tour vendor might have a thinner
profit margin than someone who has a hotel, and if that were
determined, the board might choose to try to assess hotels at
two percent and tours at one percent. That would be a way to
compensate for those issues that vary from industry to industry,
he explained.
CHAIR LINCOLN stated some of the concern may be due to the fact
that even within the same industry, the cost of doing business
is much greater in some places in Alaska. He added the margins
can vary as well.
MR. ALPER agreed that a retail purchase in some districts may
cost more than in Anchorage. He said the 2 percent tax will be
seen as twice as much, "but it's still a 2 percent tax." He
suggested that once it does not carve into gross revenue, the
customer absorbs it. He said it would be a normal add-on cost.
12:49:48 PM
REPRESENTATIVE KNOPP spoke to gross revenue versus net revenue.
He opined it could create a serious hardship in some [remote]
areas of the state.
MR. ALPER pointed out that all the competitors are in the same
boat. He said if the fee cannot be absorbed for some reason,
there may be more difficulty passing it on. He reiterated the
fee cost would be passed on to the consumer.
12:52:04 PM
REPRESENTATIVE NEUMAN addressed language in Section 1 regarding
corporate tax. He said he can apply for corporate tax credit
against the corporate tax he owes the state. He asked whether
it would be considered "double-dipping."
MR. ALPER answered that Version R does two separate and distinct
things. All the sections proposed in AS 44 concern the new
assessment and the Alaska Tourism Marketing Board. Section 1,
he explained, concerns the vehicle rental tax which already
exists in [AS 43.52]. Section 1 provides that a car rental
company could choose to donate money to the tourism marketing
fund and credit its donation against their tax obligation.
REPRESENTATIVE TALERICO suggested a "preassessment" would be
needed to seat the board established by the bill.
MR. ALPER said the hardest part is at the start. He said the
state does not currently have a taxpaying relationship with the
tourism industry. He gave examples of possible scenarios
related to weighting industry sectors through the regulation
process.
REPRESENTATIVE TALERICO stated he has an issue with the term
"weighted voting," in particular with regard to the public
perception of that term. He described tourism growth rates in
his area and shared his concern that "it won't ever balance
itself out ...." He said the rapid growth of hotels is a good
example.
MR. ALPER agreed that the situation described by Representative
Talerico is one of the concerns that needs to be addressed. He
opined the bill may suffer legal challenges and noted an
additional unsettled issue.
12:58:48 PM
REPRESENTATIVE JOSEPHSON moved to report the proposed committee
substitute (CS) for HB 383, Version 30-LS1214\R, Nauman,
3/21/18, out of committee with individual recommendations and
the accompanying fiscal notes.
REPRESENTATIVE NEUMAN objected. He expressed disappointment
that the House Special Committee on Arctic Policy, Economic
Development, and Tourism did not get more help drafting the bill
and cautioned the bill would not pass the legislature in its
current form. He said he did not support moving the bill from
committee before work on the bill is finished.
REPRESENTATIVE KNOPP stated he is not in support of moving the
bill because the sponsor should complete further work on the
bill; he spoke in support of the industry and of local marketing
through trade shows and other mechanisms. Further, he
questioned the efficacy of continuing marketing the industry in
the same manner as the state has done in the past.
CHAIR LINCOLN agreed with many comments on HB 383. He said he
has serious concerns about the bill, but that tourism marketing
is such an important issue it deserves to be addressed in the
House Finance Committee or in the next legislative session.
1:02:10 PM
A roll call vote was taken. Representatives Edgmon, Josephson,
Tuck, and Lincoln voted in favor of the CS for HB 383, Version
R. Representatives Talerico, Neuman, and Knopp voted against
it. Therefore, CSHB 383(AET) was reported out of the House
Special Committee on Arctic Policy, Economic Development, and
Tourism by a vote of 4-3.
1:02:49 PM
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Arctic Policy, Economic Development, and
Tourism meeting was adjourned at 1:03 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB383 Opposing Document - Letter of Opposition--4.3.2018.pdf |
HAET 4/3/2018 11:30:00 AM |
HB 383 |