Legislature(2007 - 2008)CAPITOL 106
02/05/2008 11:00 AM House ECONOMIC DEV., TRADE, AND TOURISM
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| Start | |
| Presentation: Department of Revenue Update on the Commercial Passenger Vessel Tax Program | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON ECONOMIC DEVELOPMENT, INTERNATIONAL
TRADE AND TOURISM
February 5, 2008
11:10 a.m.
MEMBERS PRESENT
Representative Mark Neuman, Chair
Representative Carl Gatto
Representative Kyle Johansen
Representative Mike Doogan
MEMBERS ABSENT
Representative Wes Keller
Representative Bob Lynn
Representative Andrea Doll
COMMITTEE CALENDAR
PRESENTATION: DEPARTMENT OF REVENUE UPDATE ON THE COMMERCIAL
PASSENGER VESSEL TAX PROGRAM
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to report
WITNESS REGISTER
JOHANNA BALES, Deputy Director
Tax Division
Department of Revenue
Anchorage, Alaska
POSITION STATEMENT: Presented the Update on the Commercial
Passenger Vessel Tax Program on behalf of the Department of
Revenue (DOR).
ACTION NARRATIVE
CHAIR MARK NEUMAN called the House Special Committee on Economic
Development, International Trade And Tourism meeting to order at
11:10:32 AM. Representatives Gatto, Johansen, and Neuman were
present at the call to order. Representative Doogan arrived as
the meeting was in progress.
^Presentation: Department Of Revenue Update On The Commercial
Passenger Vessel Tax Program
11:10:59 AM
CHAIR NEUMAN announced that the only order of business would be
an update from the Department of Revenue on the Commercial
Passenger Vessel Tax Program.
11:11:14 AM
REPRESENTATIVE JOHANSEN voiced the need to clarify this tax for
his constituents.
11:12:30 AM
JOHANNA BALES, Deputy Director, Tax Division, Department of
Revenue, informed the committee that the 2006 Commercial
Passenger Vessel Tax Program initiative held several revenue
provisions. One of the revenue provisions was a $46 excise tax
on passengers on large cruise ships with over 250 berths. Other
revenue provisions of the initiative are: a tax, at the rate of
33 percent of adjusted gross income, on gambling activities in
state waters; an Alaska corporate net income tax; and a $4 per
passenger Ocean Ranger fee collected by the Department of
Environmental Conservation.
11:13:53 AM
REPRESENTATIVE GATTO asked whether the berth count of a cruise
ship includes berths for the crew.
11:14:12 AM
MS. BALES answered that only passenger berths are included.
11:14:26 AM
REPRESENTATIVE GATTO questioned the use of berths, rather than
the number of passengers, to determine the size of the ship.
MS. BALES clarified that the term used is "passenger berths" and
it does not include crew quarters.
11:14:46 AM
REPRESENTATIVE DOOGAN asked whether the $4 Ocean Ranger fee only
applies to vessels of over 250 passenger berths.
11:15:11 AM
MS. BALES said yes.
11:15:22 AM
REPRESENTATIVE DOOGAN further asked whether the gambling tax
applied to all vessels.
11:15:32 AM
MS. BALES responded that the assessment of the gambling tax is
determined by federal law that requires that a cruise ship must
have overnight accommodations for all of its passengers to
qualify.
11:15:48 AM
REPRESENTATIVE DOOGAN then asked whether all of the cruise ship
companies are required to pay Alaska corporate income tax,
without regard to the size of the ship.
11:16:06 AM
MS. BALES indicated yes. She then continued to explain that the
other provisions of the initiative: requires cruise ship
operators to report more information regarding wastewater;
authorizes citizen lawsuits against an owner or operator of a
large cruise ship; enables a person who provides information to
receive 25 percent to 50 percent of fines imposed; and imposes
additional requirements on disclosures about on-ship promotions
of shore-side businesses.
11:17:04 AM
REPRESENTATIVE GATTO gave an example of 25 people reporting the
same violation and asked who would get the 25 to 50 percent of
the fines imposed.
11:17:34 AM
MS. BALES acknowledged that her description of the provision is
not the exact wording of the law and referred Representative
Gatto's question to the Department of Law. She further
explained that the common term "$50 head tax" comes from the $46
excise tax plus the $4 fee for the Ocean Rangers.
11:18:40 AM
REPRESENTATIVE DOOGAN asked for the specific language regarding
the amount of the Ocean Ranger fee.
11:18:44 AM
MS. BALES stated that there are separate titles for these fees
in the Alaska statutes.
11:18:53 AM
REPRESENTATIVE GATTO asked whether the $4 fee is assessed per
person or per berth.
11:19:08 AM
MS. BALES said that the language in the initiative is $4 per
berth; however, she expressed her understanding that the fee is
being collected per person.
11:19:21 AM
REPRESENTATIVE GATTO suggested that a vessel could travel with
empty berths.
11:19:32 AM
MS. BALES opined that the fee is being assessed per person,
although the language states per berth. She pointed out that
the Department of Revenue (DOR) administers, and is responsible
for; the corporate income tax, the cruise ship gambling tax, and
the excise tax. The DOR must also disburse the funds as
directed by the legislature and draft regulations, if necessary.
11:20:51 AM
CHAIR NEUMAN asked whether there are restrictions on the manner
in which the head tax funds can be spent.
11:20:59 AM
MS. BALES noted that this subject will be discussed later in her
presentation. She then related the history of the corporate
income tax and reminded the committee that the legislature
enacted an exemption for water transportation companies in 2000.
The initiative repealed the exemption for the cruise ship
industry, and the revenue from the corporate income tax will be
deposited in the general fund. The first tax returns from this
industry are due in April of 2008, but the DOR does not have an
estimate of what the revenue will be, given that there was no
history of payment.
11:23:29 AM
REPRESENTATIVE JOHANSEN asked when the corporate income tax
returns will be processed.
11:23:43 AM
MS. BALES stated that the tax returns are due April 15; however,
tax payments are due March 15, and the DOR should have an
estimate of the amount of revenue by the end of March.
11:24:25 AM
MS. BALES, in response to a question, re-stated that the DOR can
make no estimate on these revenues.
11:24:38 AM
REPRESENTATIVE GATTO asked whether the corporate income tax was
based on Alaskan operations only, or on the entire voyage.
11:24:56 AM
MS. BALES answered that the corporate income tax is based on an
apportionment formula. All corporations, other than oil and gas
corporations, must calculate the formula based on the "water's
edge" allowance, that looks at all of the companies doing
business in the U.S. and apportions a certain amount of activity
to Alaska.
11:25:43 AM
REPRESENTATIVE GATTO asked whether the DOR intends to collect
retroactive corporate income taxes.
11:26:03 AM
MS. BALES stated that there was no retroactivity in the bill;
therefore, no tax was due.
11:26:14 AM
REPRESENTATIVE GATTO asked about previous years.
11:26:31 AM
MS. BALES explained that this industry was not liable for
corporate income taxes in previous years. She continued to
point out that, unlike the excise tax, there is no provision in
the corporate income tax that requires revenue sharing with
municipalities, thus the revenue will go to the general fund.
Also, the DOR drafted regulations for water transportation
companies that were effective October, 2007. The DOR currently
has regulations on the gambling tax out for public comment and
the comment period ends on February 7, 2008.
11:27:38 AM
CHAIR NEUMAN asked for a description of the public response.
11:27:52 AM
MS. BALES advised that these regulations do not deal with
aspects of the bill that affect communities and there were no
public hearings. She said that no comments have been received,
at this point. Ms. Bale continued with the presentation and
noted that the 33 percent gambling tax is imposed on the
adjusted gross income from gambling activities conducted in
state waters. The adjusted gross income is defined as the gross
gambling proceeds from which prizes and federal and municipal
taxes have been subtracted. Similar to the corporate income
tax, the DOR expects an annual return, with the first returns
due April 15, 2008; however, the revenue will be deposited in
the Commercial Vessel Passenger Tax Account.
11:30:07 AM
REPRESENTATIVE JOHANSEN asked whether there was a history of
gambling tax income.
11:30:31 AM
MS. BALES indicated that there was not.
11:30:43 AM
REPRESENTATIVE JOHANSEN recalled that there was one year of data
collected in the 1990s.
11:31:12 AM
MS. BALES expressed her belief that, due to the rapid growth of
the industry, previous data should not be used. She continued
to explain that the corporate income tax revenue is deposited in
the general fund and the gambling tax revenue is deposited in
the Commercial Vessel Passenger Tax Account established by the
initiative. Turning to the subject of the excise tax, she
acknowledged that there is significant interest in the
regulations surrounding the head tax. The $46 excise tax is
levied on the cruise ship passenger, per voyage, and is
collected by the ship owner. Payment of the tax is due to the
state at the end of each month following the month of the end of
the voyage. A voyage is defined as a cruise lasting longer than
72 hours. Distribution of the tax revenue is determined by the
number of passengers at each Alaska port of call and the ship is
required to record and report this information.
11:33:29 AM
REPRESENTATIVE DOOGAN surmised that the tax is levied as the
ship enters state waters.
11:33:44 AM
MS. BALES stated that the tax is levied at the end of the
voyage. Generally speaking, however, the cruise ship industry
collects the tax at the beginning of any cruise scheduled to
extend beyond the 72 hour minimum.
11:34:16 AM
REPRESENTATIVE DOOGAN gave an example of passengers not
completing the voyage.
MS. BALES confirmed that, if passengers spent 72 hours on board,
they would be obligated to pay the tax. Further accounting
would be needed to determine the revenue sharing between the
ports of call. She re-stated that the DOR is responsible to
account for the revenue and to disburse the proceeds. The
initiative established that $34.50, or 75 percent of the $46
excise tax is to be deposited to the Commercial Vessel Passenger
Tax Account and $11.50, or 25 percent of the $46 excise tax, is
to be deposited to the Regional Cruise Ship Impact Fund.
11:35:59 AM
CHAIR NEUMAN asked who established this "break up."
11:36:10 AM
MS. BALES said that the sub accounts were established by the
initiative. She then indicated that a total of $46,471,270 was
collected by the DOR during the cruise ship season in 2007, from
1,010,245 million passengers.
11:36:43 AM
CHAIR NEUMAN confirmed that the head tax revenue was $46.4
million to the general fund.
11:37:07 AM
REPRESENTATIVE JOHANSEN asked where the gambling tax revenue
would be deposited.
11:37:11 AM
MS. BALES said that the gambling tax revenue would be deposited
in the Commercial Vessel Passenger Tax Account.
11:37:13 AM
CHAIR NEUMAN asked whether there are specific benefits from the
fund to go to communities that are impacted by cruise ship
visitors.
11:37:58 AM
MS. BALES said yes. However, she stated that there are some
restrictions for communities that have their own passenger fees.
First, she informed the committee that, through the initiative,
the disbursement of the Commercial Vessel Passenger Tax Account
is under the "first five ports of call rule." Funds not
distributed remain in this account, with the addition of the
gambling tax revenue, and the legislature may appropriate
money from this account for "state-owned port and harbor
facilities, other services to properly provide for vessel or
watercraft visits, to enhance the safety and efficiency of
interstate and foreign commerce and such other lawful purposes."
11:39:36 AM
REPRESENTATIVE JOHANSEN asked whether this authorization is
found in state statute.
11:39:52 AM
MS. BALES said this language is found in state statute A.S.
43.52.
11:40:09 AM
REPRESENTATIVE JOHANSEN further asked whether this language
comports with the Maritime Transportation Security Act of 2002.
11:40:13 AM
MS. BALES expressed her understanding that the drafters of the
initiative intended for the language to coincide with federal
law.
11:40:25 AM
REPRESENTATIVE JOHANSEN remarked:
To quote the [Public Law] 107-295, "reasonable fees
charged on a fair and equitable basis that are used
solely to pay the cost of a service to the vessel or
watercraft", a, that seems pretty, pretty, specific,
more specific than the initiative language. And I
know there is some difficulty, from your perspective,
since Revenue doesn't distribute, they collect. This
may not be your bailiwick, but, at some point, that's
a question that we're going to have to wrestle with, I
think.
11:41:47 AM
REPRESENTATIVE DOOGAN surmised that the revenue from each voyage
is distributed to the first five ports of call of that voyage.
11:42:03 AM
MS. BALES said, " ... basically that's what happens when the
distribution is made."
11:42:15 AM
CHAIR NEUMAN asked what happens if the ship only makes three
ports of call.
11:42:33 AM
MS. BALES explained that the three ports of call would receive
$5 per passenger, and the remainder of the fees would stay in
the account.
11:42:46 AM
CHAIR NEUMAN further asked about benefits to the communities
affected by the tourist traffic that continues by bus after
leaving the ship.
11:43:03 AM
MS. BALES stated that benefits for those communities come from
the Regional Cruise Ship Impact Fund.
11:43:14 AM
REPRESENTATIVE JOHANSEN opined that this is the question of the
language in the initiative and [difference] in the federal
language. The issue of where this money can be spent is for
another day.
11:43:37 AM
MS. BALES pointed out that the expectation of the initiative was
that, after the collection of $5 from each passenger at the
first five ports of call, $25, or over half of the $46 excise
tax, would be paid to those port communities. However, most
voyages visit three ports, and with the adjustment for ports
that have a passenger tax, the DOR estimates that the
disbursement to the first five ports of call will be about $10
million per year. She clarified that a port of call must be in
a municipality or borough, must be a location where passengers
embark or disembark, and can not have its own passenger fee.
11:45:00 AM
REPRESENTATIVE JOHANSEN pointed out that the initiative splits
the $5 if a city is within a borough. In the Ketchikan Gateway
Borough there are two cities, Saxman and Ketchikan. Saxman is
heavily impacted by tourism and he asked whether the DOR has
looked at this situation.
11:46:15 AM
MS. BALES said that the DOR looks at the location where the
cruise ship docks. Therefore, disbursement was made to the
Ketchikan Gateway Borough. The intent of the initiative was
that funds to Saxman would be available from the Regional Cruise
Ship Impact Fund.
11:47:05 AM
REPRESENTATIVE GATTO asked whether Saxman generates income from
being part of the Ketchikan Gateway Borough.
11:47:36 AM
MS. BALES stressed that the initiative directs that the
communities that receive money must use the money to enhance
cruise ship tourism. She opined that the Ketchikan Gateway
Borough could spend the money in Saxman, as long as the purpose
is clear.
11:48:02 AM
CHAIR NEUMAN assumed that Saxman would be part of the tourism
enhancement program.
11:48:20 AM
REPRESENTATIVE JOHANSEN observed that the language in the
initiative is confusing and vague.
11:48:57 AM
CHAIR NEUMAN acknowledged that the language in public
initiatives often needs to be "ironed out."
11:49:14 AM
MS. BALES continued to explain that another provision of the
initiative prohibits a community from collecting funds from both
the first five ports of call rule and the Regional Cruise Ship
Impact Fund. She then listed the FY 2008 disbursements under
the first five ports of call rule that totaled $744,580.00. Ms.
Bales also provided an estimate of the FY 2009 disbursements
under the first five ports of call rule and noted that the
disbursement is subject to appropriation by the legislature.
11:51:42 AM
CHAIR NEUMAN asked whether there were recommendations on this
money in the governor's capital budget.
11:51:53 AM
MS. BALES said no. All funds are appropriated to the DOR to
disburse in accordance with the initiative.
11:52:02 AM
REPRESENTATIVE JOHANSEN asked whether it is common practice for
the DOR to disburse funds.
11:52:26 AM
MS. BALES said that the DOR disburses funds at the direction of
the legislature; however, it does not have the expertise to
determine what projects should be funded.
11:52:42 AM
REPRESENTATIVE JOHANSEN further asked whether there has been
discussion at the cabinet level about the plan to distribute
this money.
11:52:51 AM
MS. BALES related that she and others at the DOR talked to
authorities in Juneau and Ketchikan about how those cities
distribute their passenger fees. In fact, Juneau's procedure
may be outside of the narrow interpretation of federal law.
However, Juneau includes a high level of involvement by the
cruise ship industry through a city ordinance. Ms. Bales then
listed the remaining account balances for the 2007 cruise ship
season. There is $36.4 million available for additional
projects outside of sharing with communities.
11:55:11 AM
REPRESENTATIVE DOOGAN asked for clarification on the balance of
the first five ports of call account.
11:55:35 AM
MS. BALES stated that the entire amount of the first five ports
of call account will be disbursed. She pointed out that the
remaining $24.8 million, in addition to the gambling tax
revenues, is available for appropriation. This amount is not
shared with the ports of call and can be used "for state-owned
port and harbor facilities, other services to properly provide
for vessel or watercraft visit, to enhance the safety and
efficiency of interstate and foreign commerce and such other
lawful purposes." Ms. Bales expressed the DOR's belief that
funds can be used for state projects in specific communities;
however, the DOR is not tasked with drafting regulations for the
use of these funds and will not be drafting regulations dealing
with this remaining account.
11:57:07 AM
REPRESENTATIVE JOHANSEN asked whether a city that receives money
under the first five ports of call rule is eligible to receive
money from this account.
11:57:22 AM
MS. BALES said yes.
11:57:27 AM
REPRESENTATIVE GATTO opined that the $9.2 million available to
disburse in FY 2009 is about a million short.
11:57:57 AM
MS. BALES explained that the DOR has already distributed
$744,000.
11:58:15 AM
REPRESENTATIVE GATTO asked whether a port of call requires a
visit.
11:58:29 AM
MS. BALES said the draft regulations require a visit for a
community to qualify as a port of call. She concluded by saying
that there is $11.6 million in the Regional Cruise Ship Impact
Fund and disbursements must be appropriated by the legislature.
In addition, funds can only go to municipalities and other
governmental entities impacted by cruise ship activity and funds
can not go to communities receiving revenue under the first five
ports of call rule.
11:59:27 AM
CHAIR NEUMAN expressed his desire to study the report in light
of the overall budget.
11:59:45 AM
REPRESENTATIVE JOHANSEN observed that the DOR is tasked by the
initiative to disburse [funds], which is not something that it
does. He expressed his concern that the legislative body may
not pass legislation to direct the disbursement of these funds
and suggested that there should be project rankings and
structure from the administration in order to get this money
back to the communities.
12:01:40 PM
CHAIR NEUMAN agreed.
12:01:53 PM
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Economic Development, International Trade
and Tourism meeting was adjourned at 12:02 p.m.
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