Legislature(1997 - 1998)
04/22/1997 05:08 PM House RLS
| Audio | Topic |
|---|
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE RULES STANDING COMMITTEE
April 22, 1997
5:08 p.m.
MEMBERS PRESENT
Representative Pete Kott, Chairman
Representative Irene Nicholia
Representative Gail Phillips
Representative Brian Porter
Representative Bill Williams
Representative Kim Elton
MEMBERS ABSENT
Representative Al Vezey
COMMITTEE CALENDAR
HOUSE BILL NO. 63
"An Act extending the motor fuel tax exemption for fuel sold for
use in jet propulsion aircraft to fuel used in those aircraft for
flights that continue from a foreign country; and providing for an
effective date."
- MOVED CSHB 63(RLS) OUT OF COMMITTEE
PREVIOUS ACTION
BILL: HB 63
SHORT TITLE: AVIATION FUEL TAX EXEMPTION
SPONSOR(S): REPRESENTATIVE(S) THERRIAULT, Davies, Kelly, Brice
JRN-DATE JRN-PG ACTION
01/13/97 48 (H) READ THE FIRST TIME - REFERRAL(S)
01/13/97 48 (H) TRANSPORTATION, FINANCE
01/22/97 126 (H) COSPONSOR(S): DAVIES
02/12/97 (H) TRA AT 1:00 PM CAPITOL 17
02/12/97 (H) MINUTE(TRA)
02/12/97 325 (H) COSPONSOR(S): KELLY
02/17/97 (H) TRA AT 1:00 PM CAPITOL 17
02/17/97 (H) MINUTE(TRA)
02/18/97 388 (H) COSPONSOR(S): BRICE
02/24/97 (H) TRA AT 1:00 PM CAPITOL 17
02/24/97 (H) MINUTE(TRA)
02/26/97 (H) MINUTE(TRA)
02/27/97 504 (H) TRA RPT CS(TRA) NT 4DP 2NR
02/27/97 504 (H) DP: ELTON, KOOKESH, SANDERS, WILLIAMS
02/27/97 504 (H) NR: COWDERY, MASEK
02/27/97 504 (H) FISCAL NOTE (REV)
03/11/97 (H) FIN AT 1:30 PM HOUSE FINANCE 519
03/12/97 (H) FIN AT 1:30 PM HOUSE FINANCE 519
03/12/97 (H) MINUTE(FIN)
03/20/97 (H) FIN AT 1:30 PM HOUSE FINANCE 519
04/02/97 (H) FIN AT 1:30 PM HOUSE FINANCE 519
04/02/97 (H) MINUTE(FIN)
04/04/97 986 (H) FIN RPT CS(FIN) NT 4DP 3NR 1AM
04/04/97 986 (H) DP: THERRIAULT, DAVIES, FOSTER, KELLY
04/04/97 986 (H) NR: HANLEY, MARTIN, DAVIS
04/04/97 986 (H) AM: KOHRING
04/04/97 986 (H) FISCAL NOTE (REV)
04/22/97 (H) RLS AT 5:00 PM CAPITOL 120
WITNESS REGISTER
REPRESENTATIVE TERRY MARTIN
Alaska State Legislature
Capitol Building, Room 502
Juneau, Alaska 99801
Telephone: (907) 465-3783
POSITION STATEMENT: Testified on HB 63.
REPRESENTATIVE GENE THERRIAULT
Alaska State Legislature
Capitol Building, Room 511
Juneau, Alaska 99801
Telephone: (907) 465-4797
POSITION STATEMENT: Sponsor of HB 63.
BOB BARTHOLOMEW, Deputy Director
Income and Excise Audit Division
Department of Revenue
P.O. Box 110420
Juneau, Alaska 99811-0420
Telephone: (907) 465-2320
POSITION STATEMENT: Answered questions on HB 63.
ACTION NARRATIVE
TAPE 97-12, SIDE A
Number 001
CHAIRMAN PETE KOTT called the House Rules Standing Committee to
order at 5:08 p.m. Members present at the call to order were
Representatives Kott, Williams, Porter and Nicholia.
Representative Elton arrived at 5:10 p.m. and Representative
Phillips arrived at 5:12 p.m.
HB 63 - AVIATION FUEL TAX EXEMPTION
Number 035
CHAIRMAN KOTT announced the committee would hear HB 63
"An Act extending the motor fuel tax exemption for fuel sold for
use in jet propulsion aircraft to fuel used in those aircraft for
flights that continue from a foreign country; and providing for an
effective date." He said a proposed committee substitute (CS) has
been presented to all committee members.
Number 049
REPRESENTATIVE BILL WILLIAMS made a motion to adopt CSHB 63(RLS),
Version Q. Hearing no objection, CSHB 63(RLS) was before the
committee.
Number 111
REPRESENTATIVE TERRY MARTIN came before the committee to address
the bill. He informed the committee there are a couple of section
in the bill that he is very much concerned about. One section he
has concern with is what is called the revenue neutral section.
This section would allow the reimposition of tax credits on ethanol
being used specifically in the city of Anchorage since Anchorage is
the main city that is using ethanol year-round. He said he doesn't
mind using ethanol year-round, especially if the corporation were
passing that tax credit off to the citizens as lower gas prices.
He said he has been unable to find out because it's proprietary
information. However, at every gas pump in Anchorage your will see
a sign saying, "All taxes included. Ethanol added." It doesn't
make it clear if the citizens of Anchorage have been paying that 12
cents a gallon or if the corporation has been keeping that as more
profit for themselves. He said, "I wish that question to be
answered before we use that as a balancing act if we're going to
give Mapco a free ride on 3 cents a gallon gas. And they said,
`Well, we'll let them have that because we're competing with
(indisc.) fuel that's coming into our foreign trade zone.' But in
the meantime, what are the citizens of Anchorage paying for this
ethanol?" Representative Martin asked if they are paying the taxes
on it, how come they haven't been receiving the credit for it. He
said if they haven't been paying taxes on it, will their gas price
go up 8 cents or 12 cents a gallon. Representative Martin said he
isn't willing to sell out to Mapco as revenue neutral thing so that
they can use ethanol year-round. He noted even if it were a
partial year, he would be somewhat satisfied. We may need to so
that we can comply with the federal government's Clean Air Act.
Representative Martin said if that part has been deleted from the
CS, he would be a little more open minded.
Number 304
CHAIRMAN KOTT indicated that part of the bill has not been deleted.
The only thing the CS does is tighten the title.
REPRESENTATIVE MARTIN said, "That is all the more important reason,
sir, why we should evaluate this because I was going to bring up an
amendment on floor. And I thought well being open-minded, maybe
the sponsor - maybe Mapco realized that this is not the way to save
taxes for a private corporation by charging the citizens more."
Representative Martin said it is a very important question. He
said he would like to see how much profit has been making off the
citizens of Anchorage on ethanol, especially if they are not
getting the tax credits. He said he has informed the sponsor that
he would propose an amendment on the House floor and the sponsor
responded to him that he would debate it with him.
CHAIRMAN KOTT asked Representative Martin if he has an amendment he
would like the committee to consider.
REPRESENTATIVE MARTIN indicated he wasn't prepared for the Rules
Committee meeting. He indicated the section he is referring to is
on page 2, line 10 and 11, Section F, of the House Finance
Committee version.
CHAIRMAN KOTT pointed out for the information of the committee
members it is on lines 19 and 20.
Number 456
REPRESENTATIVE GENE THERRIAULT, sponsor of HB 63, came before the
committee. He said he thinks that when it comes to discussing the
issue of the 10 percent alcohol, he thinks the pertinent question
that should be asked is, "When did the legislature vote to do away
with the motor fuel tax in the state of Alaska, and the answer is
we never did." Unfortunately, what the legislature did do sometime
in the past is they put in an exemption for ethanol alcohol, any
fuel that was 10 percent by volume. Representative Therriault said
he believes that at the time that was put in there was the idea
that Alaska would be growing quite a bit of grain and we'd be able
to produce this product. At the time, there was no requirement
that kind of fuel be utilized, so there was the thought that there
had to be some sort of an exemption or incentive for people to
actually purchase that fuel that would utilize that product that
was produced in the state of Alaska. He said the production of
that product in the state of Alaska never came to pass. So what we
find ourselves doing is importing this additive from outside the
state boundaries and basically giving up 100 percent of our state
motor fuel tax for the fuel that utilizes that additive.
Representative Therriault informed the committee that a number of
years ago when the federal government came in and required that
that oxygenated fuel be used in (indisc.) for four months of the
year, Anchorage chose this particular additive or fuel (indisc.) as
their choice to meet that federal government, but again, the
requirement was only for four months of the year. He pointed out
the refineries have started selling this product in the Anchorage
bowl market year-round and the drain on our state treasury has
absolutely ballooned. It is projected that were losing $8 million
a year. He said he is a firm believer that when the people of
Anchorage pull up to a pump and as they're squeezing the handle,
they believe that they are making a contribution to the state tax
revenues for the maintenance of our road system. They're not aware
that they're buying a fuel that basically is 100 percent tax
exempt. Representative Therriault informed the committee members
there is the potential that utilization of this fuel will expand
even further and we may get to the point where who knows what
percentage of our motor fuel tax will be lost to this exemption.
He said he believes that when that language was put into statute,
there was never any intention or thought that the use of this fuel
would expand like it has.
Number 725
REPRESENTATIVE THERRIAULT referred to page 2, line 13, and said it
deals with removing the tax from foreign flights that come from a
foreign destination, touch down in one of our airports and then
continue on. If they use fuel that's brought into the airport
through a foreign trade zone, by federal law, we cannot tax it. He
explained the situation is if it is fuel that's produced in the
state of Alaska, it pays a higher tax than if it is a fuel that's
brought in from offshore. Representative Therriault explained he
is basically trying to level the playing field so that all fuel
sales that go towards that consumption has the same tax regime
imposed on them.
REPRESENTATIVE THERRIAULT referred to page 2, lines 19 and 20, and
said there is the alcohol issue. He referred to page 3 and said
there is the addition of the bunker fuel. A couple of years ago,
the legislature did try and put in a mechanism, which is actually
repealed by Section 3 of the bill, that set a threshold. What they
were trying to do was entice the curse ships that come to Alaska to
buy bunker fuel in Alaska. Currently, we are taxing that sale in
Alaska. If the ships fuel up in Canada or somewhere on the West
Coast, they don't pay that tax. He informed the committee that
bunker fuel is kind of like a tar or has honey type of a
consistency. It has to be preheated before it can be burned. He
said the taxation for bunker fuel is being taken out to hopefully
spur sales or spur the refueling industry in Alaska. He noted Mr.
Bartholomew, Department of Revenue, is in attendance if there are
questions on the financial impacts of the bill.
Number 887
REPRESENTATIVE MARTIN said "First, we had discussion and I was
wonder if Mr. Bartholomew (indisc.--paper on microphone) did came
to light that Mapco, at least on two occasions if not three
occasions, brought in the fuel themselves. They contracted
(indisc.) to come in. And why not? It would be a good way to see
you can make money. They're in the business to make money or lose
money. And we don't know for sure if they made money off the deal
or if they lost money. And I would like to asked Mr. Bartholomew
have they given any information with regards to taxes - if they
made money or lost money. From your point of view, outside of the
tax, is it cheaper? Can the company make money by importing it?
Or is 3 cents that much of a difference?"
Number 874
BOB BARTHOLOMEW, Deputy Director, Income and Excise Audit Division,
Department of Revenue, came before the committee. He said the
department has looked at the issue and had an economist look at the
issue last year. Basically, the pricing mechanisms - the worldwide
competition of jet fuel is a commodity. Everyone agrees that it is
one price worldwide. There are tankers and refiners that produce
excess capacity and that is the jet fuel that is available on the
world market to purchase. Mr. Bartholomew explained that Alaska is
currently a net importer. He said the department doesn't have the
information and they don't receive information as to whether a
company makes money on an individual tanker or not, but there is
information that shows there is fuel available on the world markets
that can be purchased. He noted the department doesn't know the
specific profits of that.
REPRESENTATIVE MARTIN said, "It's part of the problem that I
brought up and a couple of others asked in the House Finance. Only
because Mapco says that when they even the equal - the field and
that people who did purchase the oil, they should be able to say
they lost or they made money, but they don't want to say it -
proprietary information. But they do ask us to relieve them of
this tax burden." Representative Martin referred to bunker fuel
and said he doesn't blame Tesoro at all to buy this because Tesoro
does have an opportunity, through the Kenai refinery, to take to
heavy fuel and use it for international shippers. It may be a plus
(indisc.), but at whose cost. Representative Martin informed the
committee he has been told that Mapco makes money because they get
the fuel from our pipeline and the contracts are supposed to be
more favorable than Tesoro pays. He said, "They got a more
favorable contract. I don't know if Mr. Bartholomew can give us
that or not compared to the last one Tesoro did two years ago, I
guess. Still, again, if you want to even the market up, lets make
all royalty contracts the same cost. But then this bunker fuel,
the heavy fuel, it costs nothing for Mapco to just push it right
back into the pipe and that they don't have to find a way to get
rid of it. Is that basically what we're talking about there in the
same differences between the two organizations (indisc.) what do
you do with your heavy fuel."
Number 1069
MR. BARTHOLOMEW responded that there are different ways that the
industry handles it, but in the refineries at North Pole and
Valdez, they do reinject back into the pipeline the residual crude
oil. They pay what is called a penalty bank and that's negotiated
as a part of the overall agreement that allows them to put it back
in. They pay a quality bank penalty to reinject it. He noted he
doesn't have the exact economics of how that compares to how bunker
fuel sells on the market. He said we're asking the market forces
to determine it and it is primarily the Department of Natural
Resources that negotiates royalties and the oil for the pipeline.
They determine what's in the best interest of the state. Mr.
Bartholomew referred to the removing of the tax on bunker fuel and
said it was something that was visited three years ago and it was
deemed that an incentive should be provided. What they're asking
for this year is to revisit that. They are asking for a different
incentive. He referred to bunker fuel and said it is a low value
product and he thinks that is why they're asking for the incentive.
REPRESENTATIVE MARTIN said everything is not equal and especially
the important part. He asked Mr. Bartholomew, "Has it been
evaluated through the citizens of Anchorage, get the benefits of
that tax relief from using ethanol or is it going to be an increase
to the tax payer if we relive - repeal this statute?"
MR. BARTHOLOMEW responded that the testimony on that in the House
Transportation and the House Finance Committees from the industry
is that they haven't made a decision on what's going to happen in
Anchorage because they have the other competitive forces. There
are some dealers in Anchorage that are not using ethanol in the
nonrequired months. So there is a competitive market and there has
been testimony that they don't know whether the price will go up or
down and the price of oil is currently fluctuating and they have to
evaluate what happens to consumption. If the price goes up, what's
going to happen to consumption? They don't want consumption to go
down. He said they have excess motor fuel. It is a competitive
issue and for them to disclose their pricing strategy would put
them at a disadvantage. Mr. Bartholomew said the department hasn't
done any kind of an analysis to look into that.
Number 1265
REPRESENTATIVE MARTIN said, "As our chief tax collector, if you saw
on the gas pump the sign, `Contains ethanol, all taxes included,'
would you assume as a person (indisc.) that your paying the taxes
or that you're getting credit because the ethanol -- Mapco is being
relieved of that tax burden?"
MR. BARTHOLOMEW indicated he hasn't seen the sign. He said he
doesn't know what the sign says when there isn't ethanol. Mr.
Bartholomew said he thinks it says, "Price includes all taxes."
Now they're telling people that what they're buying includes
ethanol. He indicated he doesn't know how if there are any other
taxes that are included.
REPRESENTATIVE MARTIN asked Mr. Bartholomew if he could tell the
committee if they're receiving the 12 cent credit.
MR. BARTHOLOMEW said he can tell the committee that the tax
collections into the state of Alaska has decreased equivalent to
the consumption of ethanol based fuel.
REPRESENTATIVE MARTIN said Mr. Bartholomew can't tell the committee
if they're passing the tax credit off to the consumer.
Number 1332
REPRESENTATIVE BRIAN PORTER said the discussion is very
interesting, but the merits of the bill have been discussed in the
Transportation Committee and the Finance Committee. He said he
doesn't think the answers to the questions that Representative
Martin has asked are available and it is obvious at this point. He
said he is prepared to deal with the title.
Number 1352
REPRESENTATIVE THERRIAULT said in regards to the two refineries in
his district, both Mapco and Petrostar, the do reinject into the
pipeline and they pay a price for that. He said the price for
Mapco last year was between $25 million and $30 million dollars.
To say that they can reinject and get rid of the low-end value of
the oil stream cheaply is a misstatement. In trying to compare
Tesoro with Mapco, Mapco doesn't produce the petrochemicals.
They've foregone that and it might be because of location. Tesoro
is located on the water where they can get that product shipped via
water. Representative Therriault stated it is difficult to compare
the refineries because of geographic location.
Number 1402
REPRESENTATIVE THERRIAULT referred to the signs "All taxes
included," and said he thinks that is basically a reference to all
applicable taxes which means that even though there is a 5.4 cent,
per gallon, exemption from the federal motor fuel tax, that leaves
12 or 13 cents that is collected for the federal tax. He said he
thinks that is all that the signs indicate. Representative
Therriault said it is his gut feeling that the allowance on this
loophole has added to margin for the refiners. He said, "So by
closing this loophole off, does the price have to go up to offset
the 8 cents now that will be paid to the state? I don't believe
so, but I can't tell you definitely how the individual refiner's
profits have -- margins have been effected."
Number 1439
CHAIRMAN KOTT asked the members to review the committee minutes of
the previous two committees extensively because he is sure there
will be a lot of discussion and debate on the floor.
REPRESENTATIVE WILLIAMS made a motion to move CSHB 63(RLS) out of
committee with individual recommendations and the accompanying
fiscal notes.
REPRESENTATIVE WILLIAMS then asked for a brief at ease.
Number 1470
REPRESENTATIVE PORTER objected. He said in discussing the bill
with Representative Williams, there was a proposal that the
committee might want to make an accommodation for a prospective
business in Ketchikan. He said, "I think it would be appropriate
to put on the record that I and other members that I have spoken to
would stand ready to consider a proposal for that kind of a
business and look at that in perspective of what the proposal is
and what could the legislature do to promote that kind of a
business in a area that obviously is direly in need of some
economic development and some jobs. I don't think an amendment to
this bill is a good mechanism to do that, but I'm sure that the
legislature would look very positively at a firm proposal from any
investor that wanted to look at that kind of a business of creating
a pulp ethanol producing plant. With that, I would remove my
objection."
Number 1526
REPRESENTATIVE GAIL PHILLIPS said when this was discussed earlier,
rather than including the issue regarding the plant in Ketchikan or
anywhere else in Alaska, Representative Therriault had talked about
intent language to recommend that be done.
REPRESENTATIVE THERRIAULT said when he had further discussions with
Representative Williams, he indicated he felt comfortable dealing
with this through the introduction of a separate bill that would
prompt that discussion. He said he would be willing to look at
that. He said he thinks financial details are lacking that would
be needed to evaluate such a proposal.
REPRESENTATIVE KIM ELTON asked Representative Williams if there are
any decisions that need to be made by the current owners of the
plant or are people who may be interested in the plant. He also
asked if any decisions need to be made prior to end of next
session.
Number 1599
REPRESENTATIVE WILLIAMS said, "Hopefully, in talking with the
people around the table here at different times and to the people
of Ketchikan, I think that we do have time, hopefully before this
time next year, that we have a bill through both the House and
Senate."
Number 1615
CHAIRMAN KOTT said there is a motion to move CSHB 63 out of
committee with individual recommendations and accompanying fiscal
note. Hearing no objection, CSHB 63(RLS) moved out of the House
Rules Standing Committee.
ADJOURNMENT
Number 1631
CHAIRMAN KOTT adjourned the House Rules Committee meeting at 5:35
p.m.
| Document Name | Date/Time | Subjects |
|---|