Legislature(2013 - 2014)BARNES 124
02/25/2014 01:00 PM House TRANSPORTATION
| Audio | Topic |
|---|---|
| Start | |
| HB314 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 314 | TELECONFERENCED | |
| + | TELECONFERENCED |
ALASKA STATE LEGISLATURE
HOUSE TRANSPORTATION STANDING COMMITTEE
February 25, 2014
1:08 p.m.
MEMBERS PRESENT
Representative Peggy Wilson, Chair
Representative Doug Isaacson, Vice Chair
Representative Eric Feige
Representative Lynn Gattis
Representative Bob Lynn
Representative Jonathan Kreiss-Tomkins
MEMBERS ABSENT
Representative Craig Johnson
COMMITTEE CALENDAR
HOUSE BILL NO. 314
"An Act relating to the application of the passenger vehicle
rental tax; and providing for an effective date."
- HEARD & HELD
PREVIOUS COMMITTEE ACTION
BILL: HB 314
SHORT TITLE: PASSENGER VEHICLE RENTAL TAX
SPONSOR(s): REPRESENTATIVE(s) THOMPSON
02/19/14 (H) READ THE FIRST TIME - REFERRALS
02/19/14 (H) TRA
02/25/14 (H) TRA AT 1:00 PM BARNES 124
WITNESS REGISTER
JANE PIERSON, Staff
Representative Steve Thompson
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: On behalf of the prime sponsor, presented
HB 314.
JOHANNA BALES, Deputy Director
Tax Division
Anchorage Office
Department of Revenue (DOR)
Anchorage, Alaska
POSITION STATEMENT: Answered questions during the discussion of
HB 314.
JON COOK, Chief Financial Officer
Airport Equipment Rentals, Inc. (AER)
Fairbanks, Alaska
POSITION STATEMENT: Testified in support of HB 314.
TOM PELLEGROM, Area Manager
Peak Oilfield Service Company
Nikiski, Alaska
POSITION STATEMENT: Testified during the discussion of HB 314.
RANDY JOHNSON, Owner
Tyler Rental (Tyler)
Ketchikan, Alaska
POSITION STATEMENT: Testified in support of HB 314.
SAM BRICE, President
Brice, Inc.
Fairbanks, Alaska
POSITION STATEMENT: Testified during the discussion of HB 314.
RYAN PETERKIN, Co-Owner
Mag Tec Alaska
Kenai, Alaska
POSITION STATEMENT: Testified in support of HB 314.
CHRISTOPHER SLOTTEE, Attorney
Atkinson, Conway, and Gagnon
Anchorage, Alaska
POSITION STATEMENT: Testified during the discussion of HB 314.
ACTION NARRATIVE
1:08:08 PM
CHAIR PEGGY WILSON called the House Transportation Standing
Committee meeting to order at 1:08 p.m. Representatives Gattis,
Feige, Isaacson, Lynn, and P. Wilson were present at the call to
order. Representative Kreiss-Tomkins arrived as the meeting was
in progress.
HB 314-PASSENGER VEHICLE RENTAL TAX
1:08:46 PM
CHAIR P. WILSON announced that the only order of business would
be HOUSE BILL NO. 314, "An Act relating to the application of
the passenger vehicle rental tax; and providing for an effective
date."
1:09:05 PM
JANE PIERSON, Staff, Representative Steve Thompson, Alaska State
Legislature, stated that in 2003 the legislature passed original
a rental vehicle tax intended to raise revenue from tourists who
used and impacted the state's road system. For the first nine
years of the rental vehicle tax, the Department of Revenue (DOR)
did not apply the tax to Alaskan companies engaged in the long-
term leasing of heavy vehicles to other Alaskan businesses. In
2013; however, the DOR began to attempt to collect the rental
vehicle tax from Alaskan businesses, who rent vehicles through
long-term leases with other Alaskan businesses, mostly of
heavier vehicles, but not to tourists. Moreover, instead of
announcing the department's new position and applying the policy
prospectively, DOR has sought to apply the rental vehicle tax
retroactively to 2004. She asserted that it is unreasonable to
require businesses to pay a 10 percent rental vehicle tax on all
their leases for the past nine years given that fees were not
collected from clients. This may bankrupt some small Alaska
businesses, she said.
MS. PIERSON stated that the original bill, House Bill 271,
passed in the 23rd legislature. At the time, the sponsor
statement indicated that the passenger vehicle rental tax was
aimed at passenger or recreational vehicles rented by tourists
due to the extra wear and tear that rental vehicles put on state
roads. Additionally, the tax would help to fund tourism. The
sponsor statement concluded that the new passenger vehicle tax
would bring in money to assist with funding road maintenance
ensuring that those who benefit from state services would
contribute to support those services. Unfortunately the passage
of House Bill 271 had some unexpected consequences and this
section of law was amended several times to further define its
intent. For example, in 2004 a bill was passed to exclude taxi
cabs from the aforementioned tax; and in 2006, the statutes were
amended to exempt rental trucks. At that time the bill sponsor
stated that the tax applies more specifically to the intended
target of visitors renting passenger vehicles and recreational
vehicles.
1:11:39 PM
MS. PIERSON offered her belief this tax does not apply to the
unintended target of Alaska businesses and citizens who rely on
truck rentals for the continued flow of commerce and movement of
household goods. This same statement can be applied to HB 314
with the long-term leasing of vehicles to businesses. In 2013,
the legislature again amended the passenger vehicle rental tax
to exclude motorcycles.
MS. PIERSON stated that once again, with HB 314, the intent of
the passenger vehicle rental tax is back before the legislature.
Specifically, HB 314 will accomplish four things. First, it
would reduce the lease term exemption from 90 days to 30 days.
Second, it would reduce from 8,500 to 6,500 gross vehicle weight
so that Alaska businesses engaged in commercial rentals are not
being taxed, noting these vehicles are typically the half-ton
and three-quarter ton trucks. Third, this bill would clarify
that this exemption applies to the transport of any goods,
whether for commercial or private uses. Lastly, HB 314 would
make these changes retroactive to 2004 to reflect the original
intent of the legislature that the vehicle rental tax is limited
to short-term vehicle rentals to tourists and not to Alaska
businesses renting to other Alaska businesses. This bill is
needed since the Department of Revenue (DOR) is attempting to
collect nine years of back taxes, interest, and penalties from
many Alaskan companies who were never intended to be assessed in
the first place; however, due to DOR's application, these
businesses are now required to pay this tax. She asked for
members' support for HB 314.
1:13:46 PM
REPRESENTATIVE GATTIS acknowledged how onerous it must be to go
back to 2004 to collect the tax. First, she said she was
horrified that the state would do so. Secondly, she wondered if
anything else pertaining to the passenger vehicle tax is
outstanding.
MS. PIERSON said the sponsor shares her concern about collecting
taxes back to 2004. She offered her belief this change will
take the passenger vehicle rental tax back to relate only to
rental cars.
1:15:07 PM
REPRESENTATIVE GATTIS asked whether the bill sponsor is aware of
anything else at this time.
MR. PIERSON answered no.
1:15:41 PM
CHAIR P. WILSON asked for an explanation of the situation on the
vehicle rental taxes.
JOHANNA BALES, Deputy Director, Tax Division, Anchorage Office,
Department of Revenue (DOR), respectfully disagreed with the
bill sponsor that this is a new interpretation by the DOR.
Since the inception of the vehicle rental tax the DOR has
conducted compliance activities each year since 2004. This
consists of looking for companies not complying; for example, by
examining business license records and telephone directories.
Additionally, the DOR responds to complaints from other
businesses that are paying a specific tax, but believe that
their competitors are not paying the tax. She reviewed the
legislative history, noting that at the time the initial bill
passed the legislature acknowledged that about 20 percent of
Alaskans would pay the tax. She reiterated this is not a new
position by the department and any actions taken have been
compliance actions. Even though some companies' activities were
not discovered earlier does not mean the department has changed
its policies. For instance, with other tax programs in 2006-
2007, the department discovered a significant number of miners
were not paying their mining license tax and the department did
a large compliance project to bring them into compliance. She
indicated that the DOR will work with companies and generally
don't go back a full ten years, but attempt to collect the last
five years of revenue.
1:18:28 PM
CHAIR P. WILSON asked for clarification on the process taken by
the department once it discovered the out of compliance
businesses. She further asked whether the department had sent
letters or a bill to businesses.
MS. BALES answered that the department identifies companies may
be conducting taxable activity. For example, the DOR sends
letters to let businesses know that basically they are "on our
radar" and the DOR wants to open dialogue to discuss whether the
business is subject to the tax. Once the DOR determines the
business should be responsible to pay the tax, the department
will work with the company to obtain the reports and collect
back taxes. Additionally, the DOR will often waive penalties,
as per an agreement with the attorney general's office since the
main goal is to gain compliance. The DOR does not send out
bills immediately and the department typically will try to
contact the parties three times before other avenues are
pursued, she said.
1:19:57 PM
CHAIR P. WILSON asked for further clarification on the specific
actions taken on this the back taxes. She asked why the DOR is
attempting to collect nine years instead of five years of back
passenger vehicle rental taxes.
MS. BALES suggested that the committee might be wandering into
confidential taxpayer information. She indicated that she is
trying to provide an overview. Certainly, some taxpayers
completely ignore the DOR; however, when complaints continue to
be filed the department will consider other means to bring
taxpayers into compliance.
1:21:05 PM
REPRESENTATIVE GATTIS assumed that the DOR has access to the
business license and the department likely has a pretty good
idea of who is renting rental cars. She specifically asked
whether the DOR did send notifications to rental car agencies
asking them specific questions requesting documentation.
MS. BALES answered yes; the department sent notices to every
business that indicated vehicle rentals; however, some do not
list vehicle rentals on their business license so unless the
department receives a complaint, the DOR would not know of the
activity. She reiterated that the department did send letters
and forms to the businesses. In further response to a question,
she agreed that the DOR sent letters and forms since 2004 as new
businesses appear in the business licensing data.
1:22:54 PM
CHAIR P. WILSON asked whether the companies receive letters
every year. More specifically, she asked for the timing of how
the DOR sends its three notifications.
MS. BALES responded that the DOR sends out a letter to a new
business; that the DOR checks the business license database
annually and send letters stating their responsibilities under
the law.
CHAIR P. WILSON asked for further clarification. She understood
new businesses are sent letters of inquiry and they will respond
yes or no; if no, she asked whether the DOR will follow up with
additional inquiry.
MS. BALES answered yes; that is correct. In some instances the
businesses will not respond. Sometimes, the information does
not seem entirely correct, particularly if the department has
received complaints. Thus, the DOR may ask for additional
information to make a determination on whether the party should
collect the tax.
1:24:34 PM
REPRESENTATIVE ISAACSON recalled municipal collections he
previously was involved in at the City of North Pole. He
understood that the department tries to give businesses the
benefit of the doubt. He asked whether the department's
authority was specific enough so that all companies pay the
taxes. He further asked how the department avoids having to
enforce lapses by taxpayers and having multi-year gaps leading
to large penalties. He wondered whether the Department of Law
is used to enforce delinquent taxpayers.
MS. BALES responded that if potential taxpayers ignore or
provide skeptical information, the DOR has internal criminal
investigators that conduct investigations. Secondly, the DOR
proactively sent letters in 2003 since the effective date of the
vehicle rental tax went into effect January 1, 2004 to all known
vehicle rental companies and the DOR's procedure is to attempt
to update the process each year. Sometimes the department
cannot do so since it may be involved in other activities but
must follow through on every complaint. She said she has two
jobs as tax administrator. First, she must protect state
revenues. Second, her job is also to ensure that the tax
programs are fairly administered by the department so all
taxpayers are treated fairly by the department.
1:28:31 PM
REPRESENTATIVE ISAACSON asked how companies report, whether it
is handwritten or electronically and how often the activity
occurs.
MS. BALES answered that the department has a form businesses are
required to complete and submit quarterly. At the end of the
first quarter, which runs January 1 to March 31, the business is
required to file a return and remit the tax collected from the
consumer by April 30 [for the first quarter.] She stated that
the DOR has forms and instructions on the department's website.
Additionally, taxpayers can also file the vehicle rental tax
electronically. In fact, all taxpayers can file on-line, she
said.
1:29:41 PM
REPRESENTATIVE ISAACSON asked for the percentage of the rental
companies that are not compliant and how much has not been
collected. He clarified that the bill would essentially provide
a clean ledger and prior taxes would be forgiven.
MS. BALES answered that this bill would forgive the tax for
anyone would did not remit the tax since the tax would not exist
for specific types of rentals. It would require the department
to refund taxes to the ultimate taxpayer for taxes collected
during the prior ten years, which would be a hefty undertaking.
Unlike other taxes, such as an income tax which is levied on the
corporation, this tax is on the end consumer, similar to a sales
tax, so the department would need to refund to every individual
who rented a car during that timeframe if the rentals are exempt
under the bill.
1:31:43 PM
CHAIR P. WILSON asked to have the specific tax form faxed or e-
mailed.
MS. BALES offered to e-mail the form since it is a faster
process.
1:32:51 PM
REPRESENTATIVE GATTIS acknowledged that some taxpayers did not
pay and her question on how onerous it might be to return the
funds was just answered.
1:33:14 PM
REPRESENTATIVE FEIGE said a record exists that identifies who
paid the passenger vehicle rental tax. He asked whether the
department had any way to tell if the tax was initially
collected for the nine years. He referred to the sponsor
statement which seemed to indicate little effort was made early
on to collect the tax. He wondered whether businesses did not
realize the tax applied to them and subsequently did not collect
the tax or if the parties in question collected the tax from the
vehicle rentals but did not remit the tax and kept the funds.
MS. BALES answered that during the investigations the department
has found both instances occurred. Some rental car companies
have collected the tax and simply not remitted the tax. Some
companies did not collect the funds; however, the statutes
indicate they are required to collect the tax. Other companies
did not collect the tax; however, the statutes require the
businesses to collect the tax. The majority of the companies
were ones that received letters and consequently were aware of
their responsibility but simply did not do so. Some companies
hold business licenses that were not specific enough to identify
them as car rental businesses. She understood the effect of
collecting the tax is difficult for the companies although the
department must be fair across the board in its efforts to
collect the taxes.
1:35:46 PM
JON COOK, Chief Financial Officer, Airport Equipment Rentals,
Inc. (AER) stated AER is a local business that employs
approximately 125 people with locations in Deadhorse, Fairbanks,
Delta Junction, Anchorage, and Kenai. The company is the John
Deere construction equipment dealer for Alaska and is the
largest equipment rental company in Alaska that offers a variety
of manufacturers in addition to John Deere. Primarily, as part
of its customer service, the company offers pickup truck
rentals, to producers and Alaska contractors operating on the
North Slope with most rentals ranging from several months to
years in duration. Again, the AER's primary line of business is
equipment rental and out of 5,000 rentals, approximately 150 are
for trucks. He was aware of the history since the AER owned the
national Alamo car rental concession at the Fairbanks
International Airport through May 2013. Additionally, he
previously worked at a car dealership that also had car rental
operations. He characterized himself as a "reformed car dealer
which is how many of you know me." He said he has history with
this tax dating back to 2003. He recalled the sponsor's
statement highlighted that the original intent of the tax was to
tax short-term rentals to tourists with a number of exemptions
granted to relieve unintended consequences of the initial law.
He referred to recent retroactive reinterpretation of the taxes,
with respect to the long-term rentals of pickup trucks between
Alaskan businesses, primarily on the North Slope, which is
contrary to the legislative intent. His company continues to
pay the rental tax, but was made aware of the recent
developments from AER's competitors. He emphasized that he has
the utmost respect for Ms. Bales and the DOR's employees, who
are trying to do their jobs and protect the state's interest.
However, he expressed concern with some interpretations. If
this bill does not pass it will adversely affect several Alaskan
companies, who may have to declare bankruptcy. The truck rental
business is a low margin truck business, and for nothing else,
for selfish reasons, AER doesn't want to see its competitors put
out of business since AER might have to buy more pickup trucks.
1:39:27 PM
MR. COOK said that one of the reasons for the delay is that the
rental vehicle is a secondary line of business for some
companies, which are primarily construction companies or
equipment rental companies. He expressed concern with several
provisions. Leases over 90 days are currently exempt from the
tax and many companies will extend their leases for several
additional months beyond the initial term. The DOR's
interpretation is that any extension is considered month-to-
month taxable rentals. For example, a company may have a two-
year rental with a six month contract, in which the DOR would
tax the additional 18 months. The department apparently is
acknowledging that its position is contrary to the legislative
intent since it has recently issued regulations to address this
problem. He related his understanding that other businesses is
that the department has attempted to seek back taxes to 2004.
The statutes currently exempt trucks with a gross vehicle weight
over 8,500 pounds used to transport personal property. This was
meant to apply to U-Haul vehicles; however, personal property is
not defined for purposes of this section. The company pays
personal property taxes in three municipal jurisdictions. Each
jurisdiction would not only define the truck as personal
property, but any contents. Accordingly, he would assert that
trucks over 8,500 pounds are already exempt from the tax. The
bill would lower the GBW, from 8,500 to 6,500 pounds to ensure
that half ton, three-quarter ton and one ton trucks are
included. Again, these trucks are rented from one Alaskan
business to the next. Specifically with respect to North Slope
rentals, AS 43.52.099 (2) defines a passenger vehicle as a motor
vehicle that is driven on a highway or a public right-of-way.
Many legislators may be aware, that once on the haul road the
North Slope road system is a private road maintained by the
producers. In fact, producers sometimes ask AER to "chip in
equipment and fuel to help maintain the road system. Again, he
asserted that any rentals on the North Slope should be exempt
from this tax. This bill would clarify the original intent of
the legislature, which is clearly not to tax Alaska businesses
renting to other businesses so retroactive application is
appropriate. He asked members to support HB 314.
1:42:33 PM
REPRESENTATIVE ISAACSON asked about retroactivity. The fiscal
note says the unintended consequence would result in $793,000
for several years in a row. However, if the bill didn't pass
some businesses will need to file bankruptcy. He asked whether
it would be fair that these businesses did not pay the tax while
other business had been subjected to collecting the tax. He
indicated creating a level playing field would mean the state
would need to cover $1.5 million.
MR. COOK answered his company has likely paid more. He pointed
out that to the extent the DOR intends to retroactively collect
the tax; that the businesses can no longer collect the tax from
the rental customers so these businesses would need to pay from
their cash flow. He understood the department does not have a
record of the specific individual who paid the tax. The rental
car companies and equipment leasing companies have knowledge of
the individuals. He did not find any incentive for his company
to determine who to refund the tax dating back for ten years,
especially since the company's retention policy is limited to
six years. Unless the individual consumers apply for the
refund, from a practical standpoint, it seems like the fiscal
note might be high. He reiterated that his company would have
zero financial interest in embarking on such an effort.
1:45:32 PM
CHAIR P. WILSON remarked it was the first time she has heard a
company that wanted to have competitors.
REPRESENTATIVE GATTIS thought about refunds and the businesses
that made an effort to collect the vehicle rental taxes and keep
informed. She wondered whether it was possible to reward the
businesses that did remit the taxes.
1:46:42 PM
CHAIR P. WILSON asked whether Mr. Cook received any letters from
the DOR.
MR. COOK said that he paid the tax and continued to pay the tax
since his company had the Alamo concession. While he had not
been contacted by DOR, he was privy to several letters sent in
November 2013, and the earliest he was aware of any equipment
company being contacted was in 2010, which is based on the
letters he has personally seen. In response to Representative
Gattis in terms of rewarding businesses, he reminded members
that the consumer was the end user. He offered his belief that
the only time a business could profit would be if the business
collected the tax from the consumer, but did not remit it to the
department.
1:48:14 PM
CHAIR P. WILSON if paid tax and rented the vehicle to the next
company, whether that would mean paying the vehicle rental tax
twice.
MR. COOK disagreed. He explained he would collect the tax and
remit to department.
1:48:46 PM
TOM PELLEGROM, Area Manager, Peak Oilfield Service Company,
stated Peak Oilfield Service Company currently employs close to
500 people on the Kenai Peninsula. He received an e-mail from
his competitors. He offered his belief that this is an
opportunity to clean up some old legislation that will help the
industry. He appreciated the committee taking time to review
this.
CHAIR P. WILSON asked whether his company has collected and paid
the vehicle rental taxes.
MR. COOK explained that the company received a notice about a
year ago. His company rents items from cranes to lawn mowers.
He rents a small incidental fleet of pickup trucks that fall
under this classification. He said it would be tough to go back
nine years and unravel an F-150 pickup that might have been
rented in 2005 to someone. He thinks the bill is doing the
right thing and it will be good for the industry and he hates to
see people "go under" over some pickup trucks.
1:50:34 PM
RANDY JOHNSON, Owner, Tyler Rental stated he is a 33-year
resident of Ketchikan and his company has been in business for
over 25 years and operates from five locations in Southeast
Alaska. He currently employs 58 Alaskans. Tyler Rental's core
business is focused on tool and equipment to construction,
timber, and mining industries. Although the majority of the
business consists of construction equipment Tyler Rental rents
half ton and larger pickups to support contractors needs
throughout Southeast Alaska. A percentage of their rentals are
for remote mining operations such as Kensington Mine, not on the
state highway system. Tyler Rental recently became aware of the
vehicle rental tax from another Alaska based equipment rental
company. From my knowledge Tyler Rental has never received
notice of the tax since its inception in 2004. The company has
not collected the vehicle rental taxes from its customers.
MR. JOHNSON said that now that his company is aware of the tax
he is in the process of submitting records for calendar year
2013 to the DOR along with the estimated payment for FY 2013 in
a good faith effort to comply with the regulations. He said
that he will pay the tax under protest on the basis that his
company was never informed of the tax requirement. He said this
lack of notice substantiates his support for the retroactivity
clause in the bill. Most if not all rental car companies did
receive notice and he surmised that is accurate. However,
assumed that the reason Tyler Rental never received notification
is that the state did not initially intend to apply the tax to
the circumstances or the state did not understand the equipment
rental activity handled by his company. He could see where the
oversight may have occurred. He investigated the legislative
history and intent and believes the legislature did not intend
to apply this tax to his type of rental activity. Additionally,
the majority of Tyler Rental's business is to provide equipment
and pickup rentals to other Alaska businesses and individuals.
He understood the primary intent behind the tax was to recoup
visitor dollars for the use of state roads. He thanked members
for the opportunity to testify and go on record to support
enactment of HB 314 in its current form.
1:54:21 PM
REPRESENTATIVE FEIGE asked how he kept track of where the
vehicles were operated.
MR. JOHNSON answered that he wouldn't always know. He explained
that if his company rented to a contractor working at Kensington
or Greens Creek mine that the vehicles would be delivered to the
barge for transport to the mine. Typically, those are long-term
rentals ranging from a few months to up to a year or longer.
The vehicles would then be returned to Tyler Rental.
Additionally, the company rents to contractors. For example,
Tyler Rental rents inspector pickups to the general contractor
who provides the vehicles to a state inspector for application
on a public highway; however, any charges would be passed
through to the state by the contractor and it would add to cost
of construction. He viewed the type of vehicle rental Tyler
Rental is involved in is more geared toward construction related
and heavier industry use.
1:56:52 PM
REPRESENTATIVE LYNN stated that he and Chair P. Wilson served in
the legislature in 2004. He offered his belief the purpose of
the tax was to capture tourist dollars.
CHAIR P. WILSON agreed.
REPRESENTATIVE ISAACSON said his question was previously
answered.
1:57:29 PM
SAM BRICE, President, Brice, Inc., stated that Brice Inc. is a
50-year-old Alaska company that has been owned by the Calista
Corporation since 2010. One company is Brice Companies, which
primarily rents heavy equipment along with some pickups on the
North Slope. If not being rented to producers and service
companies, the company uses the pickups on projects in rural
Alaska. He stated that Brice Inc. is a 100 percent Alaska
business. The company was not aware of the tax or the
applicability of the tax until he received a letter in November
2013. He said his company has rented equipment and vehicles
since 2010 and are in the process of searching records to remit
the vehicle rental taxes. He agreed with the previous comments
by Mr. Cook and Mr. Johnson, which applies to his company as
well.
1:59:13 PM
CHAIR P. WILSON asked for the number of employees employed by
his company
MR. BRICE answered he has a baseline of 60 employees and during
the season is upwards of 200 employees.
CHAIR P. WILSON asked whether he charged the tax.
MR. BRICE answered no; that he was not aware of the tax so this
would be retroactive payment since he has not collected the
vehicle rental tax.
1:59:57 PM
CHAIR P. WILSON asked whether he had any idea of the amount due.
MR. BRICE answered that it would be about $31,000 going back to
2010.
2:00:45 PM
RYAN PETERKIN, Co-Owner, Mag Tec Alaska, said he is a fourth
generation Alaskan and his company was founded in 2008. His
great-grandfather worked on the Alaska railroad in 1916. He
later operated a dairy, but sold his dairy to Matanuska Maid.
He hoped the family business will continue. He currently
operates an equipment rental business and renting pickups trucks
is a byproduct of the business, similar to other equipment
operators that testified today. He employs over 75 employees
with an average annual salary of $77,000 per year and over $6
million of labor income in the Alaska economy. His business
operates in two locations: one located in Deadhorse, and the
other in Kenai. About 90 percent of his income is derived from
oil and gas producers and 10 percent from construction. He said
that he does not rent to the general public or to anyone without
a commercial insurance policy. He offered his support for HB
314. He first learned about the bill on November 6, 2013. An
armed enforcement officer and investigator visit his Deadhorse
facility. He did not receive a letter prior to November 6th.
The investigator was checking to see if the company was charging
rental taxes on rentals less than 90 days. He left explicit
instructions to contact an auditor in Anchorage. He
subsequently set up a conference call with his chief financial
officer to figure out what the tax was about and how it could be
implemented. They found the DOR's website to be confusing and
difficult to figure out how to implement legitimate tracking.
Again, most of the companies that rent vehicles are major oil
companies and although the rentals are not long-term rentals,
they are multi-year contracts. The producers bring trucks in
and out as needed. The company builds in maintained and non-
maintained rates so the actual rental is difficult to determine.
Although it is impossible to track with a hundred percent
accuracy, he is in the process of attempting to do so. He has
been working with the DOR. He faces resistance from customers
who have never heard of this tax. He has master service
agreements with his customers in Kenai and the North Slope.
This has created competitive advantages for competitor since no
one wants to pay an additional 10 percent for vehicle rentals.
Thus he has lost business. He discussed this with DOR and at
one point the department was going to send a letter to advise
some of the oil and gas companies. He reiterated that none of
his competitors knew about the tax. He offered his belief that
he did not receive a letter prior to November 6, 2013. He said,
"We were blindsided on November 6th ...."
2:06:19 PM
CHAIR P. WILSON asked whether he has figured out the total
amount.
MR. PETERKIN said he was unsure, but the arrears will be
substantial. He has filed his first quarter return and remitted
approximately $8,000 for first quarter.
2:06:45 PM
REPRESENTATIVE GATTIS asked whether the business license
indicates rental in the name of the business.
MR. PETERKIN answered yes.
2:07:12 PM
REPRESENTATIVE GATTIS referred to the business license codes and
asked whether his company indicates it is a rental business.
MR. PETERKIN said he was uncertain about the code.
2:07:38 PM
REPRESENTATIVE GATTIS indicated that she fills out the business
license code and rents heavy equipment and airplanes. Although
her business isn't subject to the tax, she can't imagine going
back five or six years to remit back taxes if she were asked to
do so. She would like to ask the DOR for specific documentation
and whether they sent his company a letter every year. She
said, "I'm sorry. I'm just feeling like it could happen to me.
I'm feeling your pain."
2:08:58 PM
MR. PETERKIN was certain he has never received a letter. He
also did not believe most of his competitors had. He recently
received a certified letter in mid-November 2013. He said that
making this retroactive will be detrimental to his business and
he would need to seek financial aid to do. He characterized
this as a hit on an uncollected tax which is assessed on the
gross rental, noting it would exceed any profit. He did not
think the tax is justifiable since it was not intended to be
assessed on Alaskan businesses doing business with other Alaskan
businesses.
2:10:15 PM
REPRESENTATIVE ISAACSON said that either the state didn't intend
to tax this category or it didn't understand this segment of the
business. He said his business doesn't rent to the general
public.
MR. PETERKIN answered yes.
REPRESENTATIVE ISAACSON related his understanding that this tax
is intended for passenger vehicle rental tax and is not intended
for commercial. He wondered why Mr. Peterkin is receiving the
letter. He also said, "I feel your pain in that regard." He
asked whether he rents passenger vehicles intended for
commercial use.
MR. PETERKIN answered that is correct. He only rents pickup
trucks to commercial vehicle [companies] and never to
individuals.
2:12:06 PM
REPRESENTATIVE ISAACSON referred to page 2, of the instructions
for the DOR form, entitled "Alaska Vehicle Rental Tax Quarterly
Return." He read, "Passenger vehicle means a motor vehicle
(self-propelled, but not by animal or human power) that is
driven or moved on a highway or other public right-of-way in the
state. Passenger vehicles do not include commercial vehicles,
emergency or fire equipment, ...." He said he is baffled by
this predicament.
2:12:29 PM
REPRESENTATIVE FEIGE asked for clarification on the nature of
the business. He understood that he has master service
agreements.
MR. PETERKIN answered yes.
REPRESENTATIVE FEIGE related his understanding that Mag Tec
Alaska has a contract with a company to provide a vehicle for a
period of time. It doesn't have to be the same vehicle but his
company is on contract to provide a pickup. Individual pickups
may come and go as their servicing needs vary, but the contract
covers providing the vehicles, typically greater than 90 days.
MR. PETERKIN answered yes.
2:13:30 PM
CHAIR P. WILSON asked for clarification from the DOR.
2:13:50 PM
MS. BALES asked to make a couple of clarifying points. She
explained that tax administration is not the most kindly looked
upon professions; however, the DOR does its best to identify
those affected by any new taxes or changes. She acknowledged
that the parties who testified most likely did not receive
letters since the department did not identify heavy equipment
businesses as those who rent vehicles that meet the definition
of a passenger vehicle in the law. Once the DOR discovered
this, it didn't represent "a new interpretation by the
department." She said she was pretty emphatic about this and
the DOR would have sent letters in 2004 to the heavy equipment
operators. Most of those types of companies were discovered
through complaints. In 2004, at the time the letters were sent
to vehicle rental companies the department also issued public
notices. She acknowledged that a certain amount of
responsibility is placed on potential taxpayers to be cognizant
of things that might affect their businesses. She referred to
the definition of a commercial vehicle. The statute is clear in
motor vehicle statutes that the vehicle is greater than 26,000
pounds. She reiterated the definition of commercial vehicle is
clear and although the testimony indicates the vehicles were
used for commercial use, the use doesn't fall under commercial
vehicle use per statute.
2:17:28 PM
CHAIR P. WILSON understood that the department must carry out
the laws the legislature enacts; however, she asked whether the
DOR is aware of anything in statute that is "kind of
ridiculous." She emphasized that the legislature doesn't want
to burden businesses. She said, "If business doesn't make any
money there are no jobs. We all know that." Thus, the
legislature doesn't want to make matters worse for businesses in
this state. She asked Ms. Bales to notify the legislature if
anything in the statutes is ambiguous so people don't have to
guess if the law applies to them.
2:18:45 PM
CHRISTOPHER SLOTTEE, Attorney, Atkinson, Conway, and Gagnon,
stated that he represents Old Harbor Native Corporation who has
a 51 percent interest in Delta Leasing, which is an equipment
leasing company. He said he did not have anything to add to the
testimony.
2:19:35 PM
REPRESENTATIVE GATTIS asked whether Old Harbor Native
Corporation and Delta leasing was sent a letter from the DOR
with respect to the vehicle rental tax.
MR. SLOTTER answered that he represents Old Harbor Native
Corporation who owns Delta Leasing, but he doesn't represent the
leasing company.
2:20:16 PM
CHAIR P. WILSON asked whether he has any suggestions as to
whether this bill is adequate.
MR. SLOTTER answered that the bill seems adequate. The main
issue that he saw was that the original statute in 2003 exempts
any rentals in excess of 90 days; however the DOR adopted a
regulation that excluded rentals in excess of 90 days but the
department didn't count renewals or lease extensions to count as
part of the 90 days. He related a scenario in which a company
rented a vehicle on a six-month lease then the lease reverted to
a month-to-month lease. Under the DOR regulations, the vehicle
so after six months the vehicle is still taxable even if the
truck was rented for two years and never returned. He found
this to be the biggest problem. Notably the DOR has a
regulation project that revises this; however, the enforcement
actions rely on the old regulation to assess taxes back to 2004,
even though the department appears to realize a problem exists
with the regulation.
2:22:01 PM
REPRESENTATIVE ISAACSON said he mentioned oil companies rented
month-to-month after the six-month lease. He asked whether
vehicles rented out-of-state would not be charged the tax.
MR. SLOTTER answered perhaps. He offered his belief that if the
truck was rented for a total of two years, which is greater than
90 days, that the vehicle shouldn't be taxable. He related his
understanding that oil companies like month-to-month rentals for
the flexibility.
2:23:17 PM
CHAIR P. WILSON, after first determining no one else wished to
testify, closed public testimony on HB 314.
2:23:37 PM
REPRESENTATIVE FEIGE noted a number of issues were raised.
First, it would address retroactive refunds to original
customers who paid the tax and the tax was passed through [as
required on page 3 lines 2-5]. He found the retroactivity to be
problematic on refunds since some companies don't keep records
beyond six years. Thus, it seemed that this is somewhat
problematic. Second, with respect to the taxes collected or
that should have been collected, a burden of proof should be on
the DOR that the companies knew they needed to collect the tax.
Obviously, a substantial amount of misunderstanding has occurred
and it appears as though the original intent of the bill was
primarily directed at taxing tourism operations rather than
equipment leasing operations. He found that certified letter
seems to be adequate proof. He said the bill doesn't address
the master services agreements that are common industrial
contracts. He suggested that the bill should address this or
exclude the companies who rent in excess of 30 days.
REPRESENTATIVE FEIGE referred to page 1, line 12, " ... that is
driven or moved on a highway or other public right-of-way in the
state ...." He suggested this could mean moving the vehicle the
place where the vehicle will be used, whether it is at a mine
site or other site used off the highway system. He said that if
a person drove the vehicle along the highway system it would be
subject to the tax, which doesn't appear to be the intent of the
tax. Finally, he also provided the sponsor with a conceptual
amendment and he hoped the sponsor could create a committee
substitute for the committee to consider.
2:28:02 PM
REPRESENTATIVE GATTIS rather than provide exemptions and to
consider how to address the tax by clearly indicating the
targeted group, which are basically the car rental companies
since the true intentions of the statute was to assess tourists
to help pay for road use. She found the commercial vehicle
rental companies as being unintended consequences.
2:29:03 PM
CHAIR P. WILSON indicated some recreational vehicles are tourism
related and the committee may wish to consider motor homes.
MS. PIERSON answered that the state imposes a three percent
rental tax on motor homes.
2:29:57 PM
REPRESENTATIVE GATTIS recalled the department anticipated that
20 percent of its revenues were intended to apply to Alaska
residents; however, she thought residents could be exempted.
CHAIR P. WILSON said she could envision everyone attempting to
avoid the tax.
[HB 314 was held over.]
2:32:20 PM
ADJOURNMENT
There being no further business before the committee, the House
Transportation Standing Committee meeting was adjourned at 2:32
p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 314 BIll version A.pdf |
HTRA 2/25/2014 1:00:00 PM |
HB 314 |
| HB 314 - Sponsor Statement.pdf |
HTRA 2/25/2014 1:00:00 PM |
HB 314 |
| HB 314 - Relevant Excerpts from the Legislative History.pdf |
HTRA 2/25/2014 1:00:00 PM |
HB 314 |
| HB 314 - Letter of Support Brice 2 21 14.pdf |
HTRA 2/25/2014 1:00:00 PM |
HB 314 |
| HB 314 Conam Support Letter.pdf |
HTRA 2/25/2014 1:00:00 PM |
HB 314 |
| HB 314 Letter of Support.msg |
HTRA 2/25/2014 1:00:00 PM |
HB 314 |
| HB 314 Pet Prod Support.pdf |
HTRA 2/25/2014 1:00:00 PM |
HB 314 |
| HB 314 support.pdf |
HTRA 2/25/2014 1:00:00 PM |
HB 314 |
| HB 314 Suppport Letter AER.pdf |
HTRA 2/25/2014 1:00:00 PM |
HB 314 |
| HB 314 Chumleys Support.pdf |
HTRA 2/25/2014 1:00:00 PM |
HB 315 |
| HB314 Magtech Support.pdf |
HTRA 2/25/2014 1:00:00 PM |
HB 314 |
| HB314 Solsten support.pdf |
HTRA 2/25/2014 1:00:00 PM |
HB 314 |
| HB 314 - Affected Businesses.pdf |
HTRA 2/25/2014 1:00:00 PM |
HB 314 |
| HB 314 Support Letter Coffman.pdf |
HTRA 2/25/2014 1:00:00 PM |
HB 314 |
| HB314-DOR-TAX-02-21-14.pdf |
HTRA 2/25/2014 1:00:00 PM |
HB 314 |
| HB 314 Alaska Chamber support.pdf |
HTRA 2/25/2014 1:00:00 PM |
HB 314 |
| HB314 AGC Support.pdf |
HTRA 2/25/2014 1:00:00 PM |
HB 314 |