SB 127-TAXATION: VEHICLE RENTALS, SUBPOENAS  1:04:16 PM CHAIR MCCABE announced that the first order of business would be CS FOR SENATE BILL NO. 127(FIN), "An Act relating to vehicle rental taxes; relating to the issuance of subpoenas related to tax records; and providing for an effective date." 1:04:32 PM SENATOR MATT CLAMAN, Alaska State Legislature, as prime sponsor, presented CSSB 127(FIN) and paraphrased the sponsor statement [included in the committee packet], which read as follows [original punctuation provided]: Senate Bill 127 requires vehicle rental platform companies, such as Turo and Getaround, to collect the existing state vehicle rental tax and remit the tax to the Department of Revenue on behalf of the vehicle owners. Additionally, Senate Bill 127 revises the subpoena provisions that relate to Department of Revenue tax collections. Under current law, there is uncertainty about whether the vehicle rental platform companies owe the existing excise tax or whether only the vehicle owner owes the excise tax. At least one prior lawsuit did not resolve this question. Senate Bill 127 resolves the question by requiring the vehicle rental platform companies to collect the excise tax from the vehicle renter and remit the excise tax to the Department of Revenue on behalf of the vehicle owner. Senate Bill 127 was introduced at the request of the Department of Revenue. The Department informed our office that vehicle owners owe the vehicle rental excise tax under existing law, but the law requires a new section to specify that the vehicle rental platform companies are responsible for collecting and remitting the excise tax on behalf of the vehicle owners. Senate Bill 127 is not meant to affect Alaskans that use other means to advertise their rental cars, such as Craigslist and Facebook Marketplace, because those websites do not collect any funds from the renter or coordinate details about the rental. Vehicle owners who use websites such as Craigslist and Facebook Marketplace to advertise their vehicles owe the existing excise tax on such rentals, and websites such as Craigslist and Facebook Marketplace would not have a duty to collect the excise tax under the current structure of those websites. Under the most current version of this bill, the vehicle rental tax is lowered to 8% for vehicle rental platforms such as Turo. The tax remains at 10% for traditional rental car operations. Version R also prevents any retroactive tax collection from vehicle rental platform users. 1:07:25 PM CARLY DENNIS, Staff, Senator Matt Claman, Alaska State Legislature, gave the sectional analysis for CSSB 127(FIN) on behalf of Senator Claman, prime sponsor, which read as follows [original punctuation provided]: Section 1  AS 43.05.040. Inspection of records or premises and issuance of subpoenas. Amends AS 43.05.040(c) by removing unnecessary language regarding the issuance of out-ofstate subpoenas related to tax records. Section 2  AS 43.52.020. Rate of Passenger Vehicle Rental Tax. Establishes a separate tax rate of 8% for passenger vehicles rented through a vehicle rental platform. The tax rate of 10% remains for other rentals. Section 3  AS 43.52.050. Liability for payment of vehicle rental taxes. Amends AS 43.52.050(a) by adding language clarifying that vehicle rental platform companies and other companies that arrange vehicle rentals and leases shall collect the existing state vehicle rental tax and remit the tax to the Department of Revenue. Adds language requiring vehicle rental platforms collecting the vehicle rental tax to pay the tax quarterly. Section 4  AS 43.52.050. Liability for payment of vehicle rental taxes. Amends AS 43.52.050 by: • Creating a new subsection (c) requiring a vehicle rental platform that arranged or executed more than 200 transactions in the state in the preceding calendar year to collect and pay to the department the taxes imposed under AS 43.52.010 43.52.099; • Creating a new subsection (d) clarifying that a vehicle rental platform company is not liable for failing to collect or pay the vehicle rental tax if they were provided with incorrect or insufficient information. The company must demonstrate that a reasonable effort was made to obtain the correct or sufficient information from the person; and • Adding a new section (e) defining "motor vehicle," "vehicle rental platform," and "vehicle rental platform company." Section 5  Uncodified law assessment and collection limitation The Department of Revenue may not, on or after the effective date of this Act, assess and collect vehicle rental taxes that were imposed before the effective date of this Act on a transaction arranged or executed through a vehicle rental platform. If the tax is not assessed and collected before the effective date of this Act, proceedings may not be instituted in court for the assessment or collection of the tax. Section 6  Effective Date This Act takes effect immediately. 1:09:17 PM CHAIR MCCABE invited questions from committee members. 1:09:30 PM REPRESENTATIVE C. JOHNSON asked whether providers for private individuals have paid taxes and, if so, whether they received a rebate on those taxes. SENATOR CLAMAN responded that individuals online could best speak to the question. 1:11:02 PM BRANDON SPANOS, Deputy Director, Tax Division, Department of Revenue, answered questions during the hearing on CSSB 127(FIN). He stated that under current statute, tax is owed as soon as a vehicle is rented on any platform whether corporate or individual. He briefly spoke to outstanding assessments in the system for certain of those taxpayers. He said that the way he read the bill, it did not allow relief. He noted that he would check into it. 1:13:00 PM REPRESENTATIVE STUTES brought up the possibility of an accommodation for a credit going forward if consumers had paid previously. MR. SPANOS said he would prefer that to be in statute and that he would not want to overstep his authority. 1:13:35 PM FADIL LIMANI, Deputy Commissioner, Department of Revenue, added that the way that the law reads, the tax is due and on the books; therefore, those who fail to submit their tax returns and file are the ones who are noncompliant. He requested that the Department of Law (DOL) weigh in. 1:14:34 PM REPRESENTATIVE SUMNER commented that he read it as having no provisions for rebates. Those who owe the tax would still owe, but the department could not take action and collect, he opined. 1:15:05 PM REPRESENTATIVE STUTES expressed that it made her uncomfortable treating people differently and maybe the legislation needed to be amended. 1:15:27 PM CHAIR MCCABE said he was interested in Section 5 because it protected Alaskans. He asked how many have followed the law and done their due diligence. He noted forgiving a group of people who did not pay their taxes versus those who figured out a way to pay them and asked, "How much money are we talking about?" MR. SPANOS replied that an analysis had been done and he would get back to the committee with the number. 1:18:21 PM REPRESENTATIVE SUMNER asked whether the department garnished bank accounts for owed tax. MR. SPANOS offered his belief that was last year or the year before when bank accounts were levied. 1:19:07 PM REPRESENTATIVE VANCE opined that the basic structure of the Turo platform is that "regular people" make their vehicle available for rental. She asked about the number of rentals it takes to have it be referred to as a business enterprise. MR. LIMANI replied that there would be a slide that would address the Internal Revenue Service (IRS) requirements. 1:21:44 PM MR. LIMANI began a PowerPoint, titled "SB 127" [hard copy included in the committee packet]. He proceeded to slide 3, titled "SB 127 Objective," where he drew attention to the two provisions on the bottom of the slide. Slide 3 read as follows [original punctuation provided]: • The intent of this legislation is to move the responsibility for collecting and remitting tax from the individual owners to the vehicle rental platform company if the lease or rental was arranged or executed through a platform. • The proposed legislation does not impose a new tax. • The legislation provides for a streamlined process for the Department of Revenue in collecting the peer- to-peer rental tax. AS 43.52.010: "There is imposed an excise tax on the charge for the lease or rental of a passenger vehicle in this state if the lease or rental of the passenger vehicle does not exceed a period of 90 consecutive days." AS 43.52.050: taxes "shall be collected and p MR. LIMANI briefly showed slide 4, titled "SB 127 Bottom Line," which read as follows [original punctuation provided]: • The tax burden already exists AS 43.52.010 • This bill compels the vehicle rental platforms to collect and remit the tax on behalf of vehicle owners MR. LIMANI expounded on the points on slide 5, titled "SB 127 - Background," which read as follows [original punctuation provided]: • Alaska levies an excise tax on fees and costs charged for the lease or rental of a passenger or recreational vehicle if the lease or rental does not exceed a period of 90 consecutive days. • The person working for the rental/lease agency that provides the leased or rental vehicle collects the tax from the individual renting or leasing the vehicle. The rental/lease agency in turn remits the tax to the Department of Revenue's Tax Division. For passenger vehicles, the rate is 10% of the total fees and costs for renting or leasing. For recreational vehicles, the rate is 3% of the total fees and costs for renting or leasing. • Vehicle rental/lease agencies file tax returns and remit taxes quarterly. 1:24:39 PM MR. LIMANI went over the provisions on slide 6, titled "SB 127 - Senate Finance Committee Substitute Changes," which read as follows [original punctuation provided]: The CS in Senate Finance made two changes to the bill: • Establishes a separate tax rate of 8% (in place of the current 10%) for passenger vehicles rented through a vehicle rental platform. • Does not allow retroactive assessment and collection of tax on transactions arranged through a vehicle rental platform prior to the effective date of the bill. The prior version of the bill allowed for a six- month assessment and collection window. MR. LIMANI continued to slide 7, titled "SB 127 - Legislative History," which highlighted the history of the vehicle rental tax from 2003 to 2020. 1:26:49 PM MR. LIMANI moved to slide 8, titled "SB 127 - Legal Framework," which read as follows [original punctuation provided]: AS 43.52.010: "There is imposed an excise tax on the charge for the lease or rental of a passenger vehicle in this state if the lease or rental of the passenger vehicle does not exceed a period of 90 consecutive days." AS 43.52.050: taxes "shall be collected and paid to the department by the person who provides the leased or rented vehicle." AS 44.23.020(b)(2): "The attorney general shall?(2) bring, prosecute, and defend all necessary and proper actions in the name of the state for the collection of revenue." AS 44.25.020(1) & (2): "The Department of Revenue shall (1) enforce the tax laws of the state; (2) collect, account for, have custody of, invest, and manage all state funds and all revenues of the state [with certain exceptions like the permanent fund]." • Dick Fischer Development No. 2 Inc. v. DOA, superior court case: Neither a commissioner nor any other state official has the authority to deprive the state treasury of public monies unless authorized by law. MR. LIMANI proceeded to slide 9, titled "SB 127 - New IRS Regulation on 1099-K," which read as follows [original punctuation provided]: • As part of the American Rescue Plan Act of 2021, the threshold for reporting on third party network transaction (Form 1099-K) was reduced to $600, regardless of the number of transactions. • On November 2023, the IRS announced delay in form 1099-K reporting threshold for third party transaction platforms. • Phase-in to implementation • For Tax Year 2024, threshold of $5,000 • For Tax Year 2025, threshold of $600 • In recent years including Tax Year 2023, the threshold for reporting on third party network transactions (Form 1099-K) when payments totaled more than $20,000 and more than 200 transactions. 1:29:46 PM MR. LIMANI concluded on slide 10, titled "SB 127 - Fiscal Impacts," which read as follows [original punctuation provided]: • The Department of Revenue has collected an average of $10.7 million per year in vehicle rental taxes over the past four years. • The proposed legislation would capture unreported vehicle rentals that are arranged or executed through a vehicle rental platform and, therefore, would have a positive effect on revenue. • The Department of Revenue currently does not have enough data on peer-to-peer rental information in Alaska to provide for an estimative revenue impact. • Currently the Department of Revenue has approximately $470K in delinquent accounts spread across 25 taxpayers. 1:31:19 PM REPRESENTATIVE VANCE inquired how the department reaches compliance and collects taxes if it does not have an idea of how many people use these platforms. MR. LIMANI opined that would be with the passage of the bill. REPRESENTATIVE VANCE asked whether the platform itself automatically collects a tax on behalf of the rental owner. MR. LIMANI replied that with the passage of the bill, yes, the host would be able to identify and gather that information and report it to the Department of Revenue (DOR). 1:32:57 PM SENATOR CLAMAN added that Turo does not own vehicles and, for example, if someone rented a car in Anchorage there would be a line for the Anchorage tax but not the state tax. The proposed law would require Turo to add this to the "invoice" at the time of rental. 1:34:20 PM REPRESENTATIVE MCKAY said he supported the bill and opined it was a good solution; however, if he had paid taxes and someone else did not, he would be upset. In the name of fairness and credibility that part of the situation must be addressed. SENATOR CLAMAN inserted that he felt it was acceptable to hold the bill for amendment language instead of moving it forward today. 1:36:29 PM REPRESENTATIVE SUMNER expressed his uncertainty and that there may be a horizontal equity issue. MR. LIMANI explained certain legal implications and that the state and department would be exposed not only from this program but from others. 1:38:41 PM CHAIR MCCABE asked for the committee's indulgence in moving the bill forward. REPRESENTATIVE MCKAY said he supported moving the bill forward. REPRESENTATIVE STUTES commented that the maker of the bill could help the committee through it and "fine tune" it if it were moved. REPRESENTATIVE MINA expressed curiosity about other states' discrepancies and Turo owners regarding rebates. 1:41:01 PM SENATOR CLAMAN replied that his staff had not looked into the question. 1:41:10 PM REPRESENTATIVE SUMNER offered his belief that another thing to consider was retroactive rebate language. CHAIR MCCABE said that he was concerned with secondary effects and consequences across the board, and perhaps it was best to find a path forward that protects Alaskans. 1:42:48 PM SENATOR CLAMAN noted there was a finance referral on the bill. 1:43:08 PM CHAIR MCCABE addressed Mr. Limani in requesting a "tightly defined paragraph" on how he thought trying to fix the issue would affect DOR and the Tax Division in the long term. MR. LIMANI said he could provide the information to the committee. 1:43:48 PM CHAIR MCCABE noted that there are other testifiers. 1:44:08 PM KYNDELL GAGLIO, Government Relations, Turo, gave invited testimony in support of CSSB 127(FIN) and stated that Turo's mission was to put cars to better use and clarified that Turo owns no vehicles. The "hosts" earn extra income by sharing vehicles with visitors and locals, and she gave examples of the communities that participate. She noted 20 percent of Alaska community members using car shares are military members. She expressed her encouragement toward the most recent version of the bill that removed the threat of retroactivity and established a tax. She thanked the committee for its effort on a reasonable and fair solution. 1:46:54 PM CARRIGAN GRIGSBY, Executive Vice President, Avis Alaska, gave invited testimony in support of CSSB 127(FIN). He gave a history of Avis Alaska, its current employees and fleet, and noted it was partially employee-owned. He spoke to the percentage of tax for car sharing versus rental and that he was in support of that; however, he wished to address earlier comments about rebating. He stressed that it would cause a huge problem and an "administrative nightmare." He thanked Senator Claman and his staff and said he looked forward to the passage of CSSB 127(FIN). 1:50:43 PM CHAIR MCCABE thanked invited testifiers and noted that there may be room for a separate bill. He opened public testimony on CSSB 127(FIN). 1:51:56 PM CLAIRE HOLLAND, representing self, noted that she was a member of the Chugach State Park Citizen Advisory Board, which previously sent a letter to the House Transportation Standing Committee outlining its support for SB 127 and wish to increase the state's vehicle rental tax and thereby increase the available funding for maintenance and operation of Alaska's state park system. She opined that SB 127 would make sure that the state collects all tourism tax dollars to help maintain Alaska's state park system. Additionally, adequately staffing state parks and providing funding for basic needs is necessary for the continued enjoyment of the parks and to grow the state's tourism. 1:53:56 PM REPRESENTATIVE VANCE clarified that the use of funds is traditional because the state cannot have dedicated funds. It is not a hard and fast law due to this, she said. 1:54:28 PM CHAIR MCCABE, after ascertaining no one else wished to testify, closed public testimony on CSSB 127(FIN). 1:54:58 PM SENATOR CLAMAN gave final comments. He said in light of comments made, the issue of taxes owed should be addressed with great caution and as suggested, should be looked at in the future but not as part of the current bill. 1:56:46 PM CHAIR MCCABE commented that it was about time to fix the problem. 1:57:06 PM REPRESENTATIVE VANCE noted the presence of an attorney, and she expressed that it gave her more comfort that the bill would go to the House Finance Committee, which could put some of the issues to rest. SENTATOR CLAMAN commented that the discussion about the challenge of collecting taxes is not easy, nor is finding someone who wants to take such a case. 1:59:05 PM REPRESENTATIVE SUMNER pointed out that it was the renter who paid the tax, and he was opposed to "rebating back." MR. LIMANI expressed to the committee that the cautionary measures on being able to put anything in statute could expose the state to other liabilities and create an opportunity for rental car companies to sue the state. He advised the committee to tread lightly on the area of tax liability. 2:00:56 PM REPRESENTATIVE VANCE stated she wanted the conversation to be well established such that it was clear the committee did not want to put the state in any position of liability but to do what's best for Alaskans and all parties involved. REPRESENTATIVE MCKAY spoke of his constituents and said that if the state were put in a precarious situation, it would be a concern for him. 2:01:36 PM REPRESENTATIVE VANCE moved to report CSSB 127(FIN) out of committee with individual recommendations and the accompanying fiscal notes. There being no objection, CSSB 127(FIN) was reported out of the House Transportation Standing Committee.