SENATE BILL NO. 127 "An Act relating to vehicle rental taxes; relating to the issuance of subpoenas related to tax records; and providing for an effective date." 9:36:12 AM Co-Chair Olson relayed that the committee heard SB 127 had been heard twice in committee in January. Amendments from the committee had been incorporated into a Committee Substitute (CS). Senator Bishop MOVED to ADOPT proposed committee substitute for SB 127, Work Draft 33-LS0635\R (2/21/24, Nauman). Co-Chair Olson OBJECTED for discussion. 9:36:56 AM KEN ALPER, STAFF TO CO-CHAIR OLSON, discussed the changes to the bill. He relayed that the CS made two changes from the prior bill, Version U. The first change would bifurcate the tax section (AS 40.352.020) and created a separate tax rate of 8 percent for passenger vehicle rentals through a network platform, as opposed to the 10 percent tax that remained in place on traditional vehicle rentals. The second change was in the uncodified section and prevent the authorization of the Department of Revenue to go back in time and look for rentals before the effective date of the bill. He explained that on rental platforms there was no window to try to collect back taxes before the effective date. The original version of the bill gave a six-month window for looking back at potential past tax obligations. Co-Chair Olson WITHDREW his OBJECTION. There being NO further OBJECTION, it was so ordered. 9:38:58 AM SENATOR MATT CLAMAN, SPONSOR, explained that he fully supported the CS, which represented a fairly detailed and complex negotiations between Turo and the brick and mortar car rental companies including Avis and Enterprise. He relayed that representatives from Avis and Turo were available for questions. Co-Chair Olson asked about whether Avis supported the CS. 9:40:13 AM CARRIGAN GRIGSBY, EXECUTIVE VICE PRESIDENT, AVIS ALASKA (via teleconference), reiterated that there had been ongoing discussion. He relayed that Avis Alaska was in support of the CS. 9:40:46 AM SEAN VINCK, ASSOCIATE GENERAL COUNSEL, TURO, INC. (via teleconference), echoed earlier comments and relayed that Turo was in support of the CS, which reflected detailed and lengthy negotiations between the respective parties. He thanked the sponsor and stakeholder for work on the bill. 9:41:33 AM Co-Chair Stedman MOVED Amendment 1. Co-Chair Olson OBJECTED for discussion. Co-Chair Stedman spoke to Amendment 1, which dealt with the unprecedented geographical dispersion of residents around the state. The amendment also took into consideration the coastal communities that would be facing difficult economic times due to hardships in the fishing industry. The amendment proposed to suspend the vehicle rental tax from October 1 through March 31. He shared that initially the intent was to suspend the tax for Alaskans during the given time period, but that had not been possible. He noted that the intent of the amendment was to recognize that many Alaskans had to travel through metropolitan areas and had to rent cars. Co-Chair Stedman discussed reasons for residents to travel to Anchorage, Fairbanks, and Juneau. He mentioned large gatherings such as the Alaska Federation of Natives, and the Alaska Municipal League. He expressed concern about significant costs to the people of rural Alaska. He understood that the amendment would decrease the earnings of the vehicle rental tax by about 25 percent, but did not think it would turn the economics of the state upside-down. 9:44:37 AM DAVID SCOTT, STAFF TO CO-CHAIR STEDMAN, relayed that he was present to answer questions on the mechanics of the amendment. He acknowledged that he knew a lot of people from rural areas that travelled to Juneau, Anchorage, and Fairbanks. The amendment aimed to make the travel a little easier. Co-Chair Olson asked if Mr. Scott's family was involved in air transportation in Ketchikan. Mr. Scott answered affirmatively and noted his family had been involved in air transportation for a long time but no longer was. 9:45:30 AM Senator Wilson wondered how the tax would be implemented. He referenced Section 4, and asked if people with less than 200 transactions would not pay tax. He wondered if the tax would affect larger businesses. Mr. Scott noted that the CS discussed the "rate" of the vehicle rental tax, the amendment discussed the levy. Under the amendment, there would no longer be a levy from October 1 to March 1. Senator Wilson thought the underlying issue of the bill was to try and get some of the used car sales businesses that were renting out fleets of cars to be able to pay a fair share of tax like their competitors. He wanted to ensure that the smaller mom and pop type businesses were not adversely affected. He shared concern that there could be an unfair advantage given to larger companies. Mr. Scott noted that the tax would not be levied during the winter months. The rate agreed upon in the CS would all be suspended from October 1 to March 31. Senator Kiehl pondered that the areas where there was significant winter tourism. He mentioned high-wealth individuals visiting Haines for heliskiing. He had heard that Fairbanks hotels had the same pricing in the winter as in the summer, and mentioned international travelers that came to see the northern lights. He asked whether the winter visitors would not pay any rental car tax. Mr. Scott affirmed that the amendment proposed that individuals would not pay car rental tax from October through March. He pointed out that during the six months proposed in the bill, the tax collected comprised 25 percent of the total, while the summer months collected 75 percent of the total. Co-Chair Stedman thought that another way to think of the proposed amendment was as an economic stimulus to attract people to the state in the winter. Senator Kiehl considered the budgetary implications and mentioned there was a lot of support for the underlying bill, including from the state parks. He thought about half the states Division of Parks and Outdoor Recreations budget came from the vehicle rental tax. He asked if there was a plan to replace the funds if the vehicle rental tax was reduced by about 25 percent. Co-Chair Stedman relayed that when there were revenue shortfalls, it fell to the General Fund. He pointed out that that the vehicle rental tax was just a fund source for the budget, and the state did not have dedicated taxes. The funds were targeted as a revenue source but for all practical purposes the money was fungible and could go anywhere. Senator Kiehl appreciated Co-Chair Stedman's responses. He considered that the committee worked of the committee as if the state could use additional revenue sources rather than fewer. He mentioned that another way the state funded state parks was through receipts, and noted that the biggest part was commercial users. He noted that half the commercial users of parks was in Ketchikan. He prosed that if the amendment diluted the rental tax, it would just shift the revenue burden elsewhere. He appreciated the intent of the amendment, but did not know if he could support it. Co-Chair Stedman pondered the current vehicle rental tax versus what the collection would be with the proposed amendment. 9:50:49 AM FADIL LIMANI, DEPUTY COMMISSIONER, DEPARTMENT OF REVENUE (via teleconference), relayed that the department had not had an opportunity to closely look at the amendment. He relayed that he could speak to the vehicle tax revenues being collected for the current year and the projected revenues from the fall forecast. He noted that the baseline vehicle rental tax ranged from about $15.1 million for FY 24 to $18.9 million for FY 33. He estimated that assuming a status quo with collections from April through September, the revenue to the state would be about $11.2 million to $14 million. He estimated that the impact of suspending collection for half the year from October through March negative $3.9 million for FY 24 and negative $4.9 million for FY 33. Co-Chair Olson understood that the state would losing money if the amendment were to pass. Mr. Limani answered affirmatively. He added that there would be an additional administrative burden associated with a seasonal tax. He mentioned an uptick in tourism in certain parts of the state, including the Fairbanks area. He thought the larger share of the revenues came from out of state visitors. Co-Chair Stedman asserted that it was not possible to lose revenue that was never collected. He asked about a book with a list of all the state taxes collected. He asked about the revenue for the last fiscal year for the Vehicle Rental Tax. Mr. Limani relayed that for FY 23, the total amount collected was $15.1 million. Co-Chair Stedman asked about the estimated amount collected under the CS with the adopted amendment. Mr. Limani relayed that assuming for FY 23, the estimated tax that would be collected if the amendment were passed would have been $11.3 million. Co-Chair Stedman asked about the projected revenues for FY 24 if the amendment were to pass. Mr. Limani relayed that the department estimated a forecast amount for FY 24 of $15.1 million. If the amendment was in place, the amount collected would be $11.2 million. Co-Chair Stedman thought the FY 23 amount collected was $15 million. He asked why the bill was being adopted if the amount would be the same after its passage. Mr. Limani asked Co-Chair Stedman to clarify his question. Co-Chair Stedman understood that the state collected $15 million in vehicle rental taxes the previous fiscal year and thought that Mr. Limani indicated the state would collect the same amount after the passage of the bill. He asked why the legislature would adopt the bill if it was looking at collecting the same amount of revenue. Mr. Limani relayed that the department had not contemplated the CS into the revenue projections. Based on the status quo of the existing vehicle rental tax, DOR expected $15.1 million for FY 24. He continued that assuming there was a suspension of the tax from October through March as proposed in the amendment, the revenue was estimated to $11.2 million. 9:56:58 AM AT EASE 9:57:19 AM RECONVENED Co-Chair Olson relayed that the committee would continue consideration of the amendment in the afternoon committee meeting. SB 127 was HEARD and HELD in committee for further consideration.