CS FOR SENATE BILL NO. 178(FIN) "An Act relating to the passenger and recreational vehicle rental taxes; and providing for an effective date." 8:38:21 AM BRITTANY HUTCHINSON, STAFF, SENATOR BISHOP, offered a brief overview of the bill. 8:40:59 AM Co-Chair Stoltze asked where the bulk of the rental tax monies had been spent to date. Ms. Hutchinson replied that she did not know. 8:41:14 AM Co-Chair Stoltze asserted that the funds was one that had been preyed upon by many interests. Co-Chair Austerman discussed Page 1, line 5: Sec. 43.52.010. Levy of passenger and recreational  vehicle rental tax.  Co-Chair Austerman understood that a person could fly to Anchorage and rent a recreation vehicle for 30 days without being subject to the rental tax. Ms. Hutchinson replied in the affirmative. Co-Chair Austerman surmised that the objective of the bill was to exempt recreational vehicles from the tax. Ms. Hutchinson replied that the main objective had been to exempt passenger vehicles but that drafters had thought that in order to better organize the statute recreational vehicles should be included. Co-Chair Austerman asserted that the addition of the recreational vehicles created a stumbling block and muddied the intent. 8:43:27 AM Representative Wilson expressed her concern that the bill would result in a loss of revenue. Ms. Hutchinson responded that the Department of Revenue (DOR), which had prepared the fiscal note, had noted a minimal loss of revenue. Co-Chair Stoltze asked for a projection of the range of revenue loss. Representative Wilson noted that the regulation had just been changed, which had seemed to have cleared up any misinterpretation of the statute. She maintained her concern that if the bill passed the revenue loss to the state would be significant. 8:45:35 AM AT EASE 8:45:55 AM RECONVENED JANE PIERSON, STAFF, REPRESENTATIVE STEVE THOMPSON, thought that the committee would have a greater understanding as to why the bill existed if they listened to some public and invited testimony. She said that she had worked for months with the department in trying to craft and agreeable bill. Co-Chair Stoltze agreed. Co-Chair Stoltze OPENED public testimony. 8:48:12 AM SAM ROBERT BRICE, BRICE COMPANIES, FAIRBANKS (via teleconference), testified in support of the bill. He stated that most of his company's vehicle rental use was on the North Slope by producers and support companies on private roads. He said that his facility was on a public road at the end of the Dalton Highway, but 99 percent of the rental activity of the vehicles was on the private oil field roads. He relayed that often the length of the rental term was unknown. He said that his company's liability went back to 2010, the first year of light vehicle rental, they paid $31,000 as not to incur further penalties. He believed that the bill helped clarify the intent of the statue. He thought that there was more work to be done with DOR so that all parties were clear as to what was applicable to the rental tax. 8:50:47 AM Co-Chair Austerman asked whether the testifier's company rented recreational vehicles. Mr. Brice replied no. Co- Chair Austerman asked whether he had an opinion on recreational vehicles being added to the bill. Mr. Brice shared that his company mainly rented half-ton pick-ups that were used on private roads. 8:51:26 AM Co-Chair Stoltze asked if the recreational vehicles had been added because they are one of two types of vehicles taxed under current law. Ms. Pierson replied yes. She noted that the recreational vehicle rental fee was 3 percent. Representative Costello asked how much back taxes were owed to the state by Mr. Brice. Mr. Brice replied that the amount was not disclosed. All light vehicle rentals rented for less than 90 days would be applicable. He stated that he went back and researched his record in order to come up with the $31,000 of liability, which the company had not collected because they had been unaware that they were expected to collect the tax. 8:52:57 AM Representative Gara asked whether Mr. Brice's business would be effected if the exemption taxed rentals longer than a 40 day period. Mr. Brice replied that the days of rental were not as important as was the interpretation concerning what kind of vehicles met the requirement for vehicles that fell under the tax. He reiterated that often the duration of the vehicle rental was unknown until it was returned to the business. 8:54:10 AM RYAN PETERKIN, MAGTEC ALASKA, KENAI (via teleconference), testified in support of the bill. He noted that he first learned about the tax in 2013 when a criminal investigator from DOR, accompanied by an armed enforcement officer, arrived at his place of business at Prudhoe Bay and informed him that he had been committing an enforceable, criminal crime by not charging the vehicle rental tax. He asserted that the department had not contacted him prior about the tax and that, to that point, he had never known of the tax. He stated if any of the vehicle rental businesses on the slope had been charging the tax it would have major competition between rental companies, which was not the case. He said that he contacted the department in an effort to correctly understand the tax code in order to immediately implement the collection of the tax. He opined that going through the process he found it difficult to deal with the vagueness and lack of clarification from DOR on the exemptions on the tax statute and regulations. He listed several exemptions that needed clarification. 8:59:32 AM Co-Chair Austerman asked if he rented recreational vehicles. Mr. Peterkin replied no. 9:00:08 AM RUDI VONIMHOF, PRESIDENT, DELTA LEASING, ANCHORAGE, testified in support of the legislation. The primary office was located in Prudhoe Bay. He discussed communications with DOR in 2010, which consisted of two letters explaining that he did not feel that the tax applied to his customers for various reasons. He stated that he sent the letters, along with his leases, to the department and received no reply. He relayed that the following interaction with DOR included a raid by armed enforcement agents who confiscated 70 cases of paper files and company computers. He stated that his company remained under investigation for nonpayment of the vehicle rental tax. He stated that his company cooperated with the department. He paid all back- taxes even though they were never collected. He asserted that no other equipment vendors on the slope had collected the tax and he wished to clarify the issue with the department. He believed that there was a disagreement on whether Prudhoe Bay roads were considered public right-of- way. He pointed out the negative impact on his business and thought that the language in the bill would clarify the exemptions. 9:09:59 AM Co-Chair Austerman asked if he rented recreation vehicles. Mr. Vonimhof replied no. Representative Costello asked the amount he owed in back taxes. Mr. Vonimhof replied no. She stated that he wrote a check in December 2012 for $13 thousand for three years of pervious taxes that could potentially be applicable. 9:12:27 AM DOUG JOHNSON, CFO, TYLER RENTAL (via teleconference), testified in support of the bill. He stated that the rental contracts were exempt from the current law because the vehicles were never driven on the state highway. He asserted that he had never received notice of the tax. He shared that he had paid the tax with a protest. He hoped that when the department responded back the issue would simply be an audit issue. He did not believe that the department should go after private companies. He thought that the 28 days should remain in the legislation. He relayed that he did not advertise to the tourist trade and did not rent recreational vehicles. 9:16:08 AM Co-Chair Stoltze CLOSED public testimony. ANGELA RODELL, COMMISSIONER, DEPARTMENT OF REVENUE, believed the bill recognized that taxes were to be applied fairly and equitably and without discrimination. She said that discussing the tax meant talking about the definitions of: what is a passenger vehicle rental, what is a truck (if done by weight), what is a sports utility vehicle (if done by mileage) how will rentals in small communities be effected, rental terms, and private roads versus public. She believed that the current version of the bill was the fairest and most complete that had been drafted. She relayed that the department was unsure of the impact the legislation would have on the state, but felt it would be minimal. 9:19:36 AM MICHAEL BARBER, ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF LAW, commented on the first two sentences of the letter of intent drafted by the sponsor: It is the intent of the Senate Finance Committee that the passenger vehicle rental tax described in SB 178, including the original law and the changes made by the committee substitute, should not be applied to Alaskan businesses doing business with other Alaskan businesses. The Department of Revenue (DOR) should not apply the tax retroactively to businesses it determines should be, or should have been, collecting the tax. However, if DOR is able to determine a business collected the tax but did not remit the tax to DOR, then DOR should charge back taxes, penalties and/or interest on those unpaid taxes. Mr. Barber explained that the first sentence suggested that Alaskan businesses in general were exempt from the tax, which was not the case. He clarified that there was not express exemption in current statute for Alaskan businesses, and while Alaskan businesses were the primary beneficiaries of the changes proposed in the bill, the legislation would not create an exemption for Alaskan businesses. He stated that if the intent was to exempt all Alaskan businesses then it needed to be written into the bill; however, he expressed serious concern that such an action would violate the Dormant Commerce Clause of the United States Constitution. Co-Chair Stoltze asked whether the letter had been adopted by the Senate. He noted that it appeared informal as it was not on letterhead, which was unusual. Mr. Barber understood that the letter had been attached to the bill that was moved out of the Senate. Representative Holmes asked whether the letter of intent was attached to the bill that had passed on the Senate Floor. Mr. Barber replied in the affirmative. Co-Chair Stoltze requested the record and the journal minutes pertaining to the meeting where the bill was passed. 9:23:12 AM Representative Wilson asked if by changing the number of rental days to 28, the original intent of the bill would be honored. Commissioner Rodell responded yes. Representative Wilson asked if the lease went to a month- to-month, rather than yearly, would the tax problem be solved. Commissioner Rodell replied that the bill did not change the time range of the rentals, but that the department had begun making changes including extensions of the original contracts would be included in the time period of the original contract. She said that the process had stopped while the bill was in motion because it referenced the 90 days in the original legislation. She said that if the bill were to pass the regulations would be amended to reflect that any extensions of an original contract would be included in the contract period for counting vehicle rental tax exemptions. 9:25:01 AM Co-Chair Austerman understood that if a recreational vehicle was rented for more than 28 days then the tax would not be implemented. He surmised that the objective of the bill was to not impose the tax on businesses on the North Slope that did not frequently use public roads. He maintained confusion as to why recreational vehicles were included in the legislation. Commissioner Rodell believed that the recreation vehicle exemption already applied to the 90 days, so it was rolled into the new exemption in order to avoid creating two separate exemptions. She said that this created an administrative ease for DOR in terms of application. Co-Chair Austerman understood that it would apply to a vehicle rented at an airport that was driven for 28 days. Commissioner Rodell replied yes. Co-Chair Austerman said that the issue made it difficult for him to support the bill. 9:27:28 AM Representative Gara asked whether Mr. Barber was prepared to speak to the possibility that the letter of intent could unconstitutional in discriminating against non-Alaskan businesses. Mr. Barber clarified that not all Alaska businesses were exempt from the tax, but had to meet exemptions currently in statute. He said that an exemption for Alaskan businesses would be facially discriminatory against interstate commerce and would be subject to a high level of scrutiny. He believed that the letter of intent would not be applied unconstitutionally. Representative Gara surmised that passing the letter would not open the door for the bill to be attacked on constitutional grounds. Mr. Barber suggested that clarifying the letter of intent would be beneficial before the bill's passage. 9:29:48 AM Representative Munoz discussed the 10 percent charge on passenger vehicles and the 3 percent charge on recreational vehicles. She wondered what the overall revenue was for the two taxes. Commissioner Rodell replied that the total tax revenue was approximately $8 million for FY13. Representative Munoz asked if most of the revenue was from recreational vehicles. Commissioner Rodell replied that she did not know. 9:30:30 AM Representative Munoz asked whether removing references in the code to the passenger tax had been considered. Commissioner Rodell replied no. She said that different ways of more narrowly defining a passenger vehicle had been discussed, but that the issue quickly became complicated. Representative Munoz thought that the confusion surrounded the utility vehicles and those used on the North Slope. She thought that if reference from the passenger vehicle tax could be removed in statute it would speak to the original intent of the tax. Co-Chair Stoltze thought that the department could look to the hospitality industry for ways to set clearly demarcated taxes. He requested further background from the department concerning the collection of the tax. 9:32:57 AM Commissioner Rodell replied that the department would enforce the statutes as drafted. She stated that when the department received information that individuals or companies were not in compliance, investigation and auditing was necessary. She stated that the mission of the Department of Revenue was to collect taxes. She asserted that businesses owners were responsible for knowing the laws that governed the business. She felt that there had been confusion regarding the tax passed in 2004. 9:35:20 AM Co-Chair Austerman believed that the intention was to save businesses money on certain things. He asked about simply implementing an exemption strictly for oil or gas development. Commissioner Rodell replied no. She noted that the department was relying on rental companies to collect the tax on behalf of the state; the taxpayer was the individual or company renting the vehicle. She asserted that it was important to recognize the impositions that would be placed on companies to guarantee that the audit was being collected correctly. 9:36:54 AM Co-Chair Stoltze asked for emails and notifications letters that had been sent to companies in 2003 and 2004 for the public record. Commissioner Rodell agreed to provide the information. CSSB 178(FIN) was HEARD and HELD in committee for further consideration. 9:38:01 AM AT EASE 9:40:03 AM RECONVENED