HOUSE BILL NO. 102 "An Act relating to rental vehicles; relating to vehicle rental networks; relating to liability for vehicle rental taxes; and providing for an effective date." 1:45:33 PM REPRESENTATIVE ADAM WOOL, BILL SPONSOR, introduced himself and his staff. He indicated HB 102 was essentially a vehicle rental bill. He provided an overview of the bill which applied to peer-to-peer car rental companies. The largest company, Turo, operated in Alaska. The service was similar to Airbnb where someone rented out rooms in their private home much like a hotel. Customers paid for a room via a phone application. The home owner received payment for the room rental and Airbnb received a portion of the money. The same business model applied to car rentals and Turo. If someone wanted to rent their private vehicle out it would be done through a phone application. The business model was called car sharing where a financial exchange occurred. He liked to refer to the exchange as a rental. Alaska's state law applied a vehicle rental tax of 10 percent. Everyone paid a rental tax when they rented a vehicle. He explained that peer-to-peer companies were liable for the tax. The state had been trying to obtain the tax money from the industry. When a person rented from Avis or Hertz they had to pay a tax. Through Turo a person did not pay the tax. The rental company and the State of Alaska would like to have the entities pay the vehicle rental tax. House Bill 102 would define the vehicle rental tax as it applied to peer-to-peer businesses. It would also have the corporation pay the tax to the State of Alaska instead of the renter or owner of the vehicle. The idea of the bill was to have the application companies, like Turo, be responsible for paying the state. He mentioned a lawsuit between the State of Alaska and Turo because it was difficult to know who the owners of the vehicles were. He noted that the same kind of thing applied to cigarette tax. A person could avoid paying taxes by ordering cigarettes online. However, it was against state law. The state had targeted buyers of cigarettes going after them for cigarette taxes. Instead of the State of Alaska looking to collect taxes from owners of cars (700 owners of cars operated with Turo), the bill would require Turo to pay the taxes. He noted an article in the Anchorage Daily News and the Fairbanks paper that listed Alaska as one of the states pursuing a vehicle rental tax. The bill would not raise or lower the tax. Rather, if a person were to rent a vehicle through Turo, similar to Avis or Hertz, the company would have to pay the vehicle tax. 1:50:20 PM Vice-Chair Johnston asked how taxes were handled through Airbnb and VBRO. Representative Wool explained that Alaska did not have a statewide hotel tax. It was governed by municipalities. He was aware that in Fairbanks the owners paid the taxes. He could not speak for other municipalities. Vice-Chair Johnston asked if Turo had a fleet of cars. Representative Wool explained that Turo did not have vehicles. The company was a technology platform. There were some people that had multiple cars they rented out. He had a friend that had a third car that she only rented out. Representative Merrick read a portion of an opposition letter from Turo: "We urge you to consider holding this legislation until it can be worked on in a structured reasonable way with the most important stakeholders at the table." Representative Merrick asked if Turo had been at the table regarding the bill. Representative Wool responded that Turo had testified in another committee. The company had flown some of their representatives from California, and some of their legal people were on the phone. They had indicated they wanted to work with the legislature to craft a bill. He interpreted their attitude as wanting a rate lower than 10 percent. He was not addressing the vehicle rental tax in Alaska, nor was he trying to do a carve-out specifically for Turo or other companies relating to the business. He asserted he just wanted to see the people renting a car through Turo paying the same 10 percent tax as people who rented cars elsewhere. Representative Sullivan-Leonard asked whether a vehicle owner working under the umbrella of Turo would be required to have a limited liability corporation (LLC), a business license or any type of license to rent out their vehicle. Representative Wool did not write any legislation that allowed peer-to-peer car rental to operate in Alaska. He was certain an LLC was not necessary. He did not believe business licensing was required. 1:54:08 PM ASHLEY STRAUCH, STAFF, REPRESENTATIVE ADAM WOOL, responded that a person did not have to have a business license to register with Turo. A person could simply sign up for the app as a car sharer which allowed someone to be able rent their vehicle. Representative Sullivan-Leonard thought it looked like it was an opportunity for a small business type entity to fill a niche where vehicles might not be available. She asked about the price variation between a rental car agency and Turo Ms. Strauch responded there was a significant amount of price variation in rental vehicles through traditional outlets. For example, if a person were to try to get online to Enterprise Car Rental to try to rent a vehicle, it might be between $12 per day to greater than $100 per day depending on the type of vehicle a person was renting, the duration of the rental, and other factors. Generally, the prices a person would find on such a platform as Turo would be lower per day than the prices found through traditional car rental platforms. Representative Sullivan-Leonard asked if the reason for the price difference was because traditional car rental companies had full fleets for people to choose from as opposed to an individual who might only have one or two vehicles available. Ms. Strauch relayed that someone from Enterprise Car Rental was available online to answer the representative's question. Co-Chair Wilson remarked that hopefully some of the questions could be answered during the public testimony portion of the bill. Representative Wool commented that in the bill's previous committee there had been a caller from Anchorage that had used Turo to rent his Jeep. He had a 4-wheel drive Jeep that was good on certain kinds of roads. He placed it on Turo. The charge was $50 or $60 per day for his car to be rented. The representative did not find the amount particularly inexpensive. He thought it depended upon the individual and the vehicle. He commented that the article in the Anchorage Daily News reported that a guy that had a BMW sportscar rented it out through Turo and managed to pay for it. Representative LeBon wondered that if he wanted to rent a vehicle as an individual but did not want to go through Turo, would he be expected to submit a 10 percent tax for renting the vehicle. Ms. Strauch responded in the affirmative and added it would also include individuals who rented their vehicle through Craigslist, for example. They would still be subject to the tax of 10 percent. However, the tax division did not tend to have the staff to chase down individuals through the other outlets. Representative LeBon asked if the state was currently expecting a remittance of a 10 percent sales tax from individuals if they were renting their own private vehicle, but not through a clearing house. Ms. Strauch responded that they would still be required to pay the tax. However, it would be difficult to enforce. Representative LeBon commented that the state law asked everyone who rented out their car to remit the 10 percent. Ms. Strauch responded, "That is correct." 1:58:24 PM Representative Josephson suggested that to get into the transportation network companies (TNC) the state insisted on some oversight from a regulatory stand point. He wondered if there was anything that prohibited Turo from acting at the outset. He wondered if they were presently acting legally. Representative Wool answered that there was a liability for vehicle rental tax. The person that rented the vehicle paid the tax. The person that owned the car, if they did not collect it from the renter, would have to pay the tax. He noted a lawsuit between the State of Alaska and Turo. The point of the lawsuit was to determine who were the people renting the cars and could the state recover its taxes. The case stemmed from Turo not releasing the needed information to the state. He did not believe Turo was breaking the law by not remitting taxes. The bill would provide the state a vehicle to recover the taxes. He thought the Department of Revenue (DOR) might be able to add to his answer. Representative Josephson asked if there had been an insistence that a law was passed for companies such as Turo to operate, similar to the TNCs. Co-Chair Wilson asked Representative Josephson to define TNC. Representative Josephson responded, "Transportation Network Companies." Representative Wool believed the requirement that TNCs had a state law was put in only after they arrived. There was a discrepancy with the Department of Labor and Workforce Development when TNCs arrived in the City of Anchorage. He did not believe there was a specific statute in place for Turo to operate. Ms. Strauch explained that the state was already considered Turo to be liable to pay the 10 percent vehicle tax. They had already started the process of trying to collect it by asking Turo for information about the number of drivers the company had in Alaska. Co-Chair Wilson asked Mr. Spanos to help with the conversation. She wondered if the state was currently collecting taxes from vehicle rental networks. 2:01:56 PM BRANDON SPANOS, DEPUTY DIRECTOR, TAX DIVISION, DEPARTMENT OF REVENUE (via teleconference), restated Co-Chair Wilson's question. He responded in the affirmative. The statute was very broad and stated that a renting of a vehicle within the state boundaries was a taxable event - a 10 percent tax. The state already considered in the current statute that the vehicle rental networks would be subject to the tax. It specified that the individual making the vehicle available for rent was the tax payer. For example, if an owner of a vehicle made it available on Craigslist, they would be responsible. In the past, the division had gone after the individuals, particularly people who had rented out their RV for the entire summer. There had been appeals that had gone to the courts, and the courts had determined that they were taxable events requiring the owners to pay the tax. In the case where there was a peer-to-peer network, there was a veil over the identity of the owner of a vehicle. The division did not have the ability to determine the owners of the vehicles. The vehicle rental was subject to tax, but it was difficult to enforce a tax without the ability to determine the vehicle owner. 2:03:23 PM Co-Chair Wilson asked for a better understanding between a peer-to-peer platform and the TNCs. She thought it sounded as if it was already illegal not to pay the taxes. Mr. Spanos relayed that the administration was neutral on the bill. He reported that currently if someone listed on a peer-to-peer network the transaction was taxable. However, the individual owner of the vehicle was subject to the tax. Therefore, the peer-to-peer online service, while they had the information identifying the owner of the vehicle, they were not breaking the law by not remitting a tax. The statute currently did not state that the network providing the service would collect and remit the tax - it stated the owner of the vehicle would collect and remit the tax. The individual should be remitting the tax. The division researched many of the websites, most of which state that the onus for the tax was on the owner and they needed to know and follow the law. One of the peer-to-peer networks testified in a previous committee that they were a business and had insurance on the vehicles that was made available when a rental occurred. They also took a percentage of the rental in the transaction. If the bill were to pass, there would be another line item where a tax would be charged to the renter. The peer-to-peer network would collect and remit the tax to the state. Co-Chair Wilson thought it would be good to have the Department of Law present at the next hearing. Representative Josephson asked if peer-to-peer network companies could exist legally in Alaska. Representative Wool reported that peer-to-peer networks could operate in Alaska. They did not require a specific statute. Ride sharing companies, Uber and Lyft, came to Anchorage and operated before a statute was established. However, there was an issue with the municipality, and they were kicked out. The Department of Labor and Workforce Development issued a statement requiring a change in statute for them to return to Alaska. It prompted the TNC statute that was currently in place. He relayed that part of the ride sharing bill included a provision that assessed a local sales tax as a ride sharing customer. The money went to the ride sharing who in turn submitted the corresponding tax payment. He was trying to incorporate the same type of provision for peer-to-peer car rentals in the bill. 2:07:59 PM Representative Knopp spoke about working on the legislation for TNCs. At the time of the debate he and Representative Wool argued for local control to enable local municipalities to collect the tax. He noted that ride sharing involved renting both the driver and the vehicle, whereas, peer-to peer vehicle rentals was limited only to renting a vehicle. He thought it would be much easier to collect the tax from the enterprise company rather than the individual owner of the vehicle. He suggested that the law could simply require peer-to-peer companies to release the names of the participants and let the state collect the taxes from individual owners. He thought the issue was debatable. He spoke of equality between taxi services and TNCs. He was unclear his position on the bill. Representative Merrick asked Representative Wool to confer that the vehicle rental tax went into the state's general fund. Representative Wool believed the vehicle rental tax was designated but not dedicated to certain other funds, but he believed it went into the general fund. Co-Chair Wilson thought the tax went to a designated fund. It was not dedicated and could be used for any purpose. Representative Merrick clarified that Co-Chair Wilson was talking about the rental tax and that it did not go to a dedicated fund. Co-Chair Wilson responded in the affirmative. Representative Merrick asked what the fund was typically used for. She wondered if the funds were used for tourism. Co-Chair Wilson explained that the fund had been used for public safety and roads. The House intended to use it for tourism. The Senate had made a change in the budget and she was unsure where the rental tax funds would be spent. For the public that was listening in, she explained that the state constitution did not allow for dedicated funds. Designated funds were different in that the legislature could indicate how it wanted the funds spent but they could be used for anything. 2:12:03 PM Representative LeBon mentioned hearing earlier about 700 clients participating in the Turo program. He wondered how many of the clients were remitting the 10 percent sales tax. He wondered if the department tracked the information. Mr. Spanos could not speak to specifics but could aggregate information. The division had not received any taxes from anyone operating with a peer-to-peer platform. The division had tried to determine how many vehicles were available for rent. There were 2 numbers provided in the previous committee by one of the peer-to-peer networks. The first number was 700 and in a later hearing they reported 200 or more. He was unclear of the number. The number was between 200 and 700. Representative LeBon asked how many individuals were remitting 10 percent sales tax for renting out their vehicle. Mr. Spanos clarified whether the representative meant through a peer-to-peer car sharing network or in general including other vehicle rental companies. Representative LeBon provided his previous scenario in which he listed his car for rent on craigslist or in the newspaper. He wondered if any of those people had submitted a tax. Mr. Spanos indicated the number was very low. Most people submitting a payment paid a 3 percent or 5 percent rate for an RV rental. He did not believe the state had received any remittance for an individual. He could investigate the number further. Representative LeBon did not need a response. He suspected the number would be low. Vice-Chair Johnston likened Airbnb to Uber and Lyft. She spoke of a bed tax in the municipality of Anchorage. The municipality collected tax from each participant of Airbnb rather than the platform. She thought the intent of the bill was worthy. However, her concern had to do with new and rapidly changing technology. She asked if the bill sponsor was open to creating a small section or subsection for platforms similar to Turo, rather than wrapping the idea into the regular car rental section in statute. She suggested that ride sharing in urban areas had taken on many different dynamics. She thought things were of a high-intensity nature in the urban areas versus anywhere in Alaska. She could see a platform like Turo working in the smaller communities. She thought leaving the peer-to-peer model in a different section of the statue would allow for future adjustments. Representative Wool would have to think about his answer to her question. He relayed that in previous testimony peer-to-peer companies alluded to being different and needing a different rule. He had asked the companies what they thought was so different about their model to justify a lower tax percentage. At the time of his question, he did not receive a satisfactory answer. He thought at the end of the day it was a person needing to rent a car. He suggested that both car rentals and peer-to-peer rentals had to take care of and store their vehicles. He also did not believe the best way to collect the tax would be by trying to collect from individuals. He provided an example of inefficiency by having individuals pay the tax on their own. Vice-Chair Johnston was uncertain whether they should pay a lesser rate. She noted how platforms such as Airbnb had taken off. She thought it was important to be flexible in addressing the issue. She was unsure of how to move forward. She did not want to lock the state into something that would not be appropriate in 2 years. Co-Chair Wilson added that rental companies like Enterprise owned the cars. They were renting cars they own and should be responsible for paying the tax. The individuals renting their cars were currently liable for paying the tax. She was concerned with going after an entity that was not the owner of the vehicles. She informed members that they would be hearing public testimony during the meeting and that she did not intend to move the bill presently. Representative Wool appreciated the comments from Representative Johnston. He agreed that Enterprise owned the cars, but Turo did not. Turo was only the technology platform but made a significant amount of money on the transactions, much more that the individual drivers. Turo was working as a central clearing house for the transactions. Co-Chair Wilson clarified that Representative wool was suggesting that they should be taxed because they were making a significant amount of money, not because they were the responsible party. Representative Wool rebutted that the tax would be paid by the person renting the car. Turo was just a clearing house. For example, if he rented a vehicle from Representative Josephson. he would use his phone to rent the vehicle through Turo's app. His credit card would be processed through Turo. Turo would keep a portion of the payment and send along the other portion of funds to Representative Josephson. The transaction went through Turo who kept a percentage of the money. Co-Chair Wilson provided an example of using her credit card. She wanted to make certain that the legislature was not going after a company because of the money they made but because they were responsible for the actions that occurred. 2:25:09 PM Representative Knopp wondered what would prevent a person from becoming a rental car company simply using the platform. Vice-Chair Ortiz thought the sponsor of the bill was introducing the bill to level the playing field and create additional revenue for the state. Co-Chair Wilson clarified that it was illegal for individuals to rent their cars out without paying a tax. She thought the question came down to who was paying. Vice-Chair Ortiz commented that the person renting the car would be paying the tax. Co-Chair Wilson commented that they were going into dangerous territory. 2:28:15 PM Co-Chair Wilson OPENED Public Testimony. 2:28:25 PM ROSE FELICIANO, INTERNET ASSOCIATION, SEATTLE (via teleconference), relayed that Internet Association represented more than 40 of the world's leading internet companies and advanced public policy solutions that fostered innovations, promoted economic growth, and empowered people through a free and open internet. She spoke in opposition to HB 102. Internet Association appreciated the Alaska State Legislature for acting to provide regulatory clarity for transportation network companies and phone sharing platforms so they could continue to operate in Alaska to the benefit of tourists and residents. Similarly, she believed clear and fair rules for peer-to-peer car sharing platforms would benefit the State of Alaska. Unfortunately, HB 102 treated the peer-to-peer vehicle sharing platform the same as a rental car company. They were two different business models and should not be considered the same. Most prominently, car rental companies owned and maintained a fleet of vehicles while peer-to-peer car shares did not. She thought HB 102 needed some work with shareholders. Internet Association and its members were willing to figure out a solution for appropriate regulations. She argued that categorizing and defining a peer-to-peer car share as a car rental company did not work. Peer-to-peer vehicle shares offered car owners a chance to earn extra money at the owner's convenience. She thought it provided an opportunity for residents and tourists to have access to cars that they would not otherwise have. Internet Association and its members were willing to work with the bill sponsor and DOR to try to figure out a solution. 2:31:36 PM BRIAN ROTHERY, VICE PRESIDENT, ENTERPRISE HOLDING, SACRAMENTO, CA (via teleconference), shared some background information about the company. The company had operated in Alaska since 1989 and had more than 100 employees that lived in Alaska. They had a fleet of 1900 cars in 20 locations in the state. They recruited college students, had a broad base of employees, and paid taxes in Alaska. He thought the taxes reflected the company's fair share of contributions into the economy. He continued to provide additional information about the company's contributions to the state. He spoke in support of HB 102. He thought it was the right way to embrace a new source of supply into the car rental market. He believed enacting fair rules would result in greater choice to rental customers, more competition in the industry, and allow car owners to make extra money. In particular, remote locations could benefit from increased access to transportation options. He spoke of additional benefits. He argued that the rules for the new source of supply should be clear to customers and service providers. Mr. Rothery offered that the need for rental cars was not impacted by the ownership model for the service provider. He suggested that the supply was also the same. From the vantage point of the customer, the supply and the demand were the same. His company believed that for-profit companies competing for the same demand using the same supply should be treated the same under the law. The source of the supply was not material to the issues in HB 102. He thought the bill related to the companies operating in the space and about making sure all for-profit companies paid their fair share. 2:36:45 PM MICHELLE PEACOCK, VICE PRESIDENT, TURO, SAN FRANCISCO, CALIFORNIA (via teleconference), referenced a letter submitted to members. She explained that Turo was a platform and a marketplace where car owners and people who needed cars could find each other to work out an arrangement to share a car. It was similar to eBay except instead of buying and selling goods people were car sharing. Turo was headquartered in California but operated in several places in the world. Turo's customers were eager to share cars for several reasons. First, they liked to monetize an under used asset. Turo provided an opportunity to cut costs for a person to own their car. It was a great way to cover car payments. It also provided opportunities for people looking to rent cars as well. Turo had over 850 different makes and models made available by the car owner customers. The owner decided on the price. She relayed that TNCs were very different as businesses from Turo. The only thing they really had in common was a car. It was a new idea being embraced in Alaska. Turo opposed HB 102 and would appreciate an opportunity to work with the legislature to craft a piece of legislation that made sense for the state. She encouraged Alaska to put in place a regulatory framework. The company had great experiences working and collaborating with legislatures across the country over the prior couple of years. Legislation creating a framework had passed in 2018 in Maryland and, more recently, in Indiana and Colorado. The company's goal was to recognize what made sense for a state and for the people of Alaska. She reported that 13 other states had put forward similar legislation that was rejected. The trend was collaborating with a community of peer-to-peer car sharing companies to work out the issues. 2:43:30 PM Representative LeBon asked about the process of applying on Turo to list his car for sharing. Ms. Peacock explained that a person would apply online at Turo's website and go through a screening process. Following the steps, a person would be allowed by Turo to list their car for sharing. Representative LeBon continued that assuming he was accepted as part of the clearing house, he would be added to the group of car owners that were renting their cars through Turo's system. He asked how many clients Turo numbered in Alaska at present. Ms. Peacock responded that 700 customers in Alaska had listed their cars on the Turo platform Representative LeBon assumed Turo was present in every state in the United States. He asked if Turo had run into the issue in other states about who was responsible for collecting a sales tax. He wondered if Turo remitted sales taxes on behalf of its clients in other states. Ms. Peacock responded in the affirmative. She noted that when the law required Turo to collect and submit the tax on behalf of its customers, the company did so. Presently, Maryland was the only state that had the requirement. The legislation which passed more recently in Indiana would also require Turo to remit sales taxes on behalf of its clients. Representative Merrick asked if the consumer ultimately paid the 10 percent tax. Ms. Peacock responded in the affirmative. The customers would pay the tax. However, she thought it was important to draw a distinction between the operations that a rental car company underwent to address the tax collecting and remittance and the impacts there would be on an individual citizen of Alaska. The main issue was about the chilling effect that a new tax on a new kind of business platform in Alaska would have on the growth of the business. 2:46:34 PM Representative Merrick wanted to hear more about the impacts on the citizens of Alaska. She also wanted to know if Ms. Peacock was aware that Alaska did not have a statewide sales or income tax. Ms. Peacock was not opposed to a tax but wanted to be included in the conversation to figure out what would be appropriate. She brought up the issue of certain complexities in Alaska. Co-Chair Wilson asked if she knew the State of Alaska charged a different rental tax to different entities. Ms. Peacock responded that the RV industry paid a different tax than the car rental industry. Co-Chair Wilson clarified that there was a different RV tax and a motorcycle tax. She wondered if Turo was comfortable with the fees if the state was consistent. Ms. Peacock asked her to restate her question. Co-Chair Wilson asked if Turo would be okay with collecting taxes as long as the state was consistent. Ms. Peacock clarified that Alaska had clearly undergone an evaluation of other industries such as motorcycles and RVs and determined, because they were different, they should have a different tax rate. Turo was asking to have a conversation about the tax rate. Turo believed the tax rate should be less than the car rental industry. The peer-to- peer car sharing industry had a lower impact on roads and services and a different impact on communities than a car rental company. Co-Chair Wilson commented that taxes for motorcycle rentals were lowered because of the vehicle type. She did not know why Turo thought it should have a lower tax rate. Ms. Peacock respectfully argued that the business was a different business. She returned to the notion of working collaboratively to craft legislation. 2:52:35 PM Co-Chair Wilson CLOSED Public Testimony. Co-Chair Wilson wanted to have the Department of Law speak to the committee about the bill. She also wanted to look into the recently adopted legislation in Maryland and Indiana. Representative Wool indicated that HB 102 also defined a vehicle rental network modernizing some language in statute. It also included traditional rental car companies such as Enterprise - it would be defined as a vehicle rental network. The direct renter of vehicles would be the individual on Craigslist for example. He asked Turo why they should have a discount on vehicle rental tax. He had not heard a satisfactory answer. He suggested that no matter the modality of purchase, it made sense for the peer-to-peer networks to collect and pay the tax. He thought they should be liable for the tax. Since all the transactions went through Turo, it made sense that the company would be responsible for submitting the tax to the state rather than DOR searching out 700 individuals. He relayed that the average Turo renter host had 3 vehicles. He thought the state should be getting its fair share of vehicle rental taxes. Co-Chair Wilson argued that there were several more questions to be answered prior to moving the bill out of committee. She would not set a time for amendments. HB 102 was HEARD and HELD in committee for further consideration.