HOUSE BILL NO. 90 "An Act relating to rental vehicles; relating to vehicle rental networks; relating to liability for vehicle rental taxes; and providing for an effective date." 3:15:58 PM REPRESENTATIVE ADAM WOOL, SPONSOR, introduced the bill. He reported that the bill endeavored to apply the same statewide vehicle rental tax that was currently in place for rental cars and apply it to peer to peer vehicle rental networks. Turo was only one of many peer to peer rental companies. He explained how a peer to peer rental worked. When a private individual wished to rent their car to another individual the person used a technology platform that listed your car on the internet via an app. The renter paid through the app and the vehicle owner received a share of the rental charge from the app company. The legislation added a tax to the rental charge. The person renting the car paid the tax. He described it as a level playing field bill that treated all rental companies the same. The Municipality of Anchorage recently passed a law adding vehicle rental network tax to its existing municipal vehicle rental tax of 8 percent. He added that the state rental tax was 10 percent. The bill would apply the same tax for the state. He indicated that the tax structure was like Airbnb. The Airbnb owner had to pay a bed tax to the municipality and the person renting the room had to pay the tax. He noted that there was no statewide bed tax. Someone ride sharing through Uber had to pay municipal sales tax that was passed on to the rider, the same as via taxicab. He reported that 29 states taxed vehicle rental networks. He emphasized that Turo or other networks did not pay the tax, the person who rented the vehicle paid the tax. He spoke of friends he knew in Fairbanks who purchased multiple cars in order to rent them privately through Turo or other entities. The individuals were operating a small car rental outfit and making significant profits. He relayed that currently there was a rental car shortage and over half of the 14 Turo listings he observed in Anchorage were from owners listing multiple cars. He considered those scenarios businesses and believed that taxes should be paid. He emphasized that HB 90 created equity; since the state had a vehicle rental tax the state should have a statewide peer to peer rental tax. 3:21:59 PM Representative Josephson noted Representative Wool stated there were 14 cars listed on Turo in Anchorage. He wondered how the state vehicle rental tax would increase by 10 to 30 percent with such a small selection of vehicles. Representative Wool indicated his statistics were based on a one day snapshot; a more thorough analysis was necessary. He elaborated that there had been a previous testifier who thought there were hundreds of cars listed on Turo in Alaska. Representative Josephson cited Anchorage's tax of 8 percent for vehicle rentals and the bill added 10 percent that made the total tax 18 percent. Representative Wool responded that currently the state vehicle rental tax was 10 percent and Anchorages was 8 percent. He calculated that currently a person who rented from a company such as Avis in the city of Anchorage was paying 18 percent in tax. However, the same individual currently renting from Turo in Anchorage only paid the 8 percent municipal tax. He noted that Wasilla had no vehicle rental tax, therefore, no taxes were paid. 3:24:26 PM Representative Josephson stated that he was in the happy position of being totally indifferent to the industry. However, he wondered what effect the bill would have on the network business model. Representative Wool hypothesized that if a vehicle was rented for $100 HB 90 added $10, the bill to the customer was $110. He reiterated that the bill places private vehicle rentals on a more level playing fields as traditional vehicle rentals. Ultimately, it made the rental rate equal. Representative Josephson indicated he used Airbnb to save money. He thought the bill could discourage someone from renting from vehicle rental networks. Representative Wool argued that the Turo cars were likely rented at market rates, and he doubted that Turo cars were necessarily less expensive. He added that the model did not employ people and there were not the added expenses such as the traditional brick and mortar business. He guessed that the vehicle network user could absorb the 10 percent tax and lower the rate slightly. He supposed it was similar to Airbnb where some listings were cheaper than hotels and some were more expensive. He had not done a full analysis of the industry. Co-Chair Merrick noted Representative LeBon had joined the meeting. 3:27:33 PM Representative Rasmussen shared information she received from a vehicle rental network company. She relayed that individual residents of Alaska choose to make their car available through a platform and these hosts pay all associated costs for the maintenance of their vehicle, the platform does provide liability when the vehicle is being shared. She thought that the big difference was that individual Alaskans were not AVIS or Hertz. She had heard from a constituent who used the platform that $10 made all the difference in terms of buying diapers and baby food. She believed that taking 10 percent made a difference. She determined that the business model was different from that of rental car companies. Representative Wool reiterated that the customer paid the tax, not the mom purchasing diapers. He stressed that many people renting vehicles through the Turo app had multiple vehicles and were not mom and pop scenarios that used it to pay housing costs. In fact, in order to be on Turo, a person had to have a nice car, in good condition and many people purchased cars solely to lease through Turo. The tax would be the onus of the renter rather than the owner of the vehicle. He reminded Representative Rasmussen that Anchorage had already implemented an 8 percent tax on network rentals. Representative Rasmussen understood the renter ultimately paid the tax. She deemed that for the private folks to compete, it may mean that they had to lower the price due to the additional tax. She argued that it would be unfortunate if the legislature did not consider the unintended consequences. Representative Wool voiced that several questions would be answered by the presentation. He suggested that a business model of a privately owned vehicle was less onerous than the business model of an established company with many expenses. 3:31:55 PM Representative Thompson had some of the same concerns presented by Representative Rasmussen. He had received several calls concluding that the bill was a poor idea during the period of recovery [from the COVID 19 pandemic]. He thought the bill would presently hurt the economy and suggested it would be better to consider the bill next year. Representative Carpenter understood the fairness argument. He thought the traditional vehicle rental car tax could be adjusted to the same rate as the network tax. 3:33:16 PM ASHLEY CARRICK, STAFF, REPRESENTATIVE WOOL, introduced the PowerPoint presentation: "HB 90: Private Vehicle Rental Networks." She suggested that some of the slides would clarify some of the points brought up in the discussion. She began with slide 2: "Definitions:" Vehicle Rental Business: Traditional car rental OR Peer-to-Peer Rental Examples: Alamo, Enterprise, Turo, Getaround, etc. Vehicle Rental Business: Digital network including the applications, software, or system offered by a vehicle rental business Examples: The app used to rent through Turo 3:34:14 PM Ms. Carrick reviewed slide 3 titled States Where DOR Have Determined Vehicle Rental Networks to Be Taxable. She delineated that the map portrayed the 16 States including Alaska that had a Department of Revenue which had determined Vehicle Rental Network businesses were taxable. The Walker Administration had a position statement regarding the topic, but the Dunleavy Administration did not. The sponsor requested a legal opinion on whether the states current vehicle rental tax could be applied to rental networks. She relayed that the opinion stated that the current statute was broad enough to apply to rental networks. However, the sponsor felt that the bill provided a more definitive statute. She reported that an ordinance in Anchorage had applied a tax on peer to peer car rentals that was 8 percent on both vehicle rentals and network rentals and added a new definition for a hosting platform. 3:35:51 PM Ms. Carrick continued to slide 4 titled States Where Vehicle Rental Networks are Collecting Tax. The map depicted the 29 states currently applying rental taxes to vehicle rental networks. She reiterated that Alaskas current tax rates were 10 percent for vehicle rentals and 3 percent for Recreational Vehicles (RV). Historically, vehicle rental tax revenue was approximately $10 million, which could increase 10 percent to 30 percent with the addition of vehicle rental networks. She explained that the 10 to 30 percent estimate was a rough estimate based on the number of network platform vehicle rentals available. She revealed that in 2018, the Department of Revenue (DOR) under the Walker Administration, filed a lawsuit against Turo because it refused to provide any information regarding the amount of business it conducted in the state or the vehicle owners who used to platform to collect the tax. Therefore, the tax estimate was rough. The state did not currently know how many people were renting through platforms and how much income they made in the state. 3:37:48 PM Co-Chair Merrick noted Representative Edgmon had joined the meeting. Ms. Carrick spoke to Slide 5 titled Different Standards for The Same Model. She pointed out that traditional car rental and peer to peer networks had the same business model with different tax burdens and were not contributing to Alaskas economy similarly. She noted that networks rented vehicles and provided insurance protection. They sold ancillary products such as GPS and child seats and both had app based technology. She reiterated that the tax applied to the person renting the vehicle. The business model aligned with other app-based industries such as Airbnb and Uber. All app-based companies employed a similar argument when voicing opposition to being taxed. However, peer to peer (P2P) networks were clearly operating in Alaska, despite having headquarters in other states and were profiting off Alaskans. Additionally, she obtained a legal opinion stating that the networks were liable to pay a vehicle rental tax. 3:40:00 PM Representative LeBon offered a hypothetical situation where someone leased a vehicle to a bed and breakfast owner for a daily flat-rate. He asked if any tax applied to the scenario. 3:41:00 PM Representative Wool stated that he was not a lawyer. He noted that state law indicated that if a person rented a vehicle for any reason, they were liable for the tax. He suggested that if a person was making money from someone else using a person's car it would be considered a rental business. He elucidated that the state had a similar problem with Uber; technically the users were liable for a tax, but it was difficult to find the users. The state requested the information from Uber who declined, so the only way to collect the tax was to tax Uber. He discussed the fairness issue. He reported that Airbnb was not exempt and paid a bed tax. Airbnbs were still less expensive than hotels and the Airbnb rental owners were able to pay the tax and remain solvent. He shared that he had many friends that rented out their home or cabin in Fairbanks, paid the bed tax and were still profitable. He added that many communities were taxing online sales and it saved several communities during the pandemic. Online shopping increased with people staying at home and the revenue gained with the online sales tax helped many local economies. He compared the vehicle network tax to the examples he provided and asserted that the tax was not punishing anyone. He argued that whoever was renting their car and applied the state sales tax could remain in business. Representative LeBon supposed that if the Bed and Breakfast included the vehicle use built into the business model, then tax would be collected indirectly through the bed tax on the vehicle. 3:44:17 PM Representative Thompson was aware that the states current car rental tax was adopted in the late 1980s and contained a provision that the revenues would be used to promote tourism. He wondered if the current legislation would do the same. Representative Wool responded that such a provision would be decided by the committee. 3:45:23 PM Representative Josephson asked if DOR took a position on whether the vehicle rental networks should be taxed. Ms. Carrick answered that the current administration did not hold a position regarding taxing vehicle rental networks. She reiterated that the prior administration held the position that the networks should be taxed. She noted that the legislative legal opinion did indicate that companies like Turo should hold an Alaskan business license. Representative Josephson deduced that under the bill the networks would have to essentially play ball and could no longer declare not knowing who their subscribers were. Ms. Carrick offered that HB 90 added clarity or teeth to statute that already existed that vehicle rental networks were obligated to pay the tax. 3:47:10 PM Co-Chair Merrick OPENED public testimony. ROSE FELICIANO, INTERNET ASSOCIATION, SEATTLE, WA (via teleconference), opposed HB 90. She shared that she represented over 40 of worlds leading internet based companies. She voiced that peer to peer car sharing was a different business model from rental car companies. The platform did not own the vehicles and the cars were owned by individuals who used the platform. There were individuals who were able to purchase two cars to generate income. She was unsure why Representative Wool would want to impose a tax on a service that bolstered tourism. She hoped peer to peer car rentals would help fill the gap left by the current car rental shortage. She opined that the bill would make it impossible for hosts to offer cars and would hurt tourism. She questioned some of the information in the sponsors presentation. She relayed that if a state had a sales tax, the peer to peer platform charged a sales tax on every transaction. She felt disappointed that the peer to peer companies had not had the chance to provide input on the legislation. Co-Chair Merrick deduced that if all the rental cars were taken, Turo would be a good second choice and due to the lack of rental cars the business would go to vehicle network rentals. Ms. Feliciano agreed with the statement. She added that traditional vehicle rentals had restrictions on use and peer to peer rentals did not. 3:51:28 PM BENJAMIN PALMER, ENTERPRISE HOLDINGS, CALIFORNIA (via teleconference), spoke in support of the bill. He shared that the company was a privately held family owned company with the Enterprise/Alamo national brands and operated in Alaska since 1989. He voiced that HB 90 clarified that Alaskas rental car tax applied to rentals regardless of how they were rented. The tax was paid by the renter and was something all customers in Alaska should expect when renting a car. The legislation created a level playing field and ensured that the states general fund would not loose income from network transactions. 3:52:37 PM MARK HA, SELF, ANCHORAGE (via teleconference), testified against the bill. He was in the Airbnb business but was speaking on behalf of his friend who rented their cars privately through Turo to earn extra income. He suggested that rental companies had other opportunities to lower the costs of doing business including tax breaks. He viewed the bill as an opportunity for industry to take a few dollars from a guy's back pocket. 3:54:37 PM SEAN VINCK, SENIOR COUNSEL, TURO INC., SAN FRANCISCO, CALIFORNIA (via teleconference), spoke in opposition to HB 90. He listed 9 states that enacted statutes governing peer to peer car sharing but did not tax them. He relayed that there were states that applied a separate and lower tax rate for peer to peer car sharing versus traditional car rentals. He emphasized they were 2 separate industries with dramatically different business models. He also pointed out that the need for the legislation proved that the current vehicle rental tax statute did not apply to peer to peer rentals. He argued that rather than clarify statute, HB 90 promoted ambiguity and confusion because it failed to address a basic question regarding whether peer to peer rentals were the equivalent of a multinational rental car company. He believed that the bill did nothing to provide clarification to his point. 3:57:13 PM Representative Josephson asked Mr. Vinck about the taxes that did apply to peer to peer rentals in other states. Mr. Vinck maintained that the mentioned states enacted laws that exempted vehicle networks from rental taxes. However, many of the states applied sales and use taxes, but the tax under discussion was an industry specific tax. He characterized it as a rental car excise tax. He stressed that his point was the states listed found it was not appropriate public policy to apply the exact same transactional tax as traditional car rentals. 3:58:09 PM Representative Josephson commented that he cited the slide that stated that 29 states currently had a tax on vehicle rental networks. 3:58:29 PM Representative Wool asked whether Turo had an active corporate business license in Alaska assuming Turo had clients in the state. Mr. Vinck answered in the negative. He added that Turo did not have clients but did have both guest and hosts that utilized the platform. Representative Wool acknowledged the difference in semantics and offered that what Turo called sharing a car was considered renting a car. He pointed out that if a person came to Alaska and found a car through the Turo App, paid money to rent the car, the car owner received some funds and Turo corporation received funds from the transaction that happened in Alaska. He reasoned that Turo should hold a business license in the state where it was making money. He asked if Mr. Vinck thought Turo should not have a business license in the state where it was earning revenue. Mr. Vinck replied that the issue he was addressing was vehicle rental tax and did not answer the question. 4:00:21 PM CARL SZABO, NET CHOICE, WASHINGTON, DC (via teleconference), spoke in opposition of HB 90. He argued that people were hurting because of Covid-19 and believed that it was not the right time for any consideration of a new tax on the people of Anchorage. He stated that the state had a budget surplus. He offered that the slide stating 29 states had a tax on car sharing platforms like Turo was not entirely accurate. He related that most of the states were applying an excise tax and not a rental tax. He stated that no state applied exactly the same tax to peer to peer car rentals as vehicle rentals. He voiced that rental car companies were not the same as car sharing. He indicated that Enterprise and Hertz owned hundreds of cars in many locations in the state and vehicle networks did not own any cars. He reiterated that the state earned $10 million annually from rental cars. He stated that rental car companies enjoyed a $1.9 million windfall payback on line 26 [page 3] of the bill, "vehicle licensing cost recovery fee". He indicated the fee applied to car rental companies but not to citizens when they share their cars. He wondered whether the tax would be applied retroactively if the bill was merely a clarification of statute. He opined that it was a new tax and believed that at present it was wildly inappropriate. Co-Chair Merrick clarified that a budget surplus was calculated before a Permanent Fund Dividend (PFD) was paid. Therefore, if the state paid a dividend in the current year the state would incur a deficit. Representative Josephson was troubled when he heard Mr. Szabo state that "it was not the right time for a tax. He asked if Mr. Szabo had ever testified in favor of a tax. Mr. Szabo replied that typically he was not in favor of new taxes. He thought if the state was going to apply taxes fairly and equally it should not apply the same vehicle rental tax to peer to peer rentals. He did not believe the tax was fair. 4:04:58 PM Co-Chair Merrick CLOSED public testimony. Co-Chair Merrick indicated the committee would review the fiscal notes associated with the bill. 4:05:25 PM NICOLE REYNOLDS, DEPUTY DIRECTOR, TAX DIVISION, DEPARTMENT OF REVENUE (via teleconference), relayed that the Department of Revenue (DOR) fiscal note [FN 2 (REV)] was indeterminate. She relayed that the division lacked enough reliable data to estimate the revenue impact of expanding the taxpayer base. The division expected that the bill would have a positive effect on revenue. Co-Chair Merrick inquired whether the reason for not having enough information was due to the peer to peer vehicles not disclosing the information. Ms. Reynolds responded in the affirmative. 4:06:31 PM JEFFREY SCHMITZ, DIRECTOR, DMV, ANCHORAGE (via teleconference), relayed that the Department of Administration (DOA) zero fiscal note had no financial impact for the Division of Motor Vehicles. 4:07:23 PM Representative Wool understood the pushback from internet companies who wanted to keep the transactions cheaper than transactions in brick and mortar businesses. He shared that he had previously carried a different bill regarding Uber. He had received pushback on different aspects of the bill, yet it was adopted, and Uber operated in Alaska. He thought that taxies and Uber were not that different, nor were Airbnb or Hotels. He mentioned that the municipalities could presently tax for internet sales as well as traditional sales. He voiced that they all offered essentially the same services and the same standards should be applied. He felt the same way about rental cars and vehicle rental platforms. He reiterated that it was essentially the same service. He addressed the question whether it was a good time to apply a tax. He was unsure but noted that no one was talking about reducing the cruise ship head tax. He stated that presently the vehicle rental networks were liable for the tax, but the state had no way to collect it. He believed the vehicle rental tax should be applied evenly across the board. He thought the peer to peer model was great and he would happily charge his customer an extra 10 percent tax for the state. He thought the revenue generation was beneficial. Co-Chair Merrick indicated amendments were due by 6:00 pm on Saturday, May 15, 2021. HB 90 was HEARD and HELD in committee for further consideration.