HB 167-TAX CREDIT FOR STATE TOURISM PROGRAM   3:20:32 PM CHAIR OLSON announced that the first order of business would be HOUSE BILL NO. 167, "An Act relating to a corporation income tax credit for contributions by a person owning or operating a commercial passenger vessel to a qualified trade association that was awarded a contract by the Department of Commerce, Community, and Economic Development, and used for planning and executing a destination tourism marketing campaign." KAREN LIDSTER, Staff, Representative John Coghill, Alaska State Legislature, introduced herself as staff to a joint prime sponsor of HB 167. 3:21:15 PM REPRESENTATIVE NEUMAN made a motion to adopt the proposed committee substitute (CS) for HB 167, labeled 26-LS0695\E, Bullock, 4/1/09.[Version E was before the committee.] CHAIR OLSON objected for purposes of discussion. MS. LIDSTER explained the changes. She stated that on page 2, line 2, a new paragraph was added, as follows: (3) not used to provide the person making the contribution with a direct or tangible benefit. MS. LIDSTER explained paragraph (3) was added to ensure that a person making a contribution would not receive a direct or tangible benefit from the contribution and also receive an income tax credit. She explained that the bill would establish a tourism marketing tax credit to help create a sustainable funding source for Alaska's tourism marketing program. The bill would allow a tax credit for contributions to a qualified trade association that has been awarded a contract by the Department of Commerce, Community, & Economic Development for planning and executing a destination tourism marketing campaign. The tax credit would be equal to the value of the qualified contributions and could be applied to a tax liability under the Alaska Corporate Net Income Tax. The credit could not be used to reduce corporate income tax below zero, and the tax credit could not be carried forward or transferred. Additionally, the definition of "commercial passenger vessel" is defined in AS 43.52.295. This bill was created when the legislature asked the tourism industry for ideas for funding sources for tourism marketing in Alaska. 3:23:57 PM REPRESENTATIVE NEUMAN referred to the sectional analysis for HB 167. He related his understanding the bill would provide commercial passenger vessels a credit against the tax due for a cash contribution to a marketing program. He asked for further clarification. MS. LIDSTER explained the contribution would be made to a qualified trade association that was awarded the tourism marketing contract administered by the DCCED. REPRESENTATIVE NEUMAN asked if a business such as a fictitious "Karen's Whitewater Riverboat Extravaganza" made a contribution to the Alaska Tourism and Marketing Association if it would get a credit. MS. LIDSTER agreed it would be eligible for a tax credit so long as the business fell under the definition in AS 43.52.295 with respect to "commercial passenger vessel." She explained that the tax credit is limited to vessels with 250 berths or more. 3:25:47 PM MS. LIDSTER, in response to Representative Neuman, explained that no limit has been established at this time. In further response to Representative Neuman, Ms. LIDSTER explained that the company could make a $10 million contribution so long as the company's income tax did not fall below zero. 3:27:44 PM JOHANNA BALES, Excise Audit Manager, Anchorage Office, Tax Division, Department of Revenue (DOR), stated this particular tax credit is limited to those corporations that operate commercial passenger vessels of 250 berths or more, which would apply basically to cruise ships. Under the bill, the company could reduce its tax liability to zero. She referred to Representative Neuman's earlier question and answered that a tax credit would apply so long as the industry had a $10 million tax liability, the company could reduce its liability to zero. In further response to Representative Neuman, Ms. Bales stated the companies could estimate the tax credit since payments can be made any time during the year. Thus, the company could take the credit at the end of the year when the company would have a better idea of the amount of corporate income taxes owed. 3:32:02 PM MS. BALES, in response to Representative Buch, explained that the fiscal note is for $30 thousand to cover a one time cost for startup expenses to enhance the tax examination system, produce tax forms, and educate the stakeholders. She explained that the revenues are considered indeterminate since the department can not estimate the amount of the income tax. She further explained that currently the department only has one year of data available and taxpayers that pay the corporate income tax are also commercial passenger vessels. She offered that the department previously "lumped" the corporation taxes together with other tourism industry corporation taxes. In 2007, prior to commercial passenger vessels paying corporate income tax, the department received $3.5 million from other corporations in the tourism industry. She highlighted the amount collected increased to $15.8 million. She pointed out that a large part of the tax collected was due to large passenger vessels. However, taxpayers were not allowed to disclose the exact amount, she noted. Thus, the department indicated in its fiscal note that had the tax credit been in effect in 2008, the potential could have resulted in a $15.8 million decrease in revenue. In further response to Representative Buch, Ms. Bales explained that the $30,000 is the specific cost of the impact of this bill. She explained that the one time cost is to cover contract costs for information technology assistance. 3:34:44 PM ROURK BROWN explained that he is a small business owner and a volunteer government relations chair for the Alaska Travel Industry Association (ATIA). He stated that the tourism industry is an important part of Alaska's economy. He provided statistics such as that tourism brings $1.8 billion in new dollars to Alaska's economy and provides the equivalent of 40,000 fulltime jobs, $70 million in local taxes and fees, and $122 million in state taxes and fees. He referred to his handout, titled "Tourism Tax Credit Premiere Travel Destination", and to page 4, titled "Tourism Marketing in Alaska". He explained that since 1999, the public sector funding for tourism marketing has declined from $24 million to $5 million in FY 08. During that time independent travel has also declined. The industry believed that the only effective proven tool is destination marketing and a minimum budget of $20 million is needed to effectively market Alaska as a destination. Last year the legislature reinvested the $9 million vehicle rental tax it collected. The bill that implemented the vehicle rental tax also allowed funds to be spent on tourism marketing. He further stated that the private sector matched the $9 million with an additional $2.7 million, which was the third highest public/private match. Only Hawaii and California exceeded Alaska, he mentioned. He said, "We are very grateful for this first step that was taken last year." Last year, the legislature placed a three-year sunset on the vehicle rental tax bill, asking the industry to work to provide a long-term sustainable solution to use visitor industry generated tax dollars to fund tourism marketing. He related that the industry has worked to find a solution which is embodied in HB 167. 3:37:30 PM MR. BROWN explained that HB 167 would allow the cruise lines to make contributions directly to the state's marketing program and receive a tax credit against their corporate income tax liability. He related that the cruise industry pays corporate income tax as a result of a cruise ballot initiative. He referred to page 5 of his handout, titled "Estimated State Tourism Revenues" and to the $12,300,000 collected from the Cruise Corporate Income Tax. He clarified that this amount does not include the head tax, gambling tax, or ocean ranger tax also collected. He compared the concept for cruise tax credits is similar to the concept of oil tax credits such that when the industry drills more wells, it will produce more wells, which will increase state revenues. He opined that this bill would increase state revenues, which is also one of the travel industry's goals. MR. BROWN asked if travel marketing works. He then answered by stating that in FY 05, the marketing program resulted in over 500,000 responses for people interested in coming to Alaska. He referred to page 3 of his handout, titled "Research Reveals: Marketing = Visitors," stating that the travel industry tracked the results of visitors who traveled to Alaska. He provided statistics on those who requested information in 2005. Of those requesting information in 2005, 14.7 percent traveled to Alaska in 2006, 13.7 percent traveled to Alaska in 2006, 7.7 percent traveled to Alaska in 2007, and 9 percent traveled to Alaska in 2008. He opined that 45.1 percent of the people who indicated they were interested in 2005 in traveling to Alaska actually traveled to Alaska. He explained that the average group size was 2.6 persons, and the average spending per person was $971, not counting any transportation costs to Alaska. He said, "Tourism marketing is the only proven way to increase visitation." 3:39:32 PM MR. BROWN referred to page 6 of his handout, titled "Season is in Jeopardy", and stated the outlook is grim. He opined that bookings are down anywhere from 20 to 60 percent. He stated that cruise prices are at historic lows, many small businesses may not survive, and local governments will also have diminished bed tax revenue projections. He said that it is too late to affect the 2009 travel season, but the industry could begin to turn the tide in 2010 with passage of this bill. He urged members to pass HB 167 this session. 3:40:46 PM REPRESENTATIVE BUCH opined he would have a difficult time justifying the bill to his constituents. He related his understanding that many industries such as commercial fishing, timber, and mining do not benefit from similar state funding for their industries. MR. BROWN related that he appreciated the concern. However, he mentioned that the travel industry generates $122 million to the state in taxes and fees, and contributes $70 million to local governments. He highlighted that his community of Homer pays a sales tax and a large part of the tax collected is derived from nonresident tourists. He said, "I believe it's fair to say that this industry does support the state and all residents thereof." 3:43:40 PM JERRY SCHOLAND, Operator, Kiana Bed and Breakfast, stated he and his wife operate the Kiana Bed and Breakfast. He related that he is also a member of ATIA. He highlighted that tourism provides about $122 million in state taxes. He indicated that throughout the 1990s, more money was spent to market Alaska than in this decade. He opined that HB 167 seems to be a painless way to take about 10 percent or less of the $122 million and return it to the industry to market Alaska. He further opined that tourism is truly a renewable resource. Tourists take pictures out of the state and basically come, spend money, and leave. He stressed that Alaska is not losing any resources by funding tourism. He emphasized that it will be a tough year for tourism. He projected a reduction in Alaska's tourism ranging from 30 to 60 percent, which he related he has confirmed in his own business. He urged members to pass the bill. 3:45:58 PM BONNIE QUILL, Executive Director, Matanuska-Susitna Convention & Visitor's Bureau (MSCVB), stated that the MSCVB represents 300 tourism businesses in the Matanuska-Susitna valley, most of which are small businesses. She asked members to support HB 167. She announced that she is pleased that ATIA has created the proposal to make Alaska tourism marketing efforts competitive. She opined that it is urgent to pass this bill to provide the cruise lines that are paying taxes in Alaska an opportunity to invest in the tourism marketing program. She urged members to pass HB 167. 3:47:16 PM SHANNON HAMRICK, Kenai Peninsula Tourism Marketing Council (KPTMC), stated that the Kenai-Peninsula Tourism Marketing Council represents over 400 tourism businesses on the Kenai Peninsula. She encouraged members to move HB 167 from the committee. She related that tourism is economic development for Alaska and the Kenai Peninsula. She stressed that the industry is in crisis. She emphasized that ATIA is critical to the efforts of the KPTMC for outreach to prospective visitors. She opined that this bill is an excellent step to provide a sustainable solution to marketing using dollars that the visitor industry generates. She concluded by stating that over 25 percent of all businesses licensed in the Kenai area are tourism based, and 30 percent of overall sales tax revenues are generated by tourism businesses. She said, "This bill will support small businesses. Please help them by passing HB 167 this year." 3:48:44 PM DEB HICHCOCK, President, and CEO, Fairbanks Convention & Visitor Bureau (FCVB), stated that she also serves as a volunteer on the ATIA Board. She thanked members who have supported HB 167. She stated supporting funding for marketing for ATIA also assists business owners in Fairbanks, the Interior and throughout Alaska. She related that entrepreneurs are the hallmarks of the visitor industry. She also related local business owners and their employees are Alaskan neighbors, friends, and members' constituents. She offered her belief that tourism creates a ripple effect through the communities, generating construction, transportation, and countless other services. She stressed that tourism contributes to the quality of life in her community. She related that the community has better airline schedules, a beautiful airport, and many attractions. She indicated that tourism also provides about half of the operating cost of the University of Alaska Fairbanks, Museum of the North. She highlighted that facilities like the Carlson Center benefit from tourism dollars. She also offered her belief that additional marketing funds could help Fairbanks develop its winter tourism. She opined that Fairbanks has concentrated its efforts on winter tourism, but cannot reach that goal solely by its own efforts. She referred to a recent itinerary that was coordinated by the ATIA for tour operators. She noted that tour operators from countries such as Australia, Germany, Switzerland, and the UK visited multiple points throughout the state. She explained that in Fairbanks, the operators were exposed to many locally owned businesses. She listed a long list of businesses, including Brewster's Restaurant, the Pumphouse Restaurant, Aurora Borealis Lodge, and the Farthest North Harley Davidson Outpost. She mentioned the tour operators also visited the Arctic Circle and Chena Hot Springs. She emphasized that HB 167 creates a sustainable funding mechanism for ATIA marketing that could benefit businesses in the summer and winter. She opined that this marketing reaches the depth and breadth of potential customers that is far beyond the reach of most small businesses. She urged members to support HB 167. 3:52:29 PM SUZANNE RUST explained that her family owns Rusts Flying Service in Alaska and K2 Aviation in Talkeetna. She explained that she also volunteers on the ATIA board. She asked members to support HB 167. She stated that her family's business has employed about 75 people in Anchorage and Talkeetna. She also stated that her family anticipates reducing its workforce by approximately 20 to 30 percent this year. She highlighted that the reduction in work force affects grocery stores and restaurants, creating a strong ripple effect in the local economies. She stressed that the situation is real. She opined that tourism is the economic engine in Alaska. She related that some of the major tour companies have cut their programs in half. She noted that there is a limited pool of visitors in the U.S. probably consisting of more domestic visitors than international visitors. She opined that Alaska will need to compete for its visitors from the overall pool. She stressed the importance of marketing dollars to Alaska. She stated that tourism is a renewable resource that affects everyone. She asked member to support for HB 167. 3:55:19 PM JULIE SAUPE, President, Anchorage Convention and Visitor Bureau, offered her appreciation as well as that of the 1,100 members of the ACVB for members' anticipated support of HB 167. She stated by supporting the marketing funding for the ATIA that the state will assist small and large businesses throughout the state. She related that a healthy tourism industry is a key component of Anchorage's growth. She pointed out that tourism contributes significantly to the state's general fund and local government. She further related that the tourism industry makes many contributions that help create a robust and lively community that residents enjoy year round. She said, "Your support of this legislation will expand this win-win cycle to everybody's benefit." She indicated she has observed first hand the number of families that tourism supports. She emphasized that ACVB relies on statewide marketing. She opined that by partnering with ATIA, ACVB can focus its energy on booking conventions and groups. She related that booking meetings and conventions keeps the economy vibrant during winter months. She mentioned that ATIA is a model of private/public partnership. She highlighted that she serves on the Board of Directors of the ATIA and on its marketing committee, so she can attest to the debates and the efforts that are put forth to ensure the program is representative of the entire state. She commended the ATIA. She further opined that it is time to take this model program and provide a stable funding mechanism. She asked members to support HB 167. 3:58:05 PM CHAIR OLSON, after first determining no one else wished to testify, closed public testimony on HB 167. He removed his objection. REPRESENTATIVE BUCH expressed reticence to second guess the voters who passed the cruise ship initiative. He inquired as to whether the sponsor has considered a sunset clause. 3:59:19 PM REPRESENTATIVE COGHILL said he was open to that suggestion but had not previously considered it. He related that a minimum of three seasons is needed for planning purposes. He recalled that several tax credits are targeted for profit and nonprofit industries, as well as for public/private partnerships in tourism. He related that due to the downturn in the economy that this bill could help boost Alaska's economy. He projected that the corporate tax will also diminish and the legislature would likely need to revisit the matter very soon. 4:00:54 PM REPRESENTATIVE BUCH suggested that the sunset clause would need to be a minimum of five years. He made a motion to adopt Conceptual Amendment 1, to add a sunset date ending June 30, 2014. CHAIR OLSON asked if there was any opposition to Conceptual Amendment 1. REPRESENTATIVE NEUMAN suggested the sponsor consider an amendment to Conceptual Amendment 1, and change the sunset date from June 30, 2014 to January 1, 2015, to extend the date so the legislature could review the matter. REPRESENTATIVE BUCH offered an amendment to Conceptual Amendment 1, to extend the sunset date to January 1, 2015. REPRESENTATIVE COGHILL stated that he did not have any objections to the amendment. There being no objection, the amendment to Conceptual Amendment 1 was adopted. There being no objection to the Conceptual Amendment 1, Conceptual Amendment 1, as amended, was adopted. 4:01:59 PM REPRESENTATIVE NEUMAN offered his belief that tourism is important to Alaska. He opined that the state can cover its mandated costs such as for public safety and education for several years. He recalled prior committee work to consider directing marketing funds to the ATIA or other organizations. He acknowledged that the marketing amounts fluctuate, which makes it difficult for the tourism organizations since they do not have any certainty of funding from year to year. However, he expressed concern with this bill since state funding is also uncertain. However, he noted that he did not wish to stop the bill. He opined the tourism industry will be "hit hard this year." He also offered his belief that it's important for Alaskans to have jobs, too. 4:04:37 PM REPRESENTATIVE NEUMAN moved to report HB [167], labeled 26- LS0695\E, Bullock, 4/1/09, as amended, out of committee with individual recommendations and the accompanying fiscal note. There being no objection, the CSHB 167(L&C) was reported from the House Labor and Commerce Standing Committee. CHAIR OLSON announced that HB 167, Version E, as amended, will move on to the next committee of referral, the House Finance Committee. 4:04:58 PM The committee took an at-ease from 4:04 p.m. to 4:07 p.m.