HB 406 - NO MUNICIPAL SALES TAXES ON AIR CARRIERS Number 042 REPRESENTATIVE RICHARD FOSTER, SPONSOR OF HB 406, began with an overview. HB 406 relates to municipal sales and use taxes involving air carriers. HB 406 adds a new subsection to current statutes which prohibits a borough, home rule, or general law municipality from levying or collecting a sales or use tax on an activity directly involved with the carriage of individuals or goods for hire by an air carrier. This is consistent with the Federal Aviation Administration (FAA) Act of 1958, which provides the federal government reserves for itself the power to regulate and tax air carriers. REPRESENTATIVE FOSTER cited from the Act of 1958, "No state or political subdivision may enact any laws that affect the rates, routes, or services of an air carrier." Several bush areas, of late, have composed proposals to tax air carriers, passages of freight, or passengers and will reserve the receipts for itself. HB 406 will ensure taxation will be strictly reserved to the federal government. The constant litigation between the aviation industry and various cities will be avoided with HB 406. Number 082 CHAIR VEZEY asked for questions from the committee and reviewed the witnesses who would like to testify. Number 092 REPRESENTATIVE G. DAVIS asked REPRESENTATIVE FOSTER if HB 406 coordinates with the FAA Act of 1958 in reserving the right for only the federal government to tax. He believed certain areas had already been taxing air carriers. Number 101 REPRESENTATIVE FOSTER said there have only been attempts to tax. He stated Nome and St. Mary's as examples of cities trying to pass ordinances to tax. Number 107 REPRESENTATIVE SANDERS stated the FAA Act of 1958 refers to "federally certified air carriers." He then asked if this statement refers to all air carriers. Number 111 REPRESENTATIVE FOSTER responded the FAA Act of 1958 is all inclusive. Private air carriers cannot charge for passengers or freight and do not apply. CHAIR VEZEY commented he is vaguely familiar with the FAA Act of 1958 and the substantial amount of taxes the federal government imposes on the aviation industry. He suggested REPRESENTATIVE FOSTER include copies of the pertinent pages of the FAA Act of 1958. REPRESENTATIVE FOSTER agreed. CHAIR VEZEY introduced REED STOOPS as the next witness. Number 133 REED STOOPS, testified in favor of HB 406 on behalf of the ALASKA AIR CARRIERS ASSOCIATION, To his knowledge, there are no municipalities currently collecting a tax, therefore, they will not incur a tax loss. There has been frequent litigation to find loopholes in the FAA Act of 1958, all unsuccessful. Litigation is expensive for the Alaska Air Carriers Association and they feel the FAA Act of 1958 is quite clear. He noted the Senate has a memorandum from Bogle & Gates which describes the Act. Number 156 REPRESENTATIVE G. DAVIS asked, with municipalities attempting to gain revenue from airport operations and if HB 406 passes, would they possibly raise their landing taxes in response. Secondly, he wondered what other revenues they derive from carrier operations. Number 170 MR. STOOPS explained the municipally-owned airports do collect landing taxes and HB 406 would not affect them. State-owned airports are not currently charging landing taxes, but they do have a fuel tax, which is proposed to increase in 1994. HB 406 only affects sales tax on air cargo operations. Number 180 CHAIR VEZEY asked MR. STOOPS if it is the Department of Transportation's (DOT) position to cease collecting landing taxes instead of working on an adjustment to the fuel tax. Number 183 MR. STOOPS responded that DOT ceased collecting landing taxes a year and half ago. The Alaska Air Carriers Association made an agreement with Commissioner Campbell, whereby, if there were additional taxes, a fuel tax rather than a landing tax increase would be preferred. The landing tax is inequitable and not very efficient to collect. CHAIR VEZEY clarified the intent of HB 406 is to recognize the priority of federal law and to avoid unnecessary litigation. MR. STOOPS agreed. CHAIR VEZEY moved to the offnet St. Mary's teleconference site. DEBORAH ALSTROM, INTERIM CITY MANAGER FOR ST. MARY'S, testified against HB 406. At one time, St. Mary's was a fish processing hub and used to be able to collect a raw fish sales tax. St. Mary's can no longer collect this tax, so the city has lost out on several thousand dollars every summer. Large fish buyers ship and charter their air fish freight from St. Mary's to Kenai or the Peninsula to be processed. The sales tax in very important to their community and the loss of revenues is very large. Number 248 CHAIR VEZEY clarified MS. ALSTROM was testifying in opposition for HB 406. Number 250 MS. ALSTROM answered CHAIR VEZEY was correct. Number 252 CHAIR VEZEY asked if MS. ALSTROM would like to comment on the apparent conflict between the municipal and federal regulations. Number 254 MS. ALSTROM stated she entered late and has had a hard time hearing the testimony because of a bad telephone connection. Number 258 CHAIR VEZEY summarized, the FAA Act of 1958 reserves for the federal government the right to tax certified air carriers. There have been numerous attempts to circumvent it in the past. After litigation, they have all been dropped, but there is considerable expense involved in litigation. He paraphrased REPRESENTATIVE FOSTER's intent as being to clarify that (we) are subservient to federal law and to avoid unnecessary litigation. Number 277 MS. ALSTROM asked if written testimony would be accepted on HB 406 to a certain date. Number 279 CHAIR VEZEY intended to take action on HB 406, and noted HB 406 would be referred to House Finance Committee depending upon the will of the meeting. MS. ALSTROM may submit testimony to either committee. Number 289 REPRESENTATIVE SANDERS asked MS. ALSTROM if there was a possibility St. Mary's could have a fish landing tax, taxing the fish as it came off the boat. Number 303 MS. ALSTROM answered there is already a tax similar to REPRESENTATIVE SANDERS's suggestion in place. Number 309 REPRESENTATIVE SANDERS inquired if the tax could be increased to make up for the other lost tax revenues. Number 312 MS. ALSTROM felt an increase would cause St. Mary's to lose business with the competition of another lower-Yukon village, which ships and processes fish. Number 324 CHAIR VEZEY clarified additional landing taxes would make St. Mary's lose their commerce to another community. CHAIR VEZEY moved to the Anchorage teleconference site. Number 325 ROBERT HALLFORD, NORTHERN AIR CARGO, testified in favor of HB 406. Northern Air Cargo's and the Alaska Air Carriers Association desire is to avoid continued litigation and confrontation with municipalities. He cited a letter from the City and Borough of Juneau which relates to HB 406. "The City and Borough of Juneau has been exploring the possibility of imposing a sales tax on the flight-seeing business conducted within the borough. Within the borough, it is estimated there are 19 air transport companies,... There are four major companies and we estimate they produced a gross flight-seeing revenue of $7 million. This represents a tax revenue to the City and Borough of Juneau of over $300,000." He also quoted a letter by the United States DOT to Ms. D. Elizabeth Cuadra an attorney for the City of Juneau in 1986, "Accordingly in response to the specific situations you ranged in your letter of February 20th, local sales taxes would not be permissible with regard to: a) sightseeing tours by helicopter or light plane; b) air taxi or charter fishing trips; c) nonscheduled air taxi operators; d) scheduled interstate commuter airline trips regardless of the passengers ultimate destination; and e) airline tickets sold regardless of the passengers routing. This is because the preemption extends to all carriers regulated by the FAA, including helicopters, etc., as well as to all passenger transportation involving air commerce." MR. HALLFORD pointed out the City of Juneau is attempting to enact this tax again, and HB 406 is needed to prevent it. The FAA Act of 1958 refers to both air transportation and air commerce. Air transportation involves operating as a certified air carrier. Air commerce means any time an airplane goes into federal airspace and money changes hands. Directly taxing air transportation is straightforward by definition. Number 405 CHAIR VEZEY asked if MR. HALLFORD knew of any case law regarding these tax cases. Number 408 MS. HALFORD cited Air Jamaica v. Florida State Department of Revenue and Ward Air Canada v. Florida State Department of Revenue. CHAIR VEZEY asked MR. HALLFORD to mail a copy of the U.S. Department of Transportation letter he cited in his testimony. Number 415 MR. HALLFORD replied he would. Number 421 REPRESENTATIVE G. DAVIS moved to pass HB 406 from committee with individual recommendations. Number 424 CHAIR VEZEY recognized the motion by REPRESENTATIVE G. DAVIS. The committee secretary called the roll and HB 406 passed from House State Affairs Committee with individual recommendations. HB 406 will be referred to House Finance Committee.