HB 271-PASSENGER VEHICLE RENTAL TAX CO-CHAIR HAWKER announced that the first order of business would be HOUSE BILL NO. 271, "An Act levying and providing for the collection and administration of an excise tax on passenger vehicle rentals; and providing for an effective date." Number 0110 REPRESENTATIVE PETE KOTT, Alaska State Legislature, sponsor of HB 271, testified on the purpose of the bill and answered questions from the members. He explained that HB 271 is a fairly simple mechanism which calls for the establishment of a statewide car rental tax of 15 percent on all vehicles that are rented for a period of less than 90 days. Number 0217 REPRESENTATIVE WEYHRAUCH moved to adopt the proposed committee substitute (CS) for HB 271, Version 23-LS0936\H, Kurtz, 4/16/03, as the working document. There being no objection, Version H was before the committee. Number 0238 REPRESENTATIVE KOTT explained that the major change in the proposed CS is the exemption for recreational vehicles (RVs). The rationale behind this exemption is that the last increase in the rental tax in the Anchorage area, [resulted in] three rental companies going out of business. He pointed out that with the price of a rental for an RV at $150 per day, there would be a $20-plus increase in cost at a 15 percent rate. He commented that he believes that may be somewhat excessive. Although there is no conclusive evidence that the increase in rental tax caused the businesses to fail, there may be some merit to that [argument]. REPRESENTATIVE KOTT told the members that this proposal came about at the suggestion of the administration. He pointed out that if this increase were to go into effect [the tax] would still be lower than the state of Washington's. Alaska is tied for the 47th [lowest] place in terms of car rental taxes. He told members that tomorrow during public testimony the members will hear from companies that a tax will run them out of business. However, he recalled traveling in Seattle, and while he did not like the tax, there was no other option. Furthermore, it did not stop the companies from doing business. In most cases there would be a $4-5 increase at the 15 percent level. Of course, that would depend on the type of vehicle being rented. Representative Kott commented that this tax mirrors what has been done in Anchorage through an ordinance. This measure would raise slightly over $5 million the first year, and $7 million the second year. The amount would increase as tourism increases. He noted that government employees are exempted from the tax. Number 0634 CO-CHAIR HAWKER clarified Representative Kott's statement on government employee exemptions by saying that exemptions are only in effect when government employees are on government business. The proposed 15 percent [sales tax] is just above the mean and medium of rates across the country [as illustrated in the chart in the bill packet]. Co-Chair Hawker asked if the proceeds would be placed in a separate account in the general fund where they may be used for tourism development and highway maintenance. Number 0744 REPRESENTATIVE KOTT responded to Co-Chair Hawker's comments by saying that a State of Alaska employee ID card must be presented when renting a vehicle while on state business. Use of ID cards is on an honor system, he said. Representative Kott explained that while funds could not be dedicated, the money raised would be placed in a specific account within the general fund. There could be some intent language or a statement on the record that these funds should be used for the maintenance of roads, and development of the tourism industry through marketing. He pointed out that 80 percent of the tax will be paid by non- Alaskans. He asked the members to think about the last time they rented a car in Alaska. Usually, it is when traveling on business or when the car is in the shop and an insurance company pays for the rental. He asked the members to recall the last time they rented a car and had to pay for it. CO-CHAIR HAWKER commented that he has rented vehicles in most of the 50 states in the last five years, and he had noticed the lack of taxes on vehicle rentals in Alaska. Number 0926 REPRESENTATIVE KOTT noted that some communities such as Anchorage, Fairbanks, Juneau, and Kenai already have a form of tax in place. Number 0954 REPRESENTATIVE WEYHRAUCH said he assumes the tax would not include RVs because they fall outside the definition of a passenger vehicle. He surmised that Alaska is in 47th place with respect to car rental taxes because local taxes are already in place. REPRESENTATIVE KOTT responded that he is correct. REPRESENTATIVE WEYHRAUCH said that many people rent cars in Alaska and then drive to Canada or outside, where they turn the car in. How does the sales tax apply in these cases, he asked. REPRESENTATIVE KOTT replied that the point of origin where the vehicle was rented establishes the tax rate. For example, if an individual rented a car in Alaska, drove it to Los Angeles and turned it in a week later, the individual would be charged seven days of tax at the Alaska rate. He reiterated that it is the point of origin that determines the tax. REPRESENTATIVE WEYHRAUCH noted that the dealer would pay the tax to state. CO-CHAIR HAWKER noted for the record that Representative Ogg has joined the committee. Number 1130 REPRESENTATIVE HEINZE asked if the car rental tax for individuals coming into the city from the Bush for medical reasons could be exempted. REPRESENTATIVE KOTT responded that there is always a way to address special exemptions if there is the will to do it. Often times those individuals who travel for medical attention are having the tab picked up. REPRESENTATIVE HEINZE replied that she knows there are a lot of folks coming into the city from the Bush for medical attention; however, she said she cannot imagine that their tab would be picked up. REPRESENTATIVE KOTT explained that he knows that the BIA [Bureau of Indian Affairs] has a contract that provides for individuals who come from the Bush for medical treatment to be housed and provides for shuttle service to and from the place where they receive treatment. He said that [if an exemption were provided for] individuals who may or may not be receiving medical treatment, it would open the door for the possibility of inappropriate activity. Number 1341 REPRESENTATIVE KOHRING said he disagrees with Representative Kott and asked how this legislation would benefit the economy of Alaska. He opined that taxes are more of a strain to an economy rather than something that will benefit an economy in terms of contributing to growth. Benefits from tourists in terms of the money spent in hotels, restaurants, gas stations, gift shops, and grocery stores offset loss of revenue that might be gained by a tax of this nature, he said. Number 1509 REPRESENTATIVE KOTT acknowledged that it is unusual [for him] to be advocating for a tax bill, since he has spent the last 10 years advocating against taxes. However, he believes it is time to face reality. He said he is trying to do that in the least painful way possible. This is one way to impose a small tax on Alaskans who may rent a car, although in most cases, Alaskan's will not be affected. Representative Kott stated he does not believe there will be any loss of tourism as a consequence of implementing this tax. Tourists who come to Alaska rent vehicles, recreate, and participate in various activities, which provide revenue for tourism operators or restaurants. The state does not impose any tax on tourist at this point. Although there may be an indirect relationship with respect to corporate income tax, there is no direct tax. He said there is no negative impact to local small businesses or restaurateurs. Infact,with this legislation the state would receive a small amount of money, $5-10 million, which could be used to offset some of the damage to roads and parks by tourism. Certainly, part of the money could be set aside for tourism marketing. It is important to reinject some of that money to attract more tourists. Number 1838 CO-CHAIR HAWKER pointed out that this bill does not apply to commercial motor vehicles [as defined in AS 28.41.100] or RVs. Number 1930 REPRESENTATIVE WEYHRAUCH responded that the definition of a commercial motor vehicle as described in Alaska Statute 28.41.100 means: A motor vehicle or a combination of a motor vehicle and one or more other motor vehicles used to transport passengers and property, used upon a land or vehicular highway, and that has a gross vehicle weight or combination weight rating greater than 26,000 pounds designed to transport more than 15 passengers including the driver or is used in the transportation of materials found by the U.S. Secretary of Transportation to be hazardous, except that the following vehicles meeting of the criteria, that he just mentioned in (a) and (c) of the paragraph are not commercial vehicles, emergency or fire equipment necessary for preservation of life or property, farm vehicles controlled or operated by a farmer, used to transport agricultural products, farm machinery, or farm supplies, not used in the operation of common or contract motor carrier, or RVs (recreation vehicles) used for the purposes other than commercial purposes. CO-CHAIR HAWKER commented that [the definition] did include vehicles used to transport either passengers or property. The gross vehicle weight limit of 26,000 pounds appears to be the key requirement. REPRESENTATIVE KOTT commented that a bus could be exempted from the tax. Number 2112 REPRESENTATIVE WILSON noted that the definition mentions a 15- passenger vehicle. Would the definition include a 12-passenger van, she asked. Number 2153 CO-CHAIR HAWKER commented that the statutes define a 15- passenger van [as a commercial vehicle]. He said his own experience in renting 12- and 15-passenger vans, which are comparable to the one-ton Budget or U-Haul vans, is if there are seats in them, they are considered a 15-passenger van, while those without seats are considered a cargo van. Number 2213 REPRESENTATIVE WILSON pointed out that some schools drive cheerleaders to events in 12-passenger vans. She said she has no idea whether these vans meet the weight requirement. REPRESENTATIVE HEINZE asked if there is any forward thinking about how these funds could be funneled back into tourism marketing. She pointed out that these taxes are mainly tourism user fees. Number 2311 REPRESENTATIVE KOTT commented that she made a correct assessment regarding forward thinking. The funds cannot be dedicated directly into a specific arena unless there is a constitutional amendment authorizing dedicated funds. Representative Kott reiterated his earlier comments that intent language can be included in the bill that would suggest that the legislature wants a percentage of the proceeds which are generated from this excise tax to go toward some other method of doing business in the state of Alaska. He stated that he believes it would be a good thing to include intent language for "tourism marketing" in the bill. Representative Kott told the members that he cannot promise any money raised from this excise tax will ever end up in tourism marketing. Number 2416 REPRESENTATIVE HEINZE explained that those in the tourism industry will be on the outside watching these user fees [accumulate]. How can the tourism industry get an answer about more funds for tourism marketing, she asked. How will the [Department] of Community and Economic Development will be affected. REPRESENTATIVE KOTT pointed to the fiscal note and said that the details are comprehensive. He commented that there are entities in the tourism field that are cognizant of this bill and other measures that will generate money from non-Alaskans, whether they are working on the North Slope or visiting as a tourist. Representative Kott said that at some point the state will have to provide some level of support for the tourism industry. There will be a request for dollars for marketing activities because without marketing, the industry will become stagnate. For example, after [the terrorist attacks of September 11, 2001] Las Vegas [as a tourism destination] was on the decline; however, the city opted to spend $14 million for marketing. Las Vegas is one of few cities that showed a marked increase in tourism to their city. There is a nexus between marketing and the number of tourists who visit a specific city. Representative Kott commented that he would not have expected Las Vegas to do so well considering the fact that large properties would be targets for terrorism. Number 2722 REPRESENTATIVE KOHRING reminded the members of contributions made by tourists to the economy. If the primary justification for this tax is to raise dollars for marketing and road maintenance, it would be interesting to know what the administration has in the way of quantifying the costs, he commented. Representative Kohring opined that there has been negligible cost to the state on wear and tear of the highways and use of public facilities by tourists. He said he would like to hear from the administration regarding what costs this tax would try to offset. Number 2844 CO-CHAIR HAWKER announced that there will be public hearings tomorrow on HB 271. He told the members that as the session grows short and the workload is heavy, he wants to keep moving forward as quickly as possible. With that in mind, he announced that anyone who would like to raise concerns or propose amendments to the bill should provide them to the committee today, so they can be considered tomorrow before and after public hearings. REPRESENTATIVE KOTT cautioned the members who might propose a change in the definition of commercial vehicles or exemptions to be aware of the potential conflict a change might have in municipalities and the confusion that might follow with rental car companies. He pointed out that HB 271 has basically extracted language and regulations [that are currently used to avoid unnecessary confusion]. [HB 271 was held over.]