SB 178-PASSENGER VEHICLE RENTAL TAX  1:31:58 PM CHAIR EGAN announced SB 178 to be up for consideration. 1:32:06 PM BRITTANY HUTCHISON, staff to Senator Click Bishop, explained the draft committee substitute (CS) to SB 178(), version 28- LS1406\C. Language in section 1 on page 1, line 4, consolidates two sections regarding the terms "recreational" and "passenger" for better organization of the statute and except for the tax rates, the factors are the same for both types of vehicles. Section 2 on page 1, line 10, reduces the rental term from 90 days to 30 days for which a vehicle is exempt. An extension of the contract is also exempt as long as the extension is agreed upon before the expiration of the initial 30-day period. There is no break between the initial period and the period of extension. 1:33:25 PM Section 3 on page 2, line 6, consolidates the terms "passenger" and "recreational." It states that passenger vehicles are taxed at a total of 10 percent of all fees and costs and recreational vehicles are taxed at 30 percent. That has not changed from the original statute. 1:34:43 PM Section 4 on page 2, line 13, amends the term "passenger vehicle" to specify that it is for the primary purpose of transporting passengers. This is done to help clarify that the tax applies only to passenger vehicles and not to vehicles that have another purpose. Section 4(f) on page 2, line 28, reduces the gross vehicle weight from 8,500 lbs. to 6,500 lbs. in order to better define what size of trucks the legislature intends to be taxed. Section 5 on page 3, line 7, repeals AS 43.52.030 and .040, because they are no longer needed since they have already been consolidated in sections 1 and 3. The original version of SB 178 had a section regarding retroactivity, and the CS does not have that. But to address that issue they drafted a letter of intent which says the passenger vehicle rental tax should not be applied to Alaskan businesses doing business with other Alaskan businesses and that tax should not be applied retroactively. However, if DOR is able to determine that a business collected the tax but did not remit the tax to DOR, then DOR should charge back taxes, penalties and/or interest on those unpaid taxes. She explained that in 2003, the legislature passed House Bill 271, a passenger vehicle rental tax intended to raise revenue from tourists renting passenger vehicles so that they could help pay for the wear and tear they inflict on the State's publically-maintained roads. 1:35:05 PM SENATOR FAIRCLOUGH joined the committee. 1:35:15 PM MS. HUTCHISON continue to explain that since the passage of HB 271, AS 43.52 has been amended three times; two of which were to exempt Alaskan businesses doing business with other Alaskan businesses. The third time was to exempt motorcycles. 1:35:55 PM SENATOR DYSON moved to adopt CSSB 178(), version\C. CHAIR EGAN objected for discussion purposes. MS. HUTCHISON said the intent of SB 178 is to clarify, once again, which rental vehicles are to be covered by the tax and which are not. It is the committee's intent that only passenger rental cars, as described in section 4 of CSSB 178, should be taxed under AS 43.52.010. SENATOR DYSON asked if there is a fiscal note. MS. HUTCHISON answered not yet for the CS. 1:37:44 PM DOUG JOHNSON, CFO, Tyler Rental, Inc., Ketchikan, Alaska, supported SB 178. He said they have been in business for 25 years and operates from five different locations in Southeast Alaska with 58 Alaskan employees. Tyler never received notice of this tax from the state. Their core business is rental of large equipment to the construction, timber and mining, industries. They rent half-ton and large pickups to support contractor needs such as at the Kensington Mine and Greens Creek Mine that are not on the state highway system. MR. JOHNSON said Tyler just became aware of the rental vehicle tax from another Alaska-based equipment rental company and have filed their fourth quarter 2013 return to the DOR and paid this tax under protest on the basis that they were never informed of this tax requirement. This general lack of notice to equipment rental companies and their inability to bill customers for this tax from prior periods is why they support SB 178. 1:40:50 PM RUDI VONIMHOF, Delta Leasing, Anchorage, Alaska, supported SB 178. He said they are based out of Prudhoe Bay with a small office in Anchorage and a big chunk of their business is equipment leasing similar to Tyler Rentals. MR. VONIMHOF became involved with Delta Leasing in 2007; they have 28 Alaska employees. Their primary office and 95 percent of their business is in Prudhoe Bay with oil field service contractors. They lease half-ton and three-quarter ton vehicles to the customers who request them. Their insurance limits them to doing business with business entities, so they can't do any business with consumers. 1:42:11 PM SENATOR FRENCH joined the committee. MR. VONIMHOF said they first became aware of the rental car tax in 2010 when they received a notification from the DOR. They then exchanged two letters with the department; the last one asked to see a copy of several of their leases, which they sent along with an offer to answer any questions. An earlier letter to the department said they did not feel this tax was applicable to their operations, because they are in the heavy industrial rental business in Prudhoe Bay to business entities. Going forward three years, Mr. Vonimhof said, on November 6, 2013 a criminal search warrant was served on them by a DOR criminal investigator who had tried to rent a three-quarter ton truck from them and was refused rental. Then he obtained a fictitious business license posing as a construction entity, and after showing them his business license, he was granted credit with the company. Apparently that transaction enabled him to obtain a search warrant. The truck had a gross vehicle weight (GVW) rating in excess of 8,500 lbs., which is an exempt vehicle class under existing statute, so he didn't know how that enabled his business to be searched. Nevertheless, DOR agents simultaneously showed up at their Anchorage office and at their Prudhoe Bay office. At least four armed DOR agents were in their Prudhoe Bay office for the majority of the day and between the two offices the department confiscated approximately 70 banker's boxes consisting of all of their accounting hard files as well as their asset files and computers. That was the first time they had heard from the DOR since the 2010 correspondence and that was a fairly shocking way to be notified. Since that time Mr. Vonimhof said they had put a lot of time into this issue. He wrote a letter to Commissioner Rodell in late December asking how they could interpret their company as falling under the existing law since there are no state maintained roads in Prudhoe Bay. State maintenance ends at the end of the Dalton highway and all of their activities occur beyond that point. Their customers lease vehicles for use on their oil field exploration sites that are behind guarded security check points. There is no way that this could by any means fall within the realm of a public right-of-way, at least by their legal council's opinion. He said that basically they have had very little interaction with the DOR over the past four months and have more or less written off their confiscated computers and bought new ones, although keeping their business going for a couple of weeks was quite a scramble without access to their electronic or paper records. Just selling a vehicle when you don't have a title for it is problematic. In summary he said SB 178 clarifies the intent of the original legislation, and he urged its passage. SENATOR DYSON asked if the DOR agents had search warrants. MR. VONIMHOF answered yes. SENATOR DYSON asked how long it took to get their property back. MR. VONIMHOF replied that they had not received any of their files or computers back. 1:50:19 PM SENATOR DYSON noted that public safety police officers regularly have equipment that can quickly copy hard drives, and they passed a bill to get property returned. Also, the law clearly provides ways for them to copy and establish the chain of custody and get the property back to citizens. He found this all very alarming and he was sorry they had to go through it. 1:50:49 PM MR. VONIMHOF clarified that the department did not take their server, and they returned the electronic files with credit card numbers. They had received one or two of their key computers, but zero on the paper files. 1:51:35 PM SENATOR FAIRCLOUGH asked if they could go into executive session to speak with the administration and their attorneys about this. CHAIR EGAN said he thought that could be arranged. SENATOR DYSON said he had been around long enough to know there are always at least two sides to every story and he wanted to hear the department's take on this case. 1:52:50 PM JOHN COOK, CFO, Airport Equipment Rentals, Brice Enterprise, supported CSSB 178. He supported many of the comments of the previous testifier regarding the tax. But he wanted to point out that there is a difference in interpretation between businesses and the department on what the current exemption of 8,500 GVW means and the CS clears that up. Secondly, the department has never provided any reason as to why vehicles rented on the North Slope are defined as passenger vehicles. AS 43.52.099 (2) defines a passenger vehicle as a motor vehicle that is driven on a highway or a public right-of-way; clearly activities off the Dalton Highway are not conducted on either of those types of roadways. They believe this bill will clarify the original intent and clear up the disagreement between the private sector doing business with businesses in Alaska and the department. 1:54:27 PM SAM BRICE, President, Brice Enterprises, Inc., supported SB 178. His is a 50-year old Alaskan construction business that was bought by the Chulista Corporation four years back. They have up to 60 full-time employees and 200 seasonal employees. Brice Equipment Rental is a subsidiary of their company, and it is a small equipment rental company based on the North Slope. A small part of heavy equipment rental business is pickup rental for the North Slope producers and service companies as well as their own construction company, mainly in rural Alaska. He related that they received a letter making them aware of the tax in November 2013; the letter invited them to file quarterly tax returns for all quarters back to 2004 in which they had vehicle rental income. They questioned the applicability of the tax on their use of pickups on surface roads on the North Slope and with other Alaska businesses. Their liability goes back to 2010, their first year of light vehicle rental, and is approximately $31,000; they wrote the check so as not to incur further penalties. They feel this bill clarifies the intent of law. SENATOR FRENCH asked Johanna Bales to explain how the department settled the problem of back taxes several years ago with the motorcycle rentals bill. JOHANNA BALES, Deputy Director, Tax Division, Alaska Department of Revenue (DOR), explained that they worked with the individual companies and most of them did pay. Capturing back taxes was limited through an agreement with the Department of Law, but they were required to pay taxes that were due prior to the change. SENATOR FRENCH asked what the time was limited to. MS. BALES explained that they had done this type of limiting back taxes with taxpayers who come forward and cooperated with them, and their general timeframe is three to five years. 1:58:41 PM SENATOR FAIRCLOUGH asked if there is a requirement for the department to notify taxpayers when taxes are going to be placed against a business. MS. BALES answered no. In fact, they do not tell corporations coming to Alaska that they are subject to corporate income tax. But whenever a new tax or statute is implemented they try to reach out to all affected companies that they believe could be subject it, but they also rely on those companies to try and look out for themselves and reach out to the taxing authority or business licensing agent to try to get information about any regulations, taxes, fees, that they might be subject to. 2:00:16 PM At ease from 2:00 to 2:02 p.m. 2:02:51 PM CHAIR EGAN called the meeting back to order. SENATOR DYSON moved to hold SB 178 until next Tuesday and to ask DOR and DOL to attend an executive session on the bill. There were no objections and it was so ordered. SENATOR FAIRCLOUGH said Delta Leasing was the second constituent that said the DOR seized their property; the other was Ryan Peterkin with Maytech Alaska. CHAIR EGAN held SB 178 in committee.