Legislature(2009 - 2010)BARNES 124

02/26/2010 03:15 PM House LABOR & COMMERCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Moved Out of Committee
Heard & Held
        HB 340-MUNICIPAL SALES OR USE TAX ON MOTOR FUEL                                                                     
3:46:56 PM                                                                                                                    
CHAIR OLSON announced  that the final order of  business would be                                                               
HOUSE BILL  NO. 340, "An Act  relating to municipal sales  or use                                                               
taxes on motor fuels; and providing for an effective date."                                                                     
KONRAD JACKSON,  Staff, Representative  Kurt Olson,  Alaska State                                                               
Legislature,  paraphrased  the  sponsor's statement,  which  read                                                               
[original punctuation provided]:                                                                                                
      House Bill 340 would limit the sales tax charged by                                                                       
      municipalities on gasoline and diesel, when used as                                                                       
     motor fuel on Alaska's highways, to $0.08 per gallon.                                                                      
     As the  price of  gasoline increases,  consumers suffer                                                                    
     with an  ever increasing sales tax  liability. When the                                                                    
     price of gasoline  in my community was  at its highest,                                                                    
     nearly $4.70  per gallon,  my constituents  were paying                                                                    
     nearly $0.30 per gallon in sales tax.                                                                                      
     This flat sales tax on a  gallon of fuel will provide a                                                                    
     small  savings   at  lower  price  points.   If  prices                                                                    
     increase  in  the  future,   consumers  will  see  even                                                                    
     greater savings.                                                                                                           
     In  cities within  a  borough, both  the  city and  the                                                                    
     borough  would be  able to  charge the  flat tax.  This                                                                    
     would mean a maximum sales tax of $0.16 per gallon.                                                                        
     While  this cap  will  lower  many municipalities'  tax                                                                    
     revenue  at high  fuel prices,  at low  prices it  will                                                                    
     mean higher revenue.                                                                                                       
3:48:20 PM                                                                                                                    
CHAIR OLSON clarified that this bill refers to a flat tax.                                                                      
MR. JACKSON  explained that this  bill would  not cap the  tax on                                                               
home heating  fuel, but  is specific to  motor fuel,  gasoline or                                                               
diesel fuel,  which is used on  the roadway.  This  would provide                                                               
relief  to consumers  at the  pump when  prices are  high.   When                                                               
prices  are low,  municipalities could  collect additional  sales                                                               
tax than collected  under the current tax mechanism.   He related                                                               
a  scenario in  which the  current  gas price  in the  Mendenhall                                                               
Valley cost approximately  $3.00 per gallon, of  which about $.14                                                               
per gallon  represents the sales tax.   With the passage  of this                                                               
bill, the consumer would save $.06  per gallon on sales tax.  The                                                               
current  sales tax  collected  is  in addition  to  the $.26  per                                                               
gallon in state and federal taxes.                                                                                              
3:50:39 PM                                                                                                                    
REPRESENTATIVE NEUMAN asked how HB  340 would affect home heating                                                               
oil and whether this proposal  would be limited to transportation                                                               
fuel taxes.                                                                                                                     
MR. JACKSON explained that HB 340  is specific to motor fuel.  He                                                               
referred to page  2, line 4, of HB 340  which read:  "...gasoline                                                               
or diesel fuel of the type  used in cars, trucks, and other motor                                                               
vehicles that are  driven on roads ..."  Thus,  the targeted fuel                                                               
is the fuel from the pump at  the local gas station, not the fuel                                                               
delivered to homes for heating purposes.                                                                                        
REPRESENTATIVE  NEUMAN  asked  whether  municipalities  currently                                                               
have the ability to tax non-transportation fuels.                                                                               
MR.  JACKSON responded  that the  municipalities which  collect a                                                               
sales tax  collect the  tax on  all commodities  sold.   He noted                                                               
that some municipalities also specifically  charge a transfer tax                                                               
on fuels.   For  example, Adak  collects a  $.02 per  gallon fuel                                                               
transfer  tax.   He  related  that the  fuel  transfer taxes  are                                                               
collected in  three communities, although he  acknowledged he may                                                               
have missed some.                                                                                                               
REPRESENTATIVE  NEUMAN   asked  whether   a  statewide   list  of                                                               
municipal taxes is available for motor fuel taxes.                                                                              
MR.   JACKSON  explained   he  obtained   information  from   the                                                               
Legislative Research  Services titled,  "Table 1:  2008 Municipal                                                               
Sales  Tax, Special  Tax and  Revenues."   He offered  his belief                                                               
that the taxes  listed include home heating  fuel, groceries, and                                                               
REPRESENTATIVE NEUMAN  asked whether  the intent of  the proposed                                                               
bill is  not to  place a  tax on  home heating  or transportation                                                               
MR. JACKSON answered no.  He  explained that the intent of HB 340                                                               
is to cap  the taxes on motor  fuel used on highways  at $.08 per                                                               
gallon.   The bill would not  apply to home heating  or fuel used                                                               
in boats, he stated.                                                                                                            
REPRESENTATIVE NEUMAN asked whether  some communities charge more                                                               
than $.08 per gallon tax for a combined sales tax and fuel tax.                                                                 
MR. JACKSON answered yes.                                                                                                       
3:54:14 PM                                                                                                                    
CHAIR  OLSON offered  to  provide members  with  the chart  being                                                               
referred to  by Mr. Jackson.   He recalled that under  HB 340, in                                                               
the past five  and a half of seven years  that the municipalities                                                               
would have gained  income.  He explained that the  past two years                                                               
would  only have  had  a  slight impact  on  municipalities.   He                                                               
offered  his belief  that the  windfall  of high  prices was  not                                                               
built  into   the  municipal  budgets.     He  stated   that  his                                                               
constituents  have complained  their  motor fuel  costs are  much                                                               
higher than in Anchorage, which is  largely due to the sales tax.                                                               
Secondly, his  constituents have also complained  that Soldotna's                                                               
costs are higher than elsewhere.                                                                                                
3:55:06 PM                                                                                                                    
REPRESENTATIVE  NEUMAN recalled  many  constituents commented  on                                                               
when the state temporarily repealed the $.08 motor fuel tax.                                                                    
CHAIR OLSON pointed out that  should consumers fill up their boat                                                               
fuel tanks  at the gas pump,  that the taxes on  recreational gas                                                               
would also be capped at $.08 per gallon.                                                                                        
REPRESENTATIVE NEUMAN  commented that  the bill would  not affect                                                               
"colored" fuel sold.                                                                                                            
CHAIR OLSON  stated his  intent is  not to move  HB 340  today to                                                               
allow for further testimony.                                                                                                    
3:56:44 PM                                                                                                                    
REPRESENTATIVE T.  WILSON remarked  that the  City of  North Pole                                                               
currently  charges a  4 percent  sales tax.   She  asked for  the                                                               
impact  this  bill  would  have  on  smaller  communities.    She                                                               
expressed concern that  a cap could adversely  affect the smaller                                                               
communities like  North Pole, with a  population of approximately                                                               
2,000 people.                                                                                                                   
MR. JACKSON  stated that he  received a  letter from the  City of                                                               
North  Pole.   He  agreed  that  many  communities have  not  yet                                                               
weighed in  on the bill.   He thought many  communities currently                                                               
have a  cap on sales  tax, such  as the Kenai  Peninsula Borough.                                                               
He offered that this bill would lower the cap.                                                                                  
3:58:14 PM                                                                                                                    
REPRESENTATIVE T.  WILSON asked  for the highest  tax on  fuel in                                                               
the state.                                                                                                                      
MR. JACKSON answered that Wrangell has a 7 percent sales tax.                                                                   
3:58:33 PM                                                                                                                    
CHAIR OLSON added  that some taxes are assessed "in  the Bush" by                                                               
non-governmental  organizations, such  as a  tribal council  or a                                                               
village council.   He  remarked that the  fees assessed  could be                                                               
significant, up  to several  dollars per  gallon.   However, this                                                               
bill would not affect those charges since they are not taxes.                                                                   
REPRESENTATIVE T.  WILSON related  that the organizations  do not                                                               
call the additional amount a sales tax.                                                                                         
CHAIR  OLSON  explained that  the  attorney  general's office  is                                                               
reviewing the additional  costs assessed.  He stated  that he was                                                               
not able  to find a  way to incorporate those  additional charges                                                               
into  the bill.   He  remarked that  the fuel  distributors would                                                               
prefer to have the RCA regulate  them since they have been blamed                                                               
for the higher  price of fuel.  The prices  can vary from village                                                               
to village,  he stated.   He also  anticipated a report  would be                                                               
forthcoming from the attorney general's office.                                                                                 
4:00:11 PM                                                                                                                    
REPRESENTATIVE T. WILSON inquired as  to whether the amount would                                                               
stay at $.08  per gallon until someone changed the  bill, or if a                                                               
mechanism is built into the bill.                                                                                               
MR. JACKSON  agreed that  the tax  cap would  remain at  $.08 per                                                               
gallon since the bill does not have a sunset clause.                                                                            
4:00:38 PM                                                                                                                    
REPRESENTATIVE CHENAULT advised that  the Kenai Peninsula Borough                                                               
currently  charges  a  three  percent  sales tax  on  fuel.    He                                                               
surmised that the  majority of the cities charge  about the same.                                                               
He related that under the  current system, a person who purchases                                                               
fuel in the  City of Kenai would pay about  $.21 per gallon under                                                               
the proposed  tax system.   He  asked whether  the City  of Kenai                                                               
would only be able to collect  $.08 cents per gallon, and the KPB                                                               
would  only collect  $.08  per gallon  for a  total  of $.16  per                                                               
gallon sales tax on motor fuel.                                                                                                 
MR. JACKSON agreed.                                                                                                             
4:01:49 PM                                                                                                                    
REPRESENTATIVE  CHENAULT remarked  that the  bill would  not drop                                                               
the tax back down  to zero.  He agreed that  the KPB may estimate                                                               
the cost  of the  fuel when  preparing its  budget.   He recalled                                                               
gasoline costs  rose to  $4.75 per  gallon.   He stated  the fuel                                                               
taxes   were   never  intended   to   provide   a  windfall   for                                                               
municipalities, noting that this bill would also help consumers.                                                                
4:02:50 PM                                                                                                                    
REPRESENTATIVE LYNN  asked whether  municipalities would  ask the                                                               
legislature  for  additional revenue  sharing  and  if this  bill                                                               
would just shift the cost to the state.                                                                                         
CHAIR  OLSON surmised  that  since the  fuel  increases were  not                                                               
anticipated,  that  the  amount   is  not  built  into  municipal                                                               
budgets.   He recalled that  fuel costs  briefly were as  high as                                                               
$4.99  per  gallon.    He   related  that  communities  lost  the                                                               
potential of receiving  extra sales tax, but  since their budgets                                                               
were  not based  on the  increased tax  revenue, that  they would                                                               
only lose  the opportunity to  collect the additional  sales tax.                                                               
He recalled observing people drive  the Seward Highway with up to                                                               
sixty gallons of  fuel in five gallon cans which  he presumed had                                                               
been filled in Anchorage to avoid paying extra fuel tax.                                                                        
4:04:33 PM                                                                                                                    
REPRESENTATIVE NEUMAN recalled  the legislature received requests                                                               
for reimbursement of up to  the $150,000 in exemptions for senior                                                               
REPRESENTATIVE BUCH  related that the  consumer does not  have an                                                               
adequate  mechanism   to  control  the  pass   through  costs  to                                                               
consumers.  He  recalled when the motor fuel  tax was temporarily                                                               
repealed that  when the tax was  reduced to $.03 per  gallon, the                                                               
costs quickly  increased by  $.04 per gallon.   He  restated that                                                               
the state does  not have mechanism to control  pass through costs                                                               
to consumers.   He  appreciates the  bill sponsor's  efforts, but                                                               
stated that  he would like  long-term solutions to fuel  costs as                                                               
well  as for  "the intent  of motor  fuel tax  reductions" to  be                                                               
offered at the pump.                                                                                                            
4:06:21 PM                                                                                                                    
DOUG ISSACSSON, Mayor,  City of North Pole, Office  of the Mayor,                                                               
stated  that his  office  was just  informed of  this  bill.   He                                                               
applauded the  sponsor for exploring  ways to reduce the  cost of                                                               
living for residents throughout Alaska.   He paraphrased from his                                                               
written comments, as follows [original punctuation provided]:                                                                   
      3.  However, I question the efficacy of this action                                                                       
     for at least two reasons:                                                                                                  
        a. First, if you, as the Legislature, are seeking to                                                                    
          lower cost at the pump for consumers, why not                                                                         
          start by lowering the fees charged by the State                                                                       
          to the refineries.                                                                                                    
            i. I understand this is a complex issue that,                                                                       
               owing  to  market  factors and  the  laws  of                                                                    
               supply   and  demand,   ultimately  may   not                                                                    
               achieve the discount you are seeking.                                                                            
        b. Second, although you have the right to limit a                                                                       
          tax  imposed  by  a local  community,  should  you                                                                    
          exercise  it  and  thus usurp  the  local  voters'                                                                    
          ability   to   regulate  commerce   within   their                                                                    
            i. It is my belief that the sales tax is one of                                                                     
               the  few taxes  most  municipalities have  to                                                                    
               generate  revenues  and therefore  should  be                                                                    
               regulated at the  local municipal level where                                                                    
               the  voters have  the ability  to debate  the                                                                    
               merits  of the  tax face  to face  with their                                                                    
           ii. To set an arbitrary limit on municipalities                                                                      
               is,  in  my  estimation,  a  slippery  slope.                                                                    
               Factual  data,  the  presence  of  repressive                                                                    
               taxation  or   abuse,  or   other  compelling                                                                    
               factors should  be used as the  basis for the                                                                    
               State     government's    intervention     or                                                                    
              overruling a municipality's control.                                                                              
                  1. I  have   not   received   calls   from                                                                    
                    legislative      staffers     requesting                                                                    
                    information on the  impact of this bill,                                                                    
                    except  this  morning   by  District  11                                                                    
                    Representative Tammie Wilson;                                                                               
                  2. I have not heard that the gas station                                                                      
                    operators   have   complained   to   the                                                                    
                  3. I have not heard of numerous complaints                                                                    
                    by  residents--if  gas  prices  are  too                                                                    
                    high in  North Pole, they vote  by going                                                                    
                    to Fairbanks  to fill up.   If  too many                                                                    
                    people  vote in  this  manner, the  tree                                                                    
                    gas   stations  in   North  Pole   would                                                                    
                    respond either by  lowering their prices                                                                    
                    or  complaining  to  City Hall  about  a                                                                    
                    repressive taxation regime that limits                                                                      
                    their competitiveness.                                                                                      
   5. So what is the effect to North Pole, or to consumers                                                                      
     in North Pole?                                                                                                             
        a. North Pole charges a 4% retail sales tax, four                                                                       
          cents  on  the  dollar   capped  at  $8.00  (eight                                                                    
          dollars) a transaction.                                                                                               
        b. North Pole has a manual tax reporting that relies                                                                    
          on the veracity of the  company reporting.  We are                                                                    
          a  minimally  staffed   municipality  and  do  not                                                                    
          perform frequent audits.                                                                                              
4:11:04 PM                                                                                                                    
        c. The three gas stations are owned by two entities:                                                                    
          Petro  Star operates  two facilities,  one with  a                                                                    
          convenience  store attached;  Tesoro operates  the                                                                    
         third, also with a convenience store attached.                                                                         
            i. There is no distinction, at this time, in                                                                        
               reporting sales from gasoline or diesel, or                                                                      
               bubble gum and pop.                                                                                              
           ii. There is a distinction, due to the separate                                                                      
               category, in taxing alcohol.                                                                                     
        d. Because there is no reporting break-out, and                                                                         
          owning to  the lack of time  to adequately compile                                                                    
          the numbers,  we do not  know how  significant the                                                                    
          impact will be to the City of North Pole.                                                                             
        e. However, a corollary may be that from September                                                                      
          2008   to   September   2009  the   City   Council                                                                    
          authorized a sales tax suspension on heating oil.                                                                     
            i. Remember, retail sales tax is capped at $8                                                                       
               per transaction equal to a $200 purchase.                                                                        
           ii. A typical fill-up might be 100-200 gallons,                                                                      
               which due to  price fluctuations could exceed                                                                    
               the $200/$8  cap, whereas most  purchases for                                                                    
               fuel  might be  closer  to  the 10-20  gallon                                                                    
               range  and  be  considerably lower  than  the                                                                    
          iii. We gauged that by suspending the tax on                                                                          
               heating oil deliveries, a monthly fuel                                                                           
               delivery with an $8 tax would save a                                                                             
               consumer $96 per year ($8 per month).                                                                            
           iv. Overall, the City lost approximately $25,000                                                                     
               in revenue during that period.                                                                                   
            v. There was no public demand to keep the                                                                           
               suspension, even with two council meetings                                                                       
               where it was considered (a thirty day                                                                            
              period) and the tax was re-instated.                                                                              
   5. I would ask the sponsors, and this committee, to not                                                                      
     pass this out of committee until factual data from the                                                                     
     affected municipalities can be collected and the real                                                                      
     impact/savings can be determined.                                                                                          
4:16:03 PM                                                                                                                    
CHAIR  OLSON clarified  that the  valley gas  prices referred  to                                                               
earlier are the Mendenhall Valley gas prices.                                                                                   
REPRESENTATIVE  NEUMAN  related  that  Representative  T.  Wilson                                                               
provided  information   and  is   doing  a   good  job   for  her                                                               
4:16:56 PM                                                                                                                    
KATHIE  WASSERMAN, Executive  Director,  Alaska Municipal  League                                                               
(AML), referred to the tables  in the materials provided from the                                                               
Legislative  Research Services,  noting  that  the lists  contain                                                               
municipalities.   She clarified that  none of the ones  listed as                                                               
are communities,  but are actually municipalities.   She recalled                                                               
living  in Pelican,  with fuel  sold  by the  tribal entity,  and                                                               
while the entity did not have  the ability to tax, it could raise                                                               
the price on products.                                                                                                          
CHAIR  OLSON  agreed,  relating that  the  costs  were  sometimes                                                               
4:18:21 PM                                                                                                                    
MS. WASSERMAN stated  that she called many  communities for input                                                               
on  HB  340.   She  related  that  while  she  did not  find  any                                                               
community  in  full support  of  the  bill,  some members  of  an                                                               
assembly wanted  to consider  this approach as  an option.   Many                                                               
remote municipalities  were opposed to  the concept of a  tax cap                                                               
on  motor  fuel  since  fuel   prices  are  very  high  in  rural                                                               
communities.  Since the rural  communities do not have any method                                                               
to  reduce fuel  costs, the  municipalities would  lose potential                                                               
sales taxes  when tax  caps would  be imposed.   This  bill would                                                               
have  a large  impact  on  a community,  yet  it  would not  save                                                               
individual  members very  much.   She  did not  have a  unanimous                                                               
viewpoint  on  behalf  of communities,  but  suggested  that  AML                                                               
believes  that  communities  should  have  an  option  to  choose                                                               
whether to implement a tax cap.                                                                                                 
MS.  WASSERMAN said  that she  favored local  control, which  has                                                               
been  AML's  "top  message"  for   the  legislature.    She  also                                                               
commented  on the  ease of  working with  the sponsor's  staff on                                                               
this issue even though the AML  was somewhat in opposition to the                                                               
4:21:01 PM                                                                                                                    
CHAIR OLSON commented that it was  important to hold a hearing on                                                               
HB 340  in order to  have the issues  discussed.  He  pointed out                                                               
that  the state  has  significant problems  with  high prices  on                                                               
motor  fuel taxes,  especially on  fees  attached to  commodities                                                               
that are not taxes, but represent a type of surcharge.                                                                          
4:22:12 PM                                                                                                                    
CHAIR OLSON announced that HB 340 would be held over.                                                                           

Document Name Date/Time Subjects
HB245 ver A.pdf HL&C 2/26/2010 3:15:00 PM
HB 245
HB245 Sponsor Statement ver A.pdf HL&C 2/26/2010 3:15:00 PM
HB 245
HB245 Sectional Analysis ver A.pdf HL&C 2/26/2010 3:15:00 PM
HB 245
HB245 Fiscal Note-CED-CBPL-2-21-10.pdf HL&C 2/26/2010 3:15:00 PM
HB 245
HB245 Board of Op Examiners Annual Report.pdf HL&C 2/26/2010 3:15:00 PM
HB 245
HB245 Highest Level Req for Licensure Survey of States Jan2010.pdf HL&C 2/26/2010 3:15:00 PM
HB 245
HB245 Letter D Halverson 2-22-10.pdf HL&C 2/26/2010 3:15:00 PM
HB 245
HB340 ver E.pdf HL&C 2/26/2010 3:15:00 PM
HB 340
HB340 Sponsor Statement ver E.pdf HL&C 2/26/2010 3:15:00 PM
HB 340
HB340 Sectional Analysis ver E.pdf HL&C 2/26/2010 3:15:00 PM
HB 340
HB340 Fiscal Note-CED-CRA-2-24-10.pdf HL&C 2/26/2010 3:15:00 PM
HB 340
HB340 Leg Research Report 6-15-09.pdf HL&C 2/26/2010 3:15:00 PM
HB 340
HB340 Letter City of North Pole 2-26-10.pdf HL&C 2/26/2010 3:15:00 PM
HB 340