Legislature(2003 - 2004)

03/31/2004 07:05 AM W&M

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
HB 537-TOURISM SALES AND USE TAXES                                                                                          
                                                                                                                                
Number 2434                                                                                                                     
                                                                                                                                
CHAIR HAWKER announced that the  final order of business would be                                                               
HOUSE BILL  NO. 537,  "An Act relating  to the  levy, collection,                                                               
and administration  of sales and  use taxes on  tourism services;                                                               
and providing for an effective date."                                                                                           
                                                                                                                                
Number 2550                                                                                                                     
                                                                                                                                
REPRESENTATIVE  WEYHRAUCH  moved to  adopt  HB  537, labeled  23-                                                               
GH2114\A, as  the working  document.   There being  no objection,                                                               
Version A was before the committee.                                                                                             
                                                                                                                                
Number 2626                                                                                                                     
                                                                                                                                
WILLIAM  CORBUS,   Commissioner,  Office  of   the  Commissioner,                                                               
Department of  Revenue (DOR) introduced  HB 537, a  tourism sales                                                               
and use tax  bill, on behalf of  the Office of the  Governor.  He                                                               
said it  applies to a  broad range of  tourist-related activities                                                               
such  as  taxes  on  cruise ship  fares,  shore-side  activities,                                                               
transient accomodations,  and guided tours.   Revenues for  FY 05                                                               
are  estimated  to be  $19  million,  and  for  FY 06  and  years                                                               
following, $49 million per year.   He called this bill a user-pay                                                               
type  of legislation,  which  will help  pay  for the  identified                                                               
costs associated  with tourism  in Alaska of  up to  $160 million                                                               
per year.   Elements of this  legislation are found in  the other                                                               
49 states,  he said.   "The administration urges support  for the                                                               
passage of this bill," he concluded.                                                                                            
                                                                                                                                
Number 2840                                                                                                                     
                                                                                                                                
DAN  DICKINSON, Director,  Tax Division,  Department of  Revenue,                                                               
explained the three parts  of HB 537.  Section 1  is the heart of                                                               
the bill  and adds a  new chapter  on tourism services  sales and                                                               
use taxes,  he said.   The  tax is  levied to  try and  catch the                                                               
transaction at  the point of  the sale  or when [the  service] is                                                               
used in the state.  Sec.  43.51.020 establishes the tax rate at 5                                                               
percent,  and Sec.  43.51.030 requires  sellers  or providers  to                                                               
register with  DOR, he related.   Sec. 43.51.040  establishes the                                                               
procedures by which the tourism  tax takes place within the state                                                               
and those  that take  place outside of  the state  are allocated.                                                               
Sec.  43.51.050  provides  for  the seller  of  services  or  the                                                               
commercial  provider  to  collect  the taxes.    It  details  the                                                               
conditions for  collection and  remittance, and  lists incentives                                                               
for encouraging  electronic filing, which  will save money.   Mr.                                                               
Dickinson continued  to explain  that Sec. 43.51.060  states that                                                               
proceeds  from this  tax  will  go to  the  general  fund.   Sec.                                                               
43.51.990  is  the  definition   section  and  the  two  critical                                                               
definitions  listed  here  are   the  "commercial  provider"  and                                                               
"tourism  service",   he  said,  because  they   determine  which                                                               
services will  be taxed.  He  said that those proposals  will all                                                               
be added to Title 43.                                                                                                           
                                                                                                                                
Number 3130                                                                                                                     
                                                                                                                                
MR.  DICKINSON continued  to explain  Section 2  of HB  537 which                                                               
establishes  that the  tax will  apply to  all services  that are                                                               
purchased and  used after January 1,  2005.  Section 3  says that                                                               
the bill takes  effect immediately.  "What the effect  of this is                                                               
from the  time this Act  takes effect  until January 1,  2005, if                                                               
there  is  a sale,  which  will  then  ultimately be  used  after                                                               
January 1,  2005, we  tax that  sale.  If  something is  sold and                                                               
used before January 1, 2005, we will not tax it," he concluded.                                                                 
                                                                                                                                
Number 3319                                                                                                                     
                                                                                                                                
CHAIR  HAWKER stated  that  HB 537  would not  be  moving out  of                                                               
committee today,  and he asked  if there were any  questions from                                                               
the committee for Mr. Dickinson or Mr. Corbus.                                                                                  
                                                                                                                                
REPRESENTATIVE  GRUENBERG noted  that  there are  letters in  the                                                               
committee members' packets from Mayor  Begich and Mr. Lemke, both                                                               
from  Anchorage,  and  from Julie  Hursey  from  Alaska  Passages                                                               
Adventure Cruises,  which seem to  address very  serious concerns                                                               
about the  effect of this tax.   He asked Commissioner  Corbus if                                                               
he has had a chance to review any of those letters.                                                                             
                                                                                                                                
MR.  CORBUS said  he has  not seen  those letters,  but he  would                                                               
review them and  be prepared to address those issues  at the next                                                               
hearing.                                                                                                                        
                                                                                                                                
REPRESENTATIVE  GRUENBERG repeated  that  the concerns  expressed                                                               
[in those letters] are very serious.                                                                                            
                                                                                                                                
Number 3436                                                                                                                     
                                                                                                                                
REPRESENTATIVE WEYHRAUCH requested that  the many people who have                                                               
submitted comments  and letters  to his  office should  make them                                                               
available to  the committee.  He  said he would like  to hear the                                                               
people who have taken the time  to come and testify on this bill.                                                               
He expressed  his appreciation to Commissioner  Corbus for always                                                               
appearing to  introduce his department's  bills, saying  it shows                                                               
leadership.                                                                                                                     
                                                                                                                                
CHAIR HAWKER  reiterated the importance  of the  public providing                                                               
written comments to be added to the record.                                                                                     
                                                                                                                                
REPRESENTATIVE WILSON  said she  has several questions  about the                                                               
bill but would like to hear public testimony first.                                                                             
                                                                                                                                
Number 3659                                                                                                                     
                                                                                                                                
CHIP THOMA, testifying  as an individual, said  that the question                                                               
of basic fairness  compels him to speak today.   He said that any                                                               
tax measure  that can be legally  levied on the cruise  ships and                                                               
their vendors  for the  benefit of the  general fund  is welcome,                                                               
and he  encouraged support of  that basic concept.   He commented                                                               
on the  definition of "transient  accommodation" on page  5, line                                                               
30 of the  bill saying that this definition is  not fair to small                                                               
year-round hotels and  lodges when the tourist  season is between                                                               
May  and  September.    He suggested  setting  a  tourist  season                                                               
provision  or  exempting  year-round  hotels with  less  than  50                                                               
rooms.  With a 7 percent bed tax,  a 5 percent sales tax, and a 5                                                               
percent tourist  tax in Juneau,  long-term-stay hotels  would end                                                               
up paying  17 percent  in tax.   He opined that  the head  tax is                                                               
working very well and should be  increased from $5 to $7, or even                                                               
higher in future  years, as long as the money  is used for docks,                                                               
harbors,  and  on-shore amenities  adjacent  to  the cruise  ship                                                               
area.  He  said he believes that Juneau is  reaching its capacity                                                               
to handle the one million  cruise ship visitors, plus 150,000 who                                                               
arrive by  plane, as  well as  the numbers of  crew in  town each                                                               
summer.   He concluded  that he encourages  the basic  concept of                                                               
the bill  and believes that  the cruise  ships should pay  a fair                                                               
tax.                                                                                                                            
                                                                                                                                
Number 4030                                                                                                                     
                                                                                                                                
DENNIS  BRANDON,  President,   Cook  Inlet  Region,  Incorporated                                                               
(CIRI) Alaska Tourism, related that  he has worked for many years                                                               
to try  to stimulate one of  the economic engines for  Alaska, in                                                               
spite  of several  tough  years.   He  mentioned  that Alaska  is                                                               
losing ground to competitive destination  markets and pricing has                                                               
become a very  critical issue in trying to lure  a robust visitor                                                               
traffic.   Having  a  tax on  the tourist  industry  is going  to                                                               
further curtail its  growth potential, he opined.   He stated his                                                               
opposition to  [HB 537] because  it looks  at a single  sector of                                                               
the economy  to try to make  up for the shortfalls  in the fiscal                                                               
gap, which  goes counter  to economic  development in  the state.                                                               
Any  time  a tax  is  imposed,  it  increases pricing,  which  is                                                               
counter to the industry and to  economic growth of the state.  He                                                               
also  pointed  out that  it  is  difficult  to determine  what  a                                                               
tourism product is.  A  retail petroleum outlet does not consider                                                               
itself to be a tourism product,  but, in fact, gets the benefits,                                                               
as do  pharmacies and  restaurants, he said.   He  suggested that                                                               
the  industry be  encouraged rather  than  discouraged by  having                                                               
taxes applied to it.                                                                                                            
                                                                                                                                
REPRESENTATIVE KOHRING  thanked Mr. Brandon for  his comments and                                                               
said  he agrees  with  him.   He  pointed  out  that the  tourism                                                               
industry is  one of  the bright spots  in Alaska's  economy, from                                                               
his perspective, and said his  is concerned about the effect this                                                               
bill  might  have  on  that  industry,  especially  with  timber,                                                               
mining,  and fisheries  down.   He suggested  not doing  anything                                                               
that would  result in less  growth of the tourist  industry since                                                               
it is so vital to many areas in Alaska.                                                                                         
                                                                                                                                
Number 4636                                                                                                                     
                                                                                                                                
ROGER GAY said  he does not appreciate the  piecemeal approach to                                                               
taxation  where  a weak  group  is  targeted.   Under  the  equal                                                               
protection clause everyone  should be treated the  same, he said.                                                               
If the tourist  tax can be justified for  tourism services, there                                                               
should be  a tax on all  services.  Taxes have  a negative impact                                                               
on the  people who are  subjected to  them and turn  all Alaskans                                                               
seeking recreation into tourists, he opined.                                                                                    
                                                                                                                                
TAPE 04-19, SIDE B                                                                                                            
                                                                                                                              
MR. GAY continued  to say that Alaska's motto  should be, "Alaska                                                               
- we tax the other guy and pass the savings on to you."                                                                         
                                                                                                                                
Number 4555                                                                                                                     
                                                                                                                                
BRUCE BUSTAMONTE, President and Chief Executive Officer,                                                                        
Anchorage  Convention  and  Visitors Bureau  (ACVB),  stated  his                                                               
organization's opposition to HB 537  saying that they are opposed                                                               
to  all target  taxes.   For the  last five  years ACVB  has been                                                               
working to  build a new  convention center in Anchorage  with the                                                               
intent to  increase the local bed  tax.  This proposed  tax would                                                               
layer 5  percent on  top of  the existing 8  percent bed  tax and                                                               
take away  the upward  mobility for adding  to the  structure, he                                                               
said.   He explained that the  national average for tax  in large                                                               
cities   is  12   percent,  which   could  make   Anchorage  less                                                               
competitive at  13 percent.   He noted that the  tourism industry                                                               
has  been a  "shining star"  in Alaska,  has added  jobs, and  is                                                               
broad reaching, and  he stated his concern that  it keep growing.                                                               
He  said  that  the best  way  to  do  that  is to  increase  the                                                               
convention capacity by building a new center.                                                                                   
                                                                                                                                
CHAIR HAWKER  asked if  ACVB is opposed  to all  additional state                                                               
revenues such  as the  broad-based sales  tax, or  if it  is just                                                               
opposed to  the targeted aspect of  this bill.  He  also asked if                                                               
Mr.  Bustamonte  believes that  the  tourism  industry should  be                                                               
exempt from all state taxes.                                                                                                    
                                                                                                                                
MR.  BUSTAMANTE  replied, "That  is  something  that we  need  to                                                               
evaluate as we  have more details if we're going  to have the tax                                                               
you're  talking  about -  broad-based  taxation."   He  said  his                                                               
organization supports  percent of  market value (POMV)  and would                                                               
look at a broad-based tax,  but with protecting entities that are                                                               
always taxed, such as hotels and car rentals.                                                                                   
                                                                                                                                
Number 3953                                                                                                                     
                                                                                                                                
RON PECK,  President, Alaska Travel Industry  Association (ATIA),                                                               
stated his  opposition to HB  537 because it  is a tax  that will                                                               
not benefit tourism  or the state in  the long run.   A 5 percent                                                               
tourism sales tax is too high and  none of the revenue will go to                                                               
tourism marketing,  he opined.   He said  that ATIA has  a better                                                               
solution, which is  to create a tourism  marketing assessment and                                                               
return the  proceeds back  into tourism marketing.   A  5 percent                                                               
tourism  tax  will  add  to  the price  of  visiting  Alaska  and                                                               
potential customers  may reevaluate their decisions  to travel to                                                               
Alaska, which  is already perceived as  an expensive destination,                                                               
he related.  The tax may  cause some businesses to lose access to                                                               
nationwide  cooperative  marketing  programs  and  be  unable  to                                                               
compete nationwide, he opined.                                                                                                  
                                                                                                                                
Number 3632                                                                                                                     
                                                                                                                                
JOHN  SHIVELY,  Vice  President   for  Government  and  Community                                                               
Relations,  Holland  America  Lines,  said  that  the  Governor's                                                               
transmittal letter  of March 16,2004,  has several  problems from                                                               
his organization's  standpoint.   It makes estimates  on revenues                                                               
of $19  million in FY 05  and $49 million thereafter  and Holland                                                               
America  Lines  was  surprised  to  see  no  analysis  [of  those                                                               
figures].  He  said he is interested in finding  out how DOR came                                                               
to those figures.                                                                                                               
                                                                                                                                
MR. SHIVELY continued  to say that another problem  in the letter                                                               
is the claim  that the state is currently  providing $116 million                                                               
in services to the cruise industry.   He called it a fantasy or a                                                               
fabrication  on the  part of  the  administration.   The list  of                                                               
these  expenses provided  to  Representative  Gatto is  "outright                                                               
wrong" because  it lists things  that have already been  paid for                                                               
like the  Alaska railroad, the Anchorage  and Fairbanks airports,                                                               
and the St. Paul Harbor, he maintained.                                                                                         
                                                                                                                                
MR. SHIVELY  related that  the last  problem in  the letter  is a                                                               
statement  that "Alaska  can recover  part of  its costs  through                                                               
reasonable taxes without appreciably  - I emphasize appreciably -                                                               
affecting the  growth of  the Alaska cruise  ship industry."   He                                                               
said  he  does not  know  how  the  administration came  to  that                                                               
conclusion.  He compared this tax  to the tobacco tax which has a                                                               
goal to  reduce the number  of people who  smoke.  This  tax will                                                               
have a similar effect on the cruise industry, he opined.                                                                        
                                                                                                                                
CHAIR HAWKER  noted that the  letter Mr. Shively is  referring to                                                               
has not yet been distributed to the committee, but will be soon.                                                                
                                                                                                                                
Number 3155                                                                                                                     
                                                                                                                                
MR. SHIVELY  pointed out that "zero  states have the kind  of tax                                                               
that you're  proposing on the  cruise industry."  He  opined that                                                               
because  this kind  of  tax  is so  complicated  is probably  the                                                               
reason why other states have not  imposed one.  [Referring to the                                                               
memorandum from DOR], Mr. Shively noted  that on page 6, the list                                                               
of fees that are collected in  other states, none of the fees are                                                               
collected by  state governments,  but rather  by courts,  for the                                                               
same reasons  that courts and  communities in Alaska  collect the                                                               
fees -  the fees are  to go to  support the services  provided to                                                               
the  cruise industry.   The  port fees  that the  cruise industry                                                               
does pay  are listed on  page 12, he  said, which shows  that the                                                               
cruise  industry  does pay  its  way.    He called  attention  to                                                               
Anchorage, Matanuska-Susitna,  and Fairbanks to show  a growth in                                                               
the  bed  tax  directly  related to  the  passengers  the  cruise                                                               
industry brings to the state.  He  pointed out that on page 7 DOR                                                               
has listed what  other countries pay for head taxes,  but he said                                                               
constitutional  prohibitions on  certain  taxes  in this  country                                                               
don't apply to other countries.                                                                                                 
                                                                                                                                
Number 2830                                                                                                                     
                                                                                                                                
MR.  SHIVELY voiced  his support  for  the comments  made by  Mr.                                                               
Bustamante and  Mr. Peck  against targeting  one industry  with a                                                               
tax, saying that is  not the way to go.  He  said that though the                                                               
tourist industry  has grown,  it is  losing market  share because                                                               
Alaska  is an  expensive destination  and the  industry has  been                                                               
opening up  new markets.   This  tax is  very complicated  and it                                                               
will have  a negative  impact, especially  if the  passenger does                                                               
not see the tax up front, he concluded.                                                                                         
                                                                                                                                
REPRESENTATIVE  KOHRING  asked  Mr. Shively  to  provide  written                                                               
testimony to the committee and said he agrees with him.                                                                         
                                                                                                                                
MR. SHIVELY replied that he  would provide a letter that contains                                                               
the points he discussed.                                                                                                        
                                                                                                                                
Number 2333                                                                                                                     
                                                                                                                                
ALLAN  TESCHE,  Member,  Anchorage Assembly,  reported  that  the                                                               
Anchorage  Assembly  passed  Anchorage Resolution  (AR)  2458  on                                                               
March 2,  which made the point  that the proposed tax  on tourism                                                               
will  effectively  kill  a  new  downtown  civic  and  convention                                                               
center.  An existing tax of 8  percent, which is used in part for                                                               
the visitor  industry, together  with the  proposed 5  percent is                                                               
going to  make it very  difficult for  [the Assembly] to  sell an                                                               
additional 4  percent tax to  the electorate.   A 17  percent tax                                                               
would send a chilling message  that economic development is not a                                                               
priority, and  would send a message  to the Lower 48  that Alaska                                                               
is very expensive, he said.   He urged the legislature to look at                                                               
a  broad-based  fiscal  plan  that does  not  target  a  specific                                                               
industry or group.                                                                                                              
                                                                                                                                
MR. TESCHE referred to the  Alaska Municipal League's 2004 policy                                                               
statement to answer the question  if [the Assembly] would support                                                               
any  other  broad-based tax.    He  indicated opposition  to  any                                                               
action that would diminish the  existing statutory authorities of                                                               
local governments  to raise needed  revenues through the  levy of                                                               
taxes.   He suggested that  the way out  is to consider  a broad-                                                               
based tax which respects local taxes already in place.                                                                          
                                                                                                                                
MR.TESCHE offered  comments as an  owner of a bed  and breakfast.                                                               
The  17  percent  tax  would  be  very  difficult  to  market  to                                                               
transient  guests  coming  into   Anchorage,  he  remarked.    He                                                               
maintained that the tax would also  have a negative affect on the                                                               
cruise industry because those passengers  spend a lot of time and                                                               
money in  Alaska and  they would be  lost to  more competitively-                                                               
priced  cruises.   Anchorage would  like  to be  able to  welcome                                                               
large cruise ships  to their area again, but  that possibility is                                                               
"off the table" if this tax takes place, he concluded.                                                                          
                                                                                                                                
Number 1714                                                                                                                     
                                                                                                                                
REPRESENTATIVE SAMUELS asked Mr. Tesche  if he supports a general                                                               
statewide sales tax of 2-3 percent.                                                                                             
                                                                                                                                
MR. TESCHE  replied that  he could  only speak  for himself.   He                                                               
asked how  [a new sales tax]  would relate to the  existing local                                                               
sales tax and said he would not  like to see it layered on top of                                                               
that.  The local taxing authority should be respected, he said.                                                                 
                                                                                                                                
REPRESENTATIVE SAMUELS  asked if  "local taxing  authority" means                                                               
just a bed tax in Anchorage.                                                                                                    
                                                                                                                                
MR.  TESCHE responded  that there  are  other types  of taxes  in                                                               
Anchorage  like  the  car-rental  tax.    He  said  local  taxing                                                               
authority was used in the broad sense.                                                                                          
                                                                                                                                
REPRESENTATIVE SAMUELS  replied said  that if  this tax  is taken                                                               
off of the table, and  people don't want their dividends touched,                                                               
[the money] has  to come from somewhere unless the  budget is cut                                                               
some more.                                                                                                                      
                                                                                                                                
MR. TESCHE replied that the  legislature has difficult choices to                                                               
make,  but  suggested   that  any  system  of   taxation  is  not                                                               
discriminatory and does respect local  taxes as they exist or may                                                               
exist in the future.                                                                                                            
                                                                                                                                
REPRESENTATIVE SAMUELS asked Mr. Tesche  if he supports a general                                                               
income tax.                                                                                                                     
                                                                                                                                
MR. TESCHE said yes, speaking only for himself.                                                                                 
                                                                                                                                
Number 1400                                                                                                                     
                                                                                                                                
CHAIR  HAWKER  pointed  out  to Mr.  Tesche  that  he  emphasized                                                               
several  times in  his discussion  that any  state policy  should                                                               
respect, or defer  to local authority for any tax  that may exist                                                               
in the future.  He asked Mr.  Tesche if he is suggesting that the                                                               
state defer all taxing authority to the municipalities.                                                                         
                                                                                                                                
MR. TESCHE said he did mean  "respect" instead of "defer" when he                                                               
said he  has to recognize that  if a community such  as Anchorage                                                               
wants to  consider an additional 4  percent sales tax to  build a                                                               
new convention  center, there  should be a  system that  could do                                                               
that without layering  a tax on top of an  additional state sales                                                               
tax.  He  opined that the problem  with a sales tax  is the same,                                                               
and  he  suggested  carving  out an  exemption  for  the  tourism                                                               
industry.                                                                                                                       
                                                                                                                                
CHAIR HAWKER  said he does  have Mayor Begich's  letter regarding                                                               
the  convention center  issue  and AR  2458  [from the  Anchorage                                                               
Assembly].                                                                                                                      
                                                                                                                                
Number 1129                                                                                                                     
                                                                                                                                
REPRESENTATIVE OGG remarked  that a lot of  municipalities have a                                                               
sales tax such as his community  of Kodiak, which has a 6 percent                                                               
tax of which 1-2 percent is  dedicated to a specific project like                                                               
roads or harbors.   He said is not speaking in  favor of [HB 537]                                                               
but said it seems to him that  putting a 4 percent city sales tax                                                               
on tourism is only one percent  different than the 5 percent tax.                                                               
Addressing Mr.  Tesche, Representative Ogg opined  that Anchorage                                                               
has  the option  of  pursuing  a general  sales  tax  to build  a                                                               
convention center.   He asked Mr.  Tesche if there is  any reason                                                               
he  would   not  want   to  "go  down   that  road"   like  other                                                               
municipalities and allow the state to enact a tourism tax.                                                                      
                                                                                                                                
MR.  TESCHE replied  that  the  answer to  the  question is  very                                                               
simple.   It is  a local  requirement in  Anchorage to  approve a                                                               
sales tax  only if  60 percent  of voters approve,  he said.   It                                                               
would be easier to pass a local  tax that is limited to hotel and                                                               
motel accommodations,  which are largely used  by visitors rather                                                               
than local residents, than to pass a broad-based sales tax.                                                                     
                                                                                                                                
REPRESENTATIVE OGG responded,  "Like a lot of  folks, it's better                                                               
in Anchorage to tax the other  fellow instead of having a little,                                                               
minimal tax on yourselves to  provide these things that are going                                                               
to be of benefit to your community."                                                                                            
                                                                                                                                
REPRESENTATIVE SAMUELS  replied that  it would be  very difficult                                                               
to  ever  pass  a  sales  tax with  a  60  percent  threshold  in                                                               
Anchorage, however, for individual property  tax it is similar to                                                               
people in  the state who  have a sales  tax and a  lower property                                                               
tax rate.   Per individual, he  said the people in  Anchorage are                                                               
on scale with the rest of the state.                                                                                            
                                                                                                                                
Number 0720                                                                                                                     
                                                                                                                                
GEORGE REIFENSTEIN, JR., General  Manager, Mount Roberts Tramway,                                                               
said he has  been in tourism since  he worked as a  waiter on the                                                               
ferries in  1969.  He stated  his opposition to [HB  537] because                                                               
"it is a  targeted tax on an industry that  is experiencing a low                                                               
growth rate and yet is one  of the brighter spots in many regions                                                               
of  the state  as far  as  economic growth  goes."   He stated  a                                                               
concern for  the decline  in the  number of  independent visitors                                                               
because of possible  layering of taxes.  He said  he is concerned                                                               
that it  will be more  difficult for travel agents  and promoters                                                               
to package  and sell  the tramway.   Having  to verify  whether a                                                               
ticket holder  has paid the tax  is a problem that  could cause a                                                               
loss of  revenue, he said.   A tramway is  a mix of  tourists and                                                               
residents and  it would  be difficult  to describe  the tax  as a                                                               
tourist tax because of that, he concluded.                                                                                      
                                                                                                                                
Number 0416                                                                                                                     
                                                                                                                                
MIKE  WINDRED, Director  of Operations,  Alaska Travel  Adventure                                                               
(ATA), stated he has been working for  ATA for 21 years.  He said                                                               
he has operations  in the whole state and he  spoke in opposition                                                               
to HB 537.   He mentioned that two years ago  ATA was looking for                                                               
funding  for marketing  from the  legislature and  there was,  at                                                               
that time,  $160 million  in tourism  revenues, which  shows that                                                               
the industry does pay its way.   He said, however, that he thinks                                                               
the intent of the bill is to try  and fill the fiscal gap and not                                                               
to make the industry pay its way.                                                                                               
                                                                                                                                
MR. WINDRED reported that 50  percent of the recreational vehicle                                                               
(RV) business has  gone under in Anchorage.  A  5 percent tax for                                                               
a  28-foot motor  home increases  the cost  to over  $200 a  day,                                                               
which is an important barrier to  someone looking at a package to                                                               
Alaska,  he opined.   He  said that  a 5  percent tax  would kill                                                               
ATA's RV business.  He listed  the taxes someone on a cruise ship                                                               
in Juneau  would pay to go  river rafting:  docking  fees, a head                                                               
tax,  a 5  percent  sales  tax, per  seat  bus  fee, U.S.  Forest                                                               
Service fee, and  sales tax on goods and services  to support the                                                               
business.                                                                                                                       
                                                                                                                                
TAPE 04-20, SIDE A                                                                                                            
Number 0040                                                                                                                     
                                                                                                                                
MR. WINDRED  continued to say  that adding another 5  percent tax                                                               
would  be  taking money  out  of  ATA's  pocket.   He  concluded,                                                               
"Overall, I  have a little  bit of an  issue taxing a  little old                                                               
lady from Lincoln,  Nebraska, to solve the fiscal  problems in my                                                               
state."                                                                                                                         
                                                                                                                                
CHAIR HAWKER asked Mr. Windred  how he would target the residents                                                               
of Alaska.                                                                                                                      
                                                                                                                                
MR. WINDRED suggested a broad-based sales tax.                                                                                  
                                                                                                                                
Number 0235                                                                                                                     
                                                                                                                                
REPRESENTATIVE  WILSON   said  a  broad-based  sales   tax  would                                                               
probably have  to be 2-3  percent.  She  asked Mr. Windred  if he                                                               
preferred a sales tax or an income tax.                                                                                         
                                                                                                                                
MR. WINDRED said  he personally favored a  broad-based sales tax,                                                               
one  that is  a lot  lower  than the  5 percent  in the  proposed                                                               
tourist tax.                                                                                                                    
                                                                                                                                
Number 0352                                                                                                                     
                                                                                                                                
LORENE  PALMER, President  and  Chief  Executive Officer,  Juneau                                                               
Convention  and   Visitors  Bureau,  stated   her  organization's                                                               
opposition to HB 537.   She said it would layer  5 percent on top                                                               
of a 5 percent  city tax and a 7 percent bed tax  in Juneau.  The                                                               
7 percent  bed tax  is the  sole source  of funding  for Juneau's                                                               
convention center and for the  promotion of Juneau to the tourism                                                               
sector, as  well as  the meetings  and conventions  business, she                                                               
explained.  She  said a total tax of 17  percent would put Juneau                                                               
at the top of the nation  for taxes, which will make it difficult                                                               
to attract conventions on top  of the already high transportation                                                               
costs to get  to Juneau.  In response to  Mr. Tesche's discussion                                                               
of deferring taxes  to the local municipalities,  Ms. Palmer said                                                               
that  adding a  new tax  on  top of  the existing  bed tax  would                                                               
prevent the  city from raising  any more money locally,  both for                                                               
the borough  and for Centennial  Hall.   She said the  borough is                                                               
going  to see  a reduced  amount from  the bed  tax this  year of                                                               
$122,000.                                                                                                                       
                                                                                                                                
CHAIR HAWKER asked if Juneau has a head tax on the ships.                                                                       
                                                                                                                                
MS. PALMER said that is correct.                                                                                                
                                                                                                                                
CHAIR HAWKER asked if there was  a decline in tourist volume when                                                               
that tax was imposed.                                                                                                           
                                                                                                                                
MS.  PALMER  said  she  does   not  believe  so  because  of  the                                                               
consistent  increase  in  passenger  capacity  and  arrivals,  an                                                               
increase of  4-5 percent, and  sometimes as  high as a  9 percent                                                               
increase, over  the last 10  years.   On another topic,  she said                                                               
that unexpected taxes  can affect a visitor's  experience when he                                                               
or she goes to  pay a bill.  She said it  sometimes "leaves a bad                                                               
taste in your  mouth," and that could happen as  a result of this                                                               
tax.                                                                                                                            
                                                                                                                                
Number 0955                                                                                                                     
                                                                                                                                
DALE ANDERSON, Owner,  Auke Lake Bed and  Breakfast, testified in                                                               
opposition to  HB 537 primarily  because of the target  aspect of                                                               
it.  A  17 percent total tax would directly  affect his sales, he                                                               
related.   He said  he has  not been able  to increase  his rates                                                               
since 1999, and he markets  to independent travelers who are more                                                               
price conscious about spending on  their adventure to Alaska.  He                                                               
said he  is also opposed  to all of  the revenues going  into the                                                               
general fund instead of back into  tourism marketing.  He said he                                                               
would much rather use the  percent of market value (POMV) concept                                                               
to solve  the state's fiscal  problems.   He related that  he has                                                               
two jobs in order to pay the tax burden already in existence.                                                                   
                                                                                                                                
Number 1309                                                                                                                     
                                                                                                                                
DOROTHY WILSON,  Owner, Coastal Helicopters, said  she is opposed                                                               
to HB 537  because it punishes the tourist  industry for bringing                                                               
people into the  state.  "The regulations described  in this bill                                                               
will  place an  onerous  burden  on a  business  like ours,"  she                                                               
remarked.   Small  businesses like  hers have  limited accounting                                                               
capability  and are  burdened by  maximum taxes  and regulations,                                                               
she  said.   She termed  the bill  complex.   She noted  that her                                                               
business,  which provides  11 full-time  and  20 part-time  jobs,                                                               
will be  out of business  if tourism  decreases due to  this tax.                                                               
She  opined that  the contribution  by  this tax  to solving  the                                                               
state's  fiscal  problems will  be  minimal.   "This  legislation                                                               
targets a  specific industry and  will have a negative  impact on                                                               
tourism in Alaska," she concluded.                                                                                              
                                                                                                                                
REPRESENTATIVE KOHRING  thanked all  of the Juneau  residents who                                                               
testified  today and  said he  agrees with  all the  points made.                                                               
The testimony underscores  the fact that this is not  a good tax,                                                               
he opined.   He said is has  been a very good  education in terms                                                               
of looking  at the larger  operators who are paying  their share.                                                               
He suggested  that the  legislature look  at the  bigger picture,                                                               
which is the effect on the economy  a tax like this has.  He said                                                               
that [the  legislature's] role should  be to decide what  is best                                                               
for the  economy, not what  is best in  terms of revenue  for the                                                               
state.                                                                                                                          
                                                                                                                                
REPRESENTATIVE  SAMUELS said  he  sympathizes  with Ms.  Wilson's                                                               
industry  about the  multitude of  different regulatory  agencies                                                               
that have  to be  faced.   He asked  her for  her opinion  of the                                                               
sales tax in general.                                                                                                           
                                                                                                                                
MS.  WILSON said  she personally  supports an  income tax  or the                                                               
POMV, and not the sales tax.                                                                                                    
                                                                                                                                
Number 1939                                                                                                                     
                                                                                                                                
PAMELA  LaBOLLE,  President,  Alaska State  Chamber  of  Commerce                                                               
(ASCC), said her  association of 700 businesses is  opposed to HB                                                               
537  because it  is a  targeted tax.   To  solve the  fiscal gap,                                                               
budget  discipline should  be used  first, then  new uses  of the                                                               
permanent  fund   earnings,  and  only  after   those  have  been                                                               
addressed, then  further taxation from a  state-wide, broad-based                                                               
tax,  she stated.   She  said her  organization has  not taken  a                                                               
position whether the tax should be  an income tax or a sales tax.                                                               
She said that  for years, business has been the  only entity that                                                               
has paid  taxes to the  state, and she has  a concern that  a new                                                               
business  tax  would  negatively impact  the  competitiveness  of                                                               
business.   She urged  the committee to  defeat this  tax against                                                               
the tourism industry.                                                                                                           
                                                                                                                                
Number 2255                                                                                                                     
                                                                                                                                
CHRIS  VONIMHOFF,  Manager,   Aleyska  Resort;  Member,  Visitors                                                               
Benefit  Alaska, testified  that  he is  greatly concerned  about                                                               
this  new  tax.   He  wondered  why  [the legislature]  wants  to                                                               
penalize  [the tourist  industry], which  contributes so  much to                                                               
the economy in  terms of jobs, taxes,  marketing, property taxes,                                                               
and  capital  improvements.   He  said  it would  jeopardize  the                                                               
planned  [Anchorage]  convention  center.   He  said  the  entire                                                               
[tourism] industry  supports a broad-based state  tax and tapping                                                               
into the  permanent fund earnings, if  necessary.  He spoke  of a                                                               
survey  where 90  percent of  the  people supported  some of  the                                                               
permanent fund.   "I hope that  the legislature has the  guts and                                                               
the will  to solve our  fiscal problems  by either using  some of                                                               
the  permanent fund  earnings, and/or  introducing  some type  of                                                               
broad-based income and/or sales tax," he concluded.                                                                             
                                                                                                                                
CHAIR HAWKER concurred with Mr. Vonimhoff's idea to use the                                                                     
great wealth in the permanent fund to support services and                                                                      
continue to pay out the dividend.                                                                                               
                                                                                                                                
Number 2630                                                                                                                     
                                                                                                                                
CHAIR HAWKER noted that further public testimony would be                                                                       
continued on Friday.                                                                                                            
                                                                                                                                
[HB 537 was held over.]                                                                                                       
                                                                                                                                

Document Name Date/Time Subjects