Legislature(2003 - 2004)

05/07/2003 09:01 AM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
     CS FOR SENATE BILL NO. 112(TRA)                                                                                            
     "An Act  increasing the motor  fuel tax; repealing the  special                                                            
     tax  rates  on  blended  fuels; removing  the  motor  fuel  tax                                                            
     exemption  of the Alaska Railroad; relating to  tax refunds for                                                            
     government  agency  purchases  of fuel;  and providing  for  an                                                            
     effective date."                                                                                                           
This  was the first  hearing  for this  bill in  the Senate  Finance                                                            
Co-Chair  Wilken informed  that the Department  of Revenue  would be                                                            
presenting testimony on  this legislation on behalf of the Governor.                                                            
He communicated  that this  legislation would  increase the  State's                                                            
highway motor  fuel tax from eight cents a gallon  to twenty cents a                                                            
gallon and would eliminate  the motor fuel tax currently charged for                                                            
gasohol. He explained  that the version before the  Committee, CS SB
112 (TRA),  Version 23-GS1118\, contains  the language submitted  by                                                            
the  Governor  as well  as additional  language  pertaining  to  the                                                            
Alaska Railroad.                                                                                                                
LANDA BAILY,  Special Assistant and  Legislative Liaison,  Office of                                                            
the Commissioner,  Department of Revenue  verified that Version  "U"                                                            
includes  language that would  exempt the  Alaska Railroad  from the                                                            
motor fuel tax.  She communicated that Governor Frank  Murkowski and                                                            
Commissioner Bill  Corbus of the Department of Revenue  support this                                                            
SFC 03 # 80, Side B 06:08 PM                                                                                                    
Ms. Baily explained  that this legislation would increase  the motor                                                            
fuel tax  from the current  eight cents per  gallon to 20-cents  per                                                            
gallon. She  continued that, even  with this increase, Alaska  would                                                            
rank below the national  average of 23-cents for excise tax rates on                                                            
highway  motor fuel.  She  stated that  twenty-two  states have  tax                                                            
rates  exceeding  this  amount  and  that  thirty-five  states  have                                                            
combined  state and  local tax  rates that  range from  21 to  38.70                                                            
cents per gallon.  She shared that the Governor urges  the Committee                                                            
"to  agree with  him" that  this  tax increase  "would  be a  viable                                                            
method of generating  critically needed, re-occurring  revenue." She                                                            
commented  that  the  Department  of  Revenue  estimates  that  this                                                            
legislation  would  provide  $41.16   million  in  additional  State                                                            
revenue  per fiscal  year.  She clarified  that rather  than  $41.16                                                            
million, it  is estimated that the  additional revenue collected  in                                                            
FY 04 would be  approximately $37.7 million "because  taxes are paid                                                            
one month after sales."  She further explained that although the tax                                                            
might be  effective as of  July 1, 2003, the  tax collected  in July                                                            
would be for the status quo tax rate on June 2003 sales.                                                                        
Ms.  Baily continued  that  the  off-highway  motor fuel  tax  would                                                            
increase  from six-cents to  18-cents per  gallon. She reminded  the                                                            
Committee that  this is the first adjustment to this  tax rate since                                                            
it was enacted in 1970.  She stressed that the Department of Revenue                                                            
could  efficiently  administer  the  increased  motor fuel  tax.  On                                                            
behalf of the Governor  and the Department of Revenue, she urged the                                                            
Committee to adopt this legislation.                                                                                            
Senator  Bunde stated  that there  has been  discussion regarding  a                                                            
phased implementation  of this  tax. Other  than a reduction  in the                                                            
estimated level  of additional revenue, he asked what  ramifications                                                            
a phased-in tax increase might incur.                                                                                           
Ms. Baily replied  that a phased in  program would create  a problem                                                            
in  that  the   Governor  has  requested   the  enactment   of  this                                                            
legislation  in order to assist the  State in addressing  its fiscal                                                            
Senator Hoffman asked when  the aviation fuel tax was last adjusted.                                                            
Ms. Baily  stated that  this information  would  be supplied  to the                                                            
JOHN   MACKINNON,  Deputy   Commissioner   of   Highways  &   Public                                                            
Facilities,  Department  of  Transportation  and  Public  Facilities                                                            
conveyed  that   the  Department  "is  in  full  support"   of  this                                                            
legislation.  He  shared  that,  currently,  the  Department  spends                                                            
approximately  $60 million  in general  funds  to address  statewide                                                            
highway  and  airport  maintenance  needs.  He  specified  that  the                                                            
current   tax  generates   $28  million   annually  toward   highway                                                            
maintenance  and  that  the  12-cents  per  gallon   increase  would                                                            
generate an  additional $41 million  annually. He noted that,  while                                                            
the total exceeds  the current maintenance expenditures,  the amount                                                            
in excess  of current  expenditures  would be used  to address  "the                                                            
long list of deferred  maintenance projects" that  currently amounts                                                            
to $50 million.                                                                                                                 
Senator Bunde  asked the amount of funds that would  be specifically                                                            
designated  for highway maintenance  needs  as opposed to the  total                                                            
projected   amount   that   includes  both   highway   and   airport                                                            
Mr. MacKinnon  specified  that  the amount  that would  be spent  on                                                            
airport maintenance  would be: four million dollars  in the Northern                                                            
Region;   three  million   dollars  in  the   Central  Region;   and                                                            
approximately one million  dollars in the Southeast Region. He noted                                                            
that these amounts do not include international airport funding.                                                                
Co-Chair  Wilken noted that  the Alaska Railroad  taxation  issue is                                                            
addressed in  Sec. 4, subsection (a)  on page 4, lines 19-21  and in                                                            
Sec 7, subsection  (G) on page 5,  lines 25 and 26. He referred  the                                                            
Committee  to  accompanying  information   provided  by  the  Alaska                                                            
Railroad Corporation  titled "Reasons Against Taxing  Alaska's State                                                            
Railroad," [copy on file]  as well as a Memorandum dated May 6, 2003                                                            
from Kathryn  Kurtz,  Legislative  Counsel to  Senator John  Cowdery                                                            
[copy on file].                                                                                                                 
JOHN BINKLEY,  Chairman of the Board,  Alaska Railroad Corporation,                                                             
Department  of Community  and Economic  Development,  testified  via                                                            
teleconference  from an offnet site  in Fairbanks, to voice  concern                                                            
regarding  a  provision  in  the  Senate  Transportation   Committee                                                            
committee substitute  that would include  "the Alaska Railroad  into                                                            
the same category  as the highway motor fuel users"  by implementing                                                            
the twenty cent per gallon  fuel tax "on all of the rolling stock of                                                            
the Alaska  Railroad." He voiced concern  about the resulting  legal                                                            
and policy issues that might result.                                                                                            
Mr. Binkley stated  that language in this bill could  invoke a legal                                                            
challenge  by  violating the  federal  Railroad  Revitalization  and                                                            
Regulatory  Reform  Act,  referred  to  as  the  4-R  Act  that  was                                                            
established  in 1976. He explained  that this Act prohibits  a state                                                            
from  imposing  a  tax relating  to  competitive  fuel  taxes  "that                                                            
discriminates  against a railroad."  In addition,  he stated  that a                                                            
federal  provision in  the Alaska  Railroad Transfer  Act, that  was                                                            
enacted when  the federally  owned railroad  was transferred  to the                                                            
State,  mandates   that  the  State   maintain  a  viable   railroad                                                            
transportation  system  to ensure  that it  would  be available  for                                                            
military  and other uses.  He stated that  this provision  prohibits                                                            
the State  from taking money  away from the  railroad as opposed  to                                                            
allowing  the  railroad   to  utilize  its  revenues   for  railroad                                                            
Mr. Binkley  furthered  that "on  the policy  standpoint, the  State                                                            
should not tax itself,"  as he attested the railroad is owned by the                                                            
people of  the State. He  voiced that "the  lifeblood of the  Alaska                                                            
Railroad"  is to utilize  railroad capital  to expand its lines.  He                                                            
stated  that  the  source  of the  railroad's  capital  is  its  net                                                            
earnings,  and he advised,  "if you don't  invest capital back  into                                                            
the asset, you don't exist."                                                                                                    
Mr. Binkley referred  to separate legislation being  considered that                                                            
would  provide for  expansion  of the  railroad.  He attested  that,                                                            
while the Alaska  Railroad supports expansion of its  service areas,                                                            
it would be  "extremely costly." He  asserted that, were  the Alaska                                                            
Railroad's net earnings  to lower, the railroad would not be able to                                                            
expand. He noted  that the Fairbanks North Star Borough  Assembly is                                                            
on  record  in opposition  to  the  taxation  language in  the  bill                                                            
regarding the Alaska Railroad.                                                                                                  
Senator Bunde  voiced understanding of the Railroad's  concern about                                                            
taxation  on its rolling  stock.  He asked for  further information                                                             
regarding the  Alaska Railroad's motor  fleet, specifically  whether                                                            
the motor  fleet  fuel is  purchased from  a private  entity and  is                                                            
subject to the highway motor fuel tax.                                                                                          
Mr. Binkley  replied  that the Alaska  Railroad  does pay the  motor                                                            
fuel  tax  for  its  vehicles  using  the  State's  highway  system.                                                            
Furthermore, he  noted that while the Alaska Railroad  could request                                                            
a refund  of that current  highway motor fuel  tax that it  pays, it                                                            
has declined to do so.                                                                                                          
Co-Chair  Wilken voiced  the intent  to hold this  bill in order  to                                                            
entertain  a committee substitute  that would  exclude the  Railroad                                                            
from taxation.  However, he voiced support for the  establishment of                                                            
a dividend  program  whereby the  Alaska Railroad  would  contribute                                                            
funding to the  State to support its expansion plans.  He voiced the                                                            
belief that  this could be implemented  without damaging  the Alaska                                                            
Railroad. He suggested  that implementation of a ten-dollar user fee                                                            
could fund  the contribution,  which he calculated  could amount  to                                                            
approximately  four  million  dollars  based  on  current  ridership                                                            
numbers. He encouraged  the Alaska Railroad to address instituting a                                                            
dividend program,  as he asserted, "it is the right  thing to do and                                                            
it could be done without damaging our Railroad."                                                                                
Mr. Binkley  voiced that this is a  legitimate public policy  issue,                                                            
and he  asked that the  legislature provide  the Railroad "with  the                                                            
forum" to address the Dividend issue.                                                                                           
Co-Chair Green asked whether  the original bill, SB 112, Version 23-                                                            
GS1118\A, would  adequately address  some of the concerns  raised by                                                            
the Version 23-GS1118\U committee substitute.                                                                                   
KEVIN    JARDELL,    Assistant    Commissioner,     Department    of                                                            
Administration,  communicated that,  in addition to eliminating  the                                                            
motor fuel  tax exemption for the  Alaska Railroad, the Version  "U"                                                            
committee  substitute  would  authorize  the "recoupement  of  fees"                                                            
through the use of a State credit card system.                                                                                  
Senator Taylor  asked whether use of the State credit  card would be                                                            
limited to the  Department of Transportation and Public  Facilities.                                                            
Mr.   Jardell   clarified   that   primarily   the   Department   of                                                            
Transportation and Public  Facilities employees would use the credit                                                            
card for  fuel purchases.  He explained that  the credit card  would                                                            
enable a State  employee to purchase fuel, including  the motor fuel                                                            
tax, from  a retailer.  He continued  that the  credit card  company                                                            
would compute  the amount paid toward fuel tax fees  and request the                                                            
State to reimburse them that amount.                                                                                            
Mr. Jardell qualified that  currently a fuel retailer is required to                                                            
pay the motor  fuel tax to the wholesaler  at the time of  purchase,                                                            
and in turn,  the wholesaler pays  the State. He continued  that one                                                            
of  two  things  currently  occurs  at the  time  a  State  employee                                                            
purchases fuel  from the retailer: one, they can pay  the motor fuel                                                            
tax; or, two,  if a contract is in effect with the  retailer, no tax                                                            
is collected.  In that latter case, he explained,  the retailer must                                                            
submit a statement to the  Department of Revenue asking that the tax                                                            
paid to the wholesaler  be returned. He stated that  current statute                                                            
designates  that  a retailer  could  only recoup  the  paid tax.  He                                                            
stated  that the  amendment  adopted  in the  Senate Transportation                                                             
committee  substitute,  Version  "U"  would allow  the  credit  card                                                            
company to  be able to recoup the  sales tax paid for the  fuel, but                                                            
for which the State would not pay them.                                                                                         
Senator Taylor  stated therefore that the amendment  would allow the                                                            
State to reimburse either  a retailer or the credit card company for                                                            
the motor fuel tax paid.                                                                                                        
Mr. Jardell concurred.  He stated that the credit card could be used                                                            
at any retailer.                                                                                                                
Co-chair Wilken ordered the bill to be HELD in Committee.                                                                       

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