Legislature(2015 - 2016)BUTROVICH 205

01/26/2016 01:00 PM TRANSPORTATION

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Audio Topic
01:02:34 PM Start
01:03:49 PM SB132
01:46:11 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Joint with the Department of Transportation &
Public Facilities Senate Finance Subcommittee
*+ SB 132 ELECTRONIC TAX RETURNS & MOTOR FUEL TAX TELECONFERENCED
Heard & Held
-- Public Testimony --
         SB 132-ELECTRONIC TAX RETURNS & MOTOR FUEL TAX                                                                     
                                                                                                                                
1:03:49 PM                                                                                                                    
CHAIR MICCICHE announced consideration of SB 132.                                                                               
                                                                                                                                
1:04:56 PM                                                                                                                    
RANDY  HOFFBECK,   Commissioner,  Department  of   Revenue  (DOR),                                                              
Anchorage,  Alaska,  explained   that  SB  132  is  one  of  three                                                              
components  of  the  new  Sustainable  Alaska  Plan.  One  of  the                                                              
components  is  the  Alaska Permanent  Fund  Protection  Act  that                                                              
creates the  model of using  investment earnings of  the Permanent                                                              
Fund as  well as repurposing  the royalty revenues  and production                                                              
tax  in   order  to   create  a   sustainable  draw  for   funding                                                              
government. That  draw along with existing taxes  leaves the state                                                              
about  $1 billion short  of a  balanced budget.  So, the  governor                                                              
proposed a series  of cuts in the budget document  and a series of                                                              
bills on new revenues of which SB 132 is one.                                                                                   
                                                                                                                                
COMMISSIONER  HOFFBECK said  SB 132  is just  standard tax  policy                                                              
and contains no  restructuring. It is simply an  adjustment in the                                                              
rate on an existing tax.                                                                                                        
                                                                                                                                
1:06:29 PM                                                                                                                    
SENATOR  DUNLEAVY asked  what they  are  protecting the  Permanent                                                              
Fund from.                                                                                                                      
                                                                                                                                
COMMISSIONER  HOFFBECK answered  the issue is  if nothing  is done                                                              
within  four years  the state's  savings will  be depleted  and it                                                              
will  essentially  be  in  a position  of  employing  either  very                                                              
draconian  cuts  to  the  government  services  or  considering  a                                                              
constitutional  amendment   to  spend  from  the   corpus  of  the                                                              
Permanent Fund.  The idea here is  to make changes now  instead of                                                              
later in  order to  preserve the Permanent  Fund and  its dividend                                                              
program.                                                                                                                        
                                                                                                                                
1:07:58 PM                                                                                                                    
JERRY BURNETT,  Deputy Commissioner, Department of  Revenue (DOR),                                                              
Juneau, Alaska,  explained that motor  fuel taxes in  Alaska began                                                              
in 1945.  Tax rates  have increased over  time, but  the structure                                                              
has remained  unchanged. The last  increase for highway  taxes was                                                              
in 1970,  marine taxes in 1977,  and aviation fuel taxes  in 1994.                                                              
That means  the motor fuel tax has  been 8 cents per  gallon since                                                              
1970.  In 1970  he  bought  gas  for 30  cents  a gallon  and  the                                                              
minimum wage was $1.60/hr.                                                                                                      
                                                                                                                                
1:10:02 PM                                                                                                                    
He related  that the motor fuel  tax was suspended  from September                                                              
1, 2008 to  August 31, 2009 when  the state brought in  more money                                                              
from oil  in one month  than it is  bringing in this  entire year,                                                              
and in  2015, HB  158 added a  .95 cent  surcharge on  motor fuels                                                              
and  other refined  fuels for  the Spill  Prevention and  Response                                                              
Fund.                                                                                                                           
                                                                                                                                
He said that this proposal increases all tax rates.                                                                             
                                                                                                                                
CHAIR  MICCICHE  interrupted  him  to  remember  the  struggle  in                                                              
adding less than a penny to the tax.                                                                                            
                                                                                                                                
MR. BURNETT  said he remembered.  He went  on to explain  that the                                                              
highway fuel  tax will  be increased  from 8 cents  to 16  cents a                                                              
gallon, the  marine tax  from 5  cents to 10  cents a  gallon, jet                                                              
fuel from 3.2  cents to 10 cents  a gallon, and aviation  gas from                                                              
4.7  cents to  10 cents  per gallon;  the off-road  use credit  is                                                              
changed from 6 cents to 12 cents.                                                                                               
                                                                                                                                
CHAIR MICCICHE pointed  out that the off-road tax  rate going from                                                              
2 cents to 4 cents is still being doubled.                                                                                      
                                                                                                                                
MR. BURNETT  said that  was correct.  He explained  that the  bill                                                              
requires the taxpayer  to file electronically and  provides for an                                                              
exemption process in certain cases.                                                                                             
                                                                                                                                
SENATOR   BISHOP  asked   the  penalty  for   not  filing   timely                                                              
electronically.                                                                                                                 
                                                                                                                                
MR.  BURNETT  answered that  he  would  get that  information.  He                                                              
added that  Alaska's fuel taxes are  among the lowest in  the U.S.                                                              
Highway  fuel is  the lowest;  jet fuel  is the  35th lowest;  and                                                              
aviation gas  24th. Under  this bill Alaska  taxes would  still be                                                              
below the  national average  for highway  taxes (20.17  cents) and                                                              
slightly above  the national average  for jet and  aviation fuels.                                                              
He didn't  have comprehensive data  for other states'  marine fuel                                                              
taxes, but most don't have a marine fuel tax.                                                                                   
                                                                                                                                
1:13:23 PM                                                                                                                    
One of the impacts  of this measure is that gas  prices will go up                                                              
a  little bit,  because  the increase  will  be passed  on to  the                                                              
consumer.   The  aviation   taxes  will   be  available   to  fund                                                              
certificated  urban and rural  airports.  An increase in  aviation                                                              
fuel taxes  was requested  by the  Aviation Advisory Committee  as                                                              
preferable to landing fee increases at state owned airports.                                                                    
                                                                                                                                
1:13:52 PM                                                                                                                    
SENATOR BISHOP asked who the Advisory Committee members are.                                                                    
                                                                                                                                
MR. BURNETT  said Deputy Commissioner  Hatter from  the Department                                                              
of  Transportation  and  Public Facilities  (DOTPF)  could  answer                                                              
that question.                                                                                                                  
                                                                                                                                
1:14:20 PM                                                                                                                    
STEVE HATTER,  Deputy Commissioner,  Department of  Transportation                                                              
and  Public   Facilities  (DOTPF),   answered  that   the  Airport                                                              
Advisory Board  has a cross section  of aviation stakeholders  - a                                                              
certain  carrier   representation,  rural  representation,   urban                                                              
representation - who are all appointed by the governor.                                                                         
                                                                                                                                
CHAIR  MICCICHE  asked if  a  sales tax  in  the future  would  be                                                              
stacked or would fuel be exempted.                                                                                              
                                                                                                                                
MR.  BURNETT  answered  that the  administration  hadn't  proposed                                                              
having a  statewide sales tax. It  would be a policy  decision. He                                                              
thought  some cities  exempted motor  fuel tax  from sales  taxes,                                                              
although Juneau doesn't.                                                                                                        
                                                                                                                                
CHAIR  MICCICHE said  it is not  exempted in  the Kenai  Peninsula                                                              
where he is from.  He said the motor fuel tax  is on the quantity,                                                              
but the sales  tax is on the  value. So, the sales  tax fluctuates                                                              
with the price of refined products and a fuel tax is stationary.                                                                
                                                                                                                                
SENATOR  DUNLEAVY asked  if dedication  of funds  to aviation  has                                                              
any constitutional issues.                                                                                                      
                                                                                                                                
MR. BURNETT  answered that the  Constitution provides that  no tax                                                              
or license  can be dedicated to  a specific purpose unless  it was                                                              
prior  to statehood  or required  for participation  in a  federal                                                              
program.  The Federal  Aviation  Authority  (FAA) regulations  for                                                              
other  grant monies  the state  receives require  that all  income                                                              
received  on  airports gets  spent  on  airports.  So, it  is  not                                                              
subject to the  dedication clause. The tax on  aviation gas, while                                                              
it goes into the  General Fund, an amount equal to  that has to be                                                              
spent at airports.  Airports that are municipally  owned - Juneau,                                                              
Kenai, Wasilla/Palmer  - have  shared tax back  from the  state in                                                              
the budget  bill every year. This  year it's about  $160,000. This                                                              
would increase it to about $200,000.                                                                                            
                                                                                                                                
1:18:26 PM                                                                                                                    
SENATOR DUNLEAVY  asked the estimated  overall cost  to administer                                                              
this tax.                                                                                                                       
                                                                                                                                
MR.  BURNETT  answered  that  raising the  fuel  tax  rates  would                                                              
require no  additional ongoing operating  cost, but it  would cost                                                              
$50,000 -  100,000 to reset the  system. He emphasized  again that                                                              
no  structures  to  the  tax system  are  being  changed  by  this                                                              
measure.                                                                                                                        
                                                                                                                                
CHAIR  MICCICHE asked  if distributors  would fill  out a  similar                                                              
form to what they do now.                                                                                                       
                                                                                                                                
MR. BURNETT said  the forms would have to be  changed, but nothing                                                              
beyond that  upfront cost.  He said that  increasing the  tax rate                                                              
would more  than double  tax collections by  $49 million  per year                                                              
(based on  fall 2015 revenue  forecast) with about  $200,000 being                                                              
shared back  to municipally owned  airports. The rest goes  to the                                                              
General  Fund  and is  allocated  in  special accounts  for  road,                                                              
water, transport and aviation facilities.                                                                                       
                                                                                                                                
1:20:23 PM                                                                                                                    
The  estimate  does  not  account for  possible  changes  in  fuel                                                              
demand or  stock piling, but  it is thought  that the  increase is                                                              
small  enough to  not  have much  effect.  Personally, he  related                                                              
that he typically  drives 20,000 miles a year and  at 20 miles per                                                              
gallon he  uses 1,000 gallons of  fuel, so this would  account for                                                              
another $80 more in tax.                                                                                                        
                                                                                                                                
1:22:18 PM                                                                                                                    
SENATOR  BISHOP  asked  if  overseas flights  have  some  type  of                                                              
exemption.                                                                                                                      
                                                                                                                                
MR.  BURNETT answered  yes. All  jet fuel  sold for  international                                                              
commerce  is tax  exempt. It  is the  largest amount  of jet  fuel                                                              
sold.                                                                                                                           
                                                                                                                                
1:22:38 PM                                                                                                                    
He said implementation  of the tax would require  changing the tax                                                              
revenue  management  online system  that  is  already  set up  for                                                              
electronic  returns; the  forms  would have  to be  changed for  a                                                              
cost  of about  $50,000. There  are  no additional  administrative                                                              
costs afterwards.                                                                                                               
                                                                                                                                
CHAIR MICCICHE  commented that  this is a  user fee; if  you don't                                                              
purchase  the  product you  don't  pay  the  fee. It  will  impact                                                              
businesses  more   than  individuals.   But  in  tax   philosophy,                                                              
individuals support  taxes that are  sort of returned back  to the                                                              
systems that  use them. There is  no guarantee in this  case; it's                                                              
just a  General Fund  (GF) deposit  other than  the minor  portion                                                              
that goes to airports.  He asked what returns would  be seen other                                                              
than in GF expenditures?                                                                                                        
                                                                                                                                
MR. BURNETT  answered that most  states dedicate their  motor fuel                                                              
taxes  to highway  maintenance. Historically,  Alaska spends  more                                                              
on  highway maintenance;  currently it  is spending  a great  deal                                                              
more  than people  are  paying in  user fees.  So,  people can  be                                                              
assured  that the  effect  of this  is that  there  may be  enough                                                              
money  to offset  what would  otherwise be  reductions in  highway                                                              
maintenance.  While this tax  is not  dedicated, it is  identified                                                              
in the system  and can be compared  to how much is being  spent on                                                              
highways.                                                                                                                       
                                                                                                                                
CHAIR MICCICHE  remarked that clearly  the best value  Alaska gets                                                              
from the  feds is the  highway match of  90/10. So,  this increase                                                              
might make  more GF  dollars available for  federal match  to keep                                                              
its highways in better condition.                                                                                               
                                                                                                                                
SENATOR BISHOP  said if this  passes, Alaskans would  capture some                                                              
traveling  public (60,000  motor  homes and  fifth wheel  campers)                                                              
from Outside and some marine craft that come up.                                                                                
                                                                                                                                
1:26:38 PM                                                                                                                    
MR. BURNETT  responded that clearly  anyone who uses  the highways                                                              
and  buys fuel  in  Alaska will  be  contributing  to the  state's                                                              
budget.                                                                                                                         
                                                                                                                                
CHAIR MICCICHE  said that  a Tax  Foundation Publication  compares                                                              
the tax burden -  broad based and specific taxes  - in each state.                                                              
He  remembered that  Alaska  pays $500  per  year, essentially  in                                                              
broad  based state  taxes, which  he assumed  includes motor  fuel                                                              
taxes.                                                                                                                          
                                                                                                                                
MR. BURNETT answered that it does.                                                                                              
                                                                                                                                
SENATOR MICCICHE  wondered how  that shakes out  if this  were the                                                              
only tax  to pass  this year. Would  this add $80  to the  $500 of                                                              
tax burden? Is this a small chunk of the gap?                                                                                   
                                                                                                                                
MR.  BURNETT  said Alaskans  would  still  be  25 percent  of  the                                                              
average.  The  only  state  that   competes  with  Alaska  is  New                                                              
Hampshire.                                                                                                                      
                                                                                                                                
SENATOR STEDMAN  related that unlike  all other states,  Alaska is                                                              
the only one to  own the subsurface rights, so  comparing our fuel                                                              
tax, income  tax or any other  mechanisms for state  revenues gets                                                              
distorted. One needs  to recognize that the citizens  of the state                                                              
own a  very valuable asset,  and that needs  to be factored  in in                                                              
walking through  these tax calculations. Each individual  can draw                                                              
their own conclusions  on how they want to add that  in. Alaska is                                                              
very different, because it was structured that way at statehood.                                                                
                                                                                                                                
1:30:12 PM                                                                                                                    
MR. BURNETT provided a sectional analysis of the bill.                                                                          
                                                                                                                                
Sec. 1  adds $25 or a  1 percent tax  penalty for failure  to file                                                              
electronically unless an exemption is received.                                                                                 
                                                                                                                                
Sec.  2 requires  electronic submission  of  tax returns,  license                                                              
applications,  and  other  documents  submitted  to  the  DOR.  It                                                              
changes AS 43.05  and will apply to all tax types  administered by                                                              
the department. It  provides a process to request  an exemption if                                                              
the taxpayer doesn't have the technology or capability to do so.                                                                
                                                                                                                                
Sec.  3 changes  the  per gallon  tax rates  for  dealers for  all                                                              
categories of  motor fuel: gasohol is  changed from 8 cents  to 16                                                              
cents, marine  fuel from  5 cents to  10 cents, aviation  gasoline                                                              
from 4.7  cents to  10 cents  and jet  fuel from  3.2 cents  to 10                                                              
cents.                                                                                                                          
                                                                                                                                
Sec. 4 changes  per gallon tax  rates for users of  all categories                                                              
of motor fuel to the same numbers.                                                                                              
                                                                                                                                
1:32:21 PM                                                                                                                    
Sec. 5 changes  the motor fuel  refund rate for off-road  use when                                                              
the tax has been paid from 6 cents to 12 cents.                                                                                 
                                                                                                                                
Sec. 6  is conforming applicability  language clarifying  that the                                                              
tax  increases  apply to  motor  fuels  sold after  the  effective                                                              
date.  The  electronic  filing   requirement  applies  to  returns                                                              
submitted after the effective date.                                                                                             
                                                                                                                                
Sec.  7  is transitional  language  allowing  for  regulations  to                                                              
implement the changes.                                                                                                          
                                                                                                                                
Sec.  8  is  an immediate  effective  date  for  the  transitional                                                              
regulatory language, and                                                                                                        
                                                                                                                                
Sec. 9 is an effective  date of July 1, 2016, for  the rest of the                                                              
bill including the tax rate changes.                                                                                            
                                                                                                                                
CHAIR MICCICHE  said the vast majority  of refined product  tax is                                                              
doubled, but he  wanted to know the rationale  behind doubling the                                                              
aviation tax and adding 6 cents.                                                                                                
                                                                                                                                
MR.  BURNETT said  all revenues  from  aviation fuels  have to  be                                                              
paid to  the airport and  this is an  alternative to  landing fees                                                              
at airports  that the  users preferred. He  said this  is slightly                                                              
more than tripling the rate.                                                                                                    
                                                                                                                                
CHAIR  MICCICHE asked  for the  value of  the last  3.2 cents  per                                                              
gallon.                                                                                                                         
                                                                                                                                
MR. BURNETT  said that would amount  to $13 million from  jet fuel                                                              
and  $1  million from  aviation  gas.  He  said  the cost  to  the                                                              
airports is going  to be the same one way or the  other. The board                                                              
preferred paying taxes rather than increasing landing fees.                                                                     
                                                                                                                                
1:35:47 PM                                                                                                                    
MR. HATTER  added that FAA  certificated airports, referred  to as                                                              
jet service airports,  in general are quite expensive  to run, the                                                              
reason  being   high  FAA   standards  and  regular   inspections.                                                              
Offsetting  that  with  landing  fees is  a  huge  challenge,  and                                                              
aviation  industry  stakeholders  through  the  Aviation  Advisory                                                              
Board asked to raise taxes instead.                                                                                             
                                                                                                                                
CHAIR MICCICHE  said the fiscal  gap is  a new reality  for Alaska                                                              
and he would be  looking for users of state services  to reduce or                                                              
eliminate  their  subsidies.  He  asked  if this  comes  close  to                                                              
filling the airport subsidy gap.                                                                                                
                                                                                                                                
MR. HATTER answered  that the gap would still  be substantial, but                                                              
this is a step in the right direction.                                                                                          
                                                                                                                                
SENATOR  EGAN said  he  thought a  lot of  rural  airports had  no                                                              
landing fee.                                                                                                                    
                                                                                                                                
MR.   HATTER   answered   that   Anchorage   and   Fairbanks   are                                                              
international  airports,  which  are  set  up  under  a  different                                                              
statute.  The  rest  of  the airports  are  owned  by  the  Alaska                                                              
Department  of Transportation  and Public  Facilities (DOTPF)  and                                                              
have landing fees.                                                                                                              
                                                                                                                                
CHAIR MICCICHE said  one their interests last year  was to try and                                                              
reduce that  amount of  subsidy through landing  fees, but  it met                                                              
with significant resistance.                                                                                                    
                                                                                                                                
SENATOR EGAN said  Juneau charges a landing fee, so  that would be                                                              
more  than  doubled by  paying  the  jet fuel  increase,  although                                                              
Juneau, Kenai and Merrill Field would get that money.                                                                           
                                                                                                                                
1:40:20 PM                                                                                                                    
SENATOR  STEDMAN  teamed  up with  Senator  Egan's  questions  and                                                              
asked about  the Sitka and  Ketchikan airport structures  relative                                                              
to Juneau, for general background.                                                                                              
                                                                                                                                
CHAIR MICCICHE  responded that  the rural  carriers were  the most                                                              
resistant.  He  wanted to  know  if  these increases  would  cover                                                              
enough of  the gap.  In polling  he had seen  support for  a broad                                                              
based effect that doesn't focus on individual user groups.                                                                      
                                                                                                                                
SENATOR  STEDMAN said  he was  not  interested in  bidding up  tax                                                              
bills to  raise any  more revenue than  were already  presented to                                                              
the  legislature. He  threw in  Wrangell  and Petersburg  airports                                                              
with his previous comments.                                                                                                     
                                                                                                                                
CHAIR MICCICHE  said it's clear that  no one is excited  about any                                                              
tax bills.                                                                                                                      
                                                                                                                                
1:42:37 PM                                                                                                                    
SENATOR  BISHOP  said  he  likes  building  roads  and  flying  in                                                              
airplanes and  he also likes keeping  people working in  his local                                                              
rural communities,  and if this bill gets any  traction he already                                                              
had an  amendment ready. Construction  dollars have a way  to spin                                                              
off six times  to a community and  build more wealth.  So, he kind                                                              
of likes the bill.                                                                                                              
                                                                                                                                
CHAIR  MICCICHE said  he  spent his  career  reducing taxes  where                                                              
ever  possible,  but  Alaska  has  a  new  reality.  Fairness  and                                                              
balance in  the distribution  of the burden  is the best  that can                                                              
be done if the current fiscal gap continues.                                                                                    
                                                                                                                                
SENATOR BISHOP  added that  cars get more  miles per  gallon today                                                              
versus  30 years ago  and the  federal government  is setting  new                                                              
CAFÉ  standards for  mileage by  2025. That  asphalt doesn't  know                                                              
the difference whether  that car is getting 10 mpg  or 45 mpg. The                                                              
asphalt wears  out at the same rate,  and at some point  this is a                                                              
user fee and worthy of a good look.                                                                                             
                                                                                                                                
CHAIR MICCICHE  kept public testimony  on SB 132 open and  held it                                                              
for further work.                                                                                                               

Document Name Date/Time Subjects
SB132 ver A.pdf STRA 1/26/2016 1:00:00 PM
STRA 2/4/2016 1:00:00 PM
SB 132
SB132 Sponsor Statement - Governor's Transmittal Letter.pdf STRA 1/26/2016 1:00:00 PM
STRA 2/4/2016 1:00:00 PM
SB 132
SB132 Sectional Analysis Motor Fuel Tax.pdf STRA 1/26/2016 1:00:00 PM
STRA 2/4/2016 1:00:00 PM
SB 132
SB132 Fiscal Note-0912-DOR-TAX-01-13-16.pdf STRA 1/26/2016 1:00:00 PM
STRA 2/4/2016 1:00:00 PM
SB 132
SB132 Motor Fuel Tax FAQ.pdf STRA 1/26/2016 1:00:00 PM
SB 132
SB132 Tax presentation MOTOR FUEL 1-22-16.pptx STRA 1/26/2016 1:00:00 PM
STRA 2/4/2016 1:00:00 PM
SB 132
Per-Capita Broad-Based State Tax Revenues, by State, 2014.pdf STRA 1/26/2016 1:00:00 PM
STRA 2/4/2016 1:00:00 PM
SB 132