Legislature(2015 - 2016)BUTROVICH 205

02/09/2016 01:00 PM TRANSPORTATION

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Audio Topic
01:03:09 PM Start
01:03:50 PM SB132
01:29:12 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= SB 132 ELECTRONIC TAX RETURNS & MOTOR FUEL TAX TELECONFERENCED
Heard & Held
-- Public Testimony --
         SB 132-ELECTRONIC TAX RETURNS & MOTOR FUEL TAX                                                                     
                                                                                                                                
1:03:50 PM                                                                                                                    
CHAIR MICCICHE  announced consideration  of SB  132 and  said that                                                              
public testimony  will be taken  and be  left open. He  noted that                                                              
his office  had received  letters of  both support and  opposition                                                              
that are posted on BASIS.                                                                                                       
                                                                                                                                
SENATOR  DUNLEAVY  moved  to  adopt   CSSB  132(  ),  version  29-                                                              
GS2912\H, as the working document.                                                                                              
                                                                                                                                
CHAIR   MICCICHE  objected   for  purposes   of  explanation   and                                                              
discussion.                                                                                                                     
                                                                                                                                
1:04:50 PM                                                                                                                    
LYNNE  SMITH, staff  to Senator  Micciche  and the  Transportation                                                              
Committee, Alaska  State Legislature,  Juneau, Alaska,  provided a                                                              
summary  of  CSSB  132(),  version  \H.  She  explained  that  the                                                              
committee substitute  (CS) removed the electronic  submission of a                                                              
tax  return to  the Department  of  Revenue (DOR)  from the  bill,                                                              
because that  issue should be looked  at in another  committee. It                                                              
also  has a  trigger figure  of  $85 for  an average  price for  a                                                              
barrel  of oil  during a  previous  calendar year  when the  taxes                                                              
revert to  current rates.  There is  an addition  of two  fuel tax                                                              
exemptions; one is  fuel that is used in an emergency  vehicle and                                                              
the other  is fuel  used for student  transportation services  for                                                              
which a school district receives funding under AS 14.09.010.                                                                    
                                                                                                                                
She  said Legislative  Legal also  made  other statutory  changes,                                                              
which would be addressed  next and that the new  taxes will sunset                                                              
on July 1, 2018.                                                                                                                
                                                                                                                                
CHAIR MICCICHE asked for a summary of the bill.                                                                                 
                                                                                                                                
1:06:31 PM                                                                                                                    
MS. SMITH summarized SB 132 as follows:                                                                                         
 Sec. 1 states  if the average price  per barrel is more  than $85                                                            
during  the  previous  calendar  year, the  taxes  return  to  the                                                              
current prices  for the  dealers. Subsec. 2  of this  section also                                                              
has  the  tax  increase  that  was   proposed  in  the  governor's                                                              
original bill.                                                                                                                  
                                                                                                                                
SENATOR STEDMAN  asked why  $85 was selected  and what  revenue is                                                              
triggered  then.   What  is  the  relationship  between   the  tax                                                              
increase and the revenue generation?                                                                                            
                                                                                                                                
CHAIR  MICCICHE  answered that  he,  Senator Bishop,  and  Senator                                                              
Dunleavy  worked  on  this  bill. It's  important  to  explain  to                                                              
Alaskans  that they  aren't  interested in  getting  into the  tax                                                              
business; they were  interested in filling a fiscal  gap with this                                                              
bill. They  will likely  do other measures  to fill  the remainder                                                              
of the  gap, such  as repurposing  the state's existing  financial                                                              
assets  until the  $85 trigger  is  reached. His  thought is  that                                                              
once  that level  was  attained  for an  entire  fiscal year,  the                                                              
state would likely be whole as far as funding goes.                                                                             
                                                                                                                                
He  explained the  reason for  the sunset  is similar  in that  it                                                              
will  cause  the  legislature  to revalidate  the  need  for  that                                                              
revenue in two years after the 2018 session.                                                                                    
                                                                                                                                
SENATOR STEDMAN wanted  the Department of Revenue  (DOR) to answer                                                              
the  question  and  provide expectations  at  $85/barrel.  He  was                                                              
concerned with the  credits overall implications  to the treasury,                                                              
because it's not as clear cut as it appears on the surface.                                                                     
                                                                                                                                
1:09:40 PM                                                                                                                    
JERRY BURNETT,  Deputy Commissioner, Department of  Revenue (DOR),                                                              
Juneau,  Alaska, said  depending  on a  number of  factors -  what                                                              
happens in this  legislative session with the floor  and credits -                                                              
$85 is above  where the minimum  tax is triggered. So,  at a price                                                              
somewhere  in  the $80  range  the  state has  rapidly  increasing                                                              
revenues. Whether  this is  the right price  or another  price can                                                              
be discussed as the bill moves through the process.                                                                             
                                                                                                                                
SENATOR STEDMAN  said he was  concerned that $450  million doesn't                                                              
do  much to  run the  State of  Alaska, and  that there  is a  big                                                              
difference  between  being  at  the minimum  tax  of  the  state's                                                              
severance tax  and being in  the range  in which the  severance is                                                              
actually producing something meaningful to the treasury.                                                                        
                                                                                                                                
MR.  BURNETT   answered   that  he  didn't   choose  the   number,                                                              
obviously,  the chair  did.  But  $85 is  where  the state  starts                                                              
experiencing  rapidly increasing  revenues. But,  it is  certainly                                                              
well below what  is required to balance the budget  in the current                                                              
fiscal system.                                                                                                                  
                                                                                                                                
CHAIR MICCICHE  said his logic  for that  is that he  continues to                                                              
expect  downward  pressure on  the  budget where  possible.  These                                                              
revenue  measures are  emergency  management  and not  sustainable                                                              
funding in  the future. He felt  that getting up to a  price point                                                              
for  oil  that  is  too  high  encourages  getting  back  into  an                                                              
atmosphere  of increasing  costs significantly.  It may  not  be a                                                              
perfect balance  point, but  $82 is the  point where  things shift                                                              
to  being  very  positive  on production  taxes.  He  allowed  the                                                              
distance between  $82 and $85. It  can always be revisited  in the                                                              
future if it's not the right break point.                                                                                       
                                                                                                                                
MS. SMITH continued with the sectional analysis:                                                                                
 Sec. 2 sunsets sec. 1 of the bill on July 1, 2018.                                                                           
 Sec. 3  is the $85  trigger point for  fuel consumed, not  by the                                                            
fuel  dealer.  This  section  also  has  the  governor's  original                                                              
language about the tax as proposed.                                                                                             
 Sec. 4 sunsets Sec. 3.                                                                                                       
 Sec.  5  adds  the  two new  fuel  tax  exemptions  suggested  by                                                            
Senator Dunleavy.                                                                                                               
                                                                                                                                
SENATOR  DUNLEAVY commented  that he  would have  liked to  exempt                                                              
everyone  from the  tax, but  this is  an attempt  to mitigate  to                                                              
some degree  the issue  especially for  non-profits like  a school                                                              
district  and emergency services  ambulance,  fire, and that  sort                                                              
of thing.                                                                                                                       
                                                                                                                                
1:14:41 PM                                                                                                                    
SENATOR STEDMAN asked if home heating oil is excluded.                                                                          
                                                                                                                                
CHAIR MICCICHE  clarified that none  of the other  exemptions have                                                              
changed except for the two mentioned by Senator Dunleavy.                                                                       
                                                                                                                                
1:15:09 PM                                                                                                                    
MS. SMITH continued the sectional analysis:                                                                                     
 Secs. 6 & 7 are language that relate to Sec. 5.                                                                              
 Sec. 8  is the refund  rate for the  off-road use as  proposed by                                                            
the governor.                                                                                                                   
 Sec. 9 is the sunset of Sec. 8.                                                                                              
 Sec. 10  was put in  by Legislative  Legal for cleanup  language.                                                            
She  asked Ms.  Nauman  with Legislative  Legal  to explain  those                                                              
changes.                                                                                                                        
                                                                                                                                
1:15:32 PM                                                                                                                    
EMILY   NAUMAN,   Legislative   Legal   Services,   Alaska   State                                                              
Legislature, Juneau,  Alaska, explained  that Sec. 10  deletes the                                                              
current   exemptions  for   motor  fuels   which  appear   in  the                                                              
definition of  "motor fuel," which  is in direct violation  of the                                                              
Legislative  Drafting   Manual.  Under  the  Drafting   Manual,  a                                                              
definition section  can only contain  just that: a  definition. It                                                              
cannot contain  substantive law.  So, in  this bill the  exemption                                                              
for  motor  fuel   language  was  moved  into  the   body  of  the                                                              
substantive law,  which appears in Sec.  4. So, Sec. 4  is exactly                                                              
what the law is  now with the two exceptions  explained by Senator                                                              
Dunleavy.                                                                                                                       
                                                                                                                                
CHAIR MICCICHE  clarified that it  changes nothing; it  just moves                                                              
language as a cleanup.                                                                                                          
                                                                                                                                
MS. NAUMAN  agreed;  it just moved  some language  to the  correct                                                              
location.                                                                                                                       
                                                                                                                                
MS. SMITH continued the sectional analysis:                                                                                     
 Sec. 11 is the applicability.                                                                                                
 Sec. 12  is the  transitional language  allowing for  regulations                                                            
to implement the changes.                                                                                                       
 Sec. 13 is the immediate effective date of Sec. 12.                                                                          
 Sec. 14 is  the effective date of  July 1, 2018, for  Secs. 2, 4,                                                            
and 9.                                                                                                                          
 Sec. 15 is  the effective date of  July 1, 2016, for  the rest of                                                            
the bill.                                                                                                                       
                                                                                                                                
CHAIR MICCICHE  removed his objection  and said that CSSB  132( ),                                                              
version \H was before the committee.                                                                                            
                                                                                                                                
1:18:00 PM                                                                                                                    
SENATOR STEDMAN  asked how  home heating fuel  is handled  in this                                                              
bill.                                                                                                                           
                                                                                                                                
MR. BURNETT  explained that  home heating fuel  is not taxed  as a                                                              
motor fuel. The  only tax he is  aware of on home heating  fuel is                                                              
a  surcharge of  .95 cents  per  gallon for  the Spill  Prevention                                                              
Response Fund.                                                                                                                  
                                                                                                                                
SENATOR EGAN asked  for an example of a charitable  institution in                                                              
Sec. 5.                                                                                                                         
                                                                                                                                
1:18:56 PM                                                                                                                    
MR.  BURNETT   answered   that  is  an   existing  exemption   for                                                              
charitable  organizations that include  churches and  corporations                                                              
that are under  501(c)3 designation in the Federal  Tax Code. That                                                              
would be certain types of educational entities.                                                                                 
                                                                                                                                
SENATOR  EGAN asked  if Capital  Community  Broadcasting and  KTOO                                                              
would be exempt.                                                                                                                
                                                                                                                                
MR.  BURNETT answered  that  it depends  on  what their  exemption                                                              
status is and he didn't know how they are organized.                                                                            
                                                                                                                                
1:20:14 PM                                                                                                                    
CHAIR   MICCICHE   opened   public  testimony.   He   stated   the                                                              
Transportation Committee's  message so far has been  that they are                                                              
not  in  the   revenue  business,  but  he  also   recognizes  the                                                              
significant fiscal  gap. The goal of  the bill is to make  it only                                                              
as  needed  and not  to  get  in  the business  of  building  fund                                                              
balance if those  funds are not needed to support  the government.                                                              
If this  bill moves forward,  he sees it  somewhat more of  a user                                                              
fee than a tax.                                                                                                                 
                                                                                                                                
FRED  STURMAN, representing  himself,  Kenai,  Alaska, opposed  SB
132.  But if  it passes,  he wants  it sunsetted  every year,  not                                                              
2018. He  said the rate  needed to be  lowered from $85  a barrel,                                                              
where it  probably won't  get to for  the next 10  to 15  years to                                                              
about $55. He  also didn't want any exemptions  saying, "If you're                                                              
going to  pass a  bill, all  pay." This is  a tax  and not  a user                                                              
fee. He  was very disappointed  that they  were considering  a tax                                                              
without  cutting $1  billion out  of the budget  first. All  these                                                              
taxes will  take non-discretionary  funds  out of the  communities                                                              
and it  will do  nothing but  make it  worse than  the 1980s.  One                                                              
Soldotna  lady told  him she was  closing her  business in  April,                                                              
and six  other people are  having moving  sales so they  can leave                                                              
the state.                                                                                                                      
                                                                                                                                
1:24:37 PM                                                                                                                    
NANCY  HILLSTRAND,  owner,  Pioneer  Alaskan  Fisheries  and  Cold                                                              
Point  Seafoods,  Kachemak  Bay,  Alaska, supported  SB  132.  She                                                              
agreed that  the gap needs to be  filled with any kind  of revenue                                                              
generator that  "allows us to stand  on our own feet."  She didn't                                                              
like the  hope that everyone  always holds out.   This is  a great                                                              
way  to fill  the  gap and  she  agreed that  there  should be  no                                                              
exemptions, because  we survived  the high cost  of fuel  and know                                                              
that everyone can pitch in.                                                                                                     
                                                                                                                                
CHAIR  MICCICHE said  he would keep  public testimony  open  on SB
132 for the Thursday meeting.                                                                                                   
                                                                                                                                
SENATOR STEDMAN said  he was still concerned with  a trigger price                                                              
of $85,  because it  is related  to production,  which at  best is                                                              
projected to  be flat to declining  into the immediate  future. He                                                              
wanted  to see some  DOR projections  of  $70 to  90 a barrel,  so                                                              
they could get an  idea of how much this quickly  accelerating tax                                                              
structure will  recoup the treasury.  He suspected that at  $85 to                                                              
$87  the issue  goes away,  and  he wanted  solid projections  run                                                              
that actually show that.                                                                                                        
                                                                                                                                
CHAIR  MICCICHE said  since they  just received  the CS today,  he                                                              
would  hold it  and  keep public  testimony  open.  [CSSB 132(  ),                                                              
version /H, was held in committee.]                                                                                             

Document Name Date/Time Subjects
SB132 Support Letter - AOPA - 2-5-16.pdf STRA 2/9/2016 1:00:00 PM
SB 132
SB132 Support Letter -AGC-2-5-16.pdf STRA 2/9/2016 1:00:00 PM
SB 132
SB132 Opposing Letter - Delta Airlines - 2-9-16.pdf STRA 2/9/2016 1:00:00 PM
SB 132
SB132 -Opposing Letter - UPS 2-8-16.pdf STRA 2/9/2016 1:00:00 PM
SB 132
SB132 CS version H.pdf STRA 2/9/2016 1:00:00 PM
SB 132