Jet fuel tax sparks opposition

PHOTO/Ed Bennett/AJOC
A proposed 2-cent-per-gallon fuel transfer tax in the Fairbanks North Star Borough has ignited a spate of controversy and legal opinions.

Williams Alaska Petroleum Inc., the Alaska Air Carriers Association and the Alaska Railroad Corp. say state or federal law or both prohibits the tax.

Advocates say the measure would drastically reduce property taxes in the borough.

The Alaska Air Carriers Association says it will sue the Fairbanks North Star Borough if the referendum is approved by voters at a June 25 special election.

Merrick Peirce, spokesman for A Bright Future for Fairbanks, the group pushing the proposed tax, said the fuel transfer tax would bring in $24 million -- enough to reduce property taxes by 40 percent throughout the borough.

"We’re not trying to increase taxes," Peirce said. "We want to diversify the tax base and grow our economy."

Peirce said property taxes in and around Fairbanks have doubled during the last 15 years. The borough’s population has slid by 2,000 residents in the last few years and property tax delinquencies are up, he said.

Property tax relief would stimulate Fairbanks’ economy and would be good for everyone, he claimed.

Most of the money from the proposed tax likely would come from jet fuel Williams Alaska sells to Anchorage from its North Pole refinery, Peirce said.

Jeff Cook, vice president of external affairs for Williams Alaska, said state and federal law prohibits the proposed tax.

Williams Alaska pays the third-largest amount of property tax in the borough, about $3 million annually. Although it would save about $1 million a year in property taxes if the fuel transfer tax is approved by voters, Williams would suffer severe financial losses from its jet fuel sales, Cook said.

"If we would have to pay it, it would be devastating to us competitively," Cook said.

Cook said his company produces 1.4 million gallons of jet fuel daily for Anchorage. Another 210,000 gallons is produced for Fairbanks each day, he said.

Williams provides about half of the jet fuel for the Ted Stevens Anchorage International Airport and Tesoro Alaska Petroleum Inc. provides another 40 percent via its Nikiski pipeline. The other 10 percent of the fuel normally comes from producers outside Alaska and is shipped to Alaska’s largest city in tankers and barges.

Cook said if his company were hit with the tax, it would lose its customers to Tesoro or Outside producers.

"That’s almost laughable," said Peirce. "Williams has the most profitable refinery in North America. There is no way in hell they will lose those jet fuel sales. They will pass on the 2-cent tax on to customers whenever they can."

Petroleum makes up most of the freight revenue for the Alaska Railroad, projected at $36 million for 2002, up $270,000 from a year ago.

If Cook is right, the railroad would suffer huge losses, said Patrick Flynn, Alaska railroad spokesman.

State law prohibits the Alaska Railroad from taking sides on the issue, Flynn said.

"Statutorily, we can’t get involved," Flynn said, "but we have concerns. Williams is our biggest customer. What’s bad for them is bad for us."

The railroad set daily, weekly and annual records shipping fuel from Williams Alaska Petroleum’s North Pole refinery last year.

Flynn said the railroad believes the tax is not allowed under federal law.

The proposed tax, Flynn said, would "discriminate against rail transport and exempt pipeline fuel."

David Leone, a special assistant for Mayor Rhonda Boyles, said neither the borough nor the Fairbanks City Council have taken a position on the proposed tax.

"There are a lot of concerns," Leone said. "Alaska statues are not real clear on what is and what isn’t taxable."

The borough has hired Av Gross, a former state attorney general, to give a legal opinion on the borough’s power to tax fuel transfers. The borough has paid Gross $20,000 to study the tax.

Gross, reached at his office in Juneau, said he would provide the borough with his opinion in early June.

Gross would not offer a preview of his findings to the Journal, only to say that "there are a lot of legal issues about this tax."

State law prohibits taxation of fuel used for heating and power generation or fuel used in airplanes that operate flights to foreign countries.

Cook said most of the jet fuel Williams produces is used for foreign flights.

The Alaska Air Carriers Association, which has some 75 members, said in its May newsletter that it would sue the borough if an attempt is made to tax aviation fuel transfers.

Timothy Miller, attorney for the association, could not be reached at his Lake Oswego, Ore., office.

The Journal is a non-voting associate member of the association.

Pierce said his group set a record in Fairbanks on the referendum and expects a high voter turnout.

"We got 2,000 signatures in 10 days," Peirce said. "I think it will do very well."

Updated: 
06/09/2002 - 8:00pm

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