poses. So they are, in effect, dyeing in excess of 99 percent of their fuel in order to sell the clear.

Alaska also has several factors that we think contribute to the lack of significant evasion of the Federal tax. There is also a State tax on diesel in Alaska. The manufacturers and distributors of fuel in Alaska have been paying that tax for many years. There is a specific State form for reporting sales and describing where the fuel is going. That is in place, has been in place for quite some time. We are also presently exempt from the requirements for low-sulphur diesel fuel. This means that the diesel fuel that is produced in Alaska would not be marketable in other parts of the United States.

We also have the issues of transportation from Alaska to alternative markets, as well as the storage issues that have already been mentioned-lack of additional fuel storage capabilities.

This was hurriedly put together last week, when I learned that I was invited to make a presentation. So I was very conservative in my numbers. I probably have some adjustments to make, and will do so if that becomes important. But the point is that it does appear that the costs are substantially more than the increased revenue that could be projected from eliminating tax fraud that would be occurring in Alaska.

Numerous Alaska marinas exist. The dilemma experienced by small marinas has already been discussed, and that same holds true in Alaska.

I will just point out that there is some irony in this. Part of the revenue that has been generated from this tax is destined to remedy and clean up leaking storage tanks. On the other hand, the presence of this is actually a stimulus to build more storage tanks.

So, in Alaska, we find that we have a situation where we are dyeing virtually 96 percent of the fuel to be able to sell that 4 percent. And we think that there are really very good grounds to have an exemption for the State.

I would welcome any questions that you have, Senator.

The CHAIRMAN. I do not have any questions. I think your case is well taken.

[The prepared statement of Mr. Burden appears in the appendix.]

The CHAIRMAN. Mr. Chisholm?

STATEMENT OF PHILLIP R. CHISHOLM, EXECUTIVE VICE PRESIDENT, PETROLEUM MARKETERS ASSOCIATION OF AMERICA, ARLINGTON, VA

Mr. CHISHOLM. Good morning, Mr. Chairman.

My name is Phil Chisholm, and I am the executive vice president of the Petroleum Marketers Association of America, PMAA.

PMAA represents some 10,000 independent small business petroleum distributors, who sell approximately half the gasoline, 60 percent of the diesel fuel, and about 90 percent of the home heating oil that is consumed annually in the U.S.

The CHAIRMAN. Are you basically the wholesalers who sell it to gas stations?

Mr. CHISHOLM. We are both wholesalers and retailers.

The CHAIRMAN. All right.

Mr. CHISHOLM. So we have integrated into retailing more in the last several years.

My focus today is not so much on the level of tax as it is the administration of the tax and, specifically, the inclusion of dyes as a tax enforcement mechanism, starting back in 1993.

I think it would be helpful for the Committee to understand that the industry had prepared for a dyed system under EPA regulations, starting as far back as 1989. EPA, in negotiations with the American Petroleum Institute and the Diesel Engine Manufacturers Association, had agreed there should be a low-sulphur fuel produced that would meet diesel engine emission standards that were established by EPA.

To differentiate the low-sulphur from the high-sulphur fuel, the EPA was going to require that high-sulphur fuel be dyed blue. I think it was at the time.

For 3 years, the industry prepared to deal with this new dye requirement. Many people-manufacturers and distributors-said we are going to get out of the high-sulphur business altogether, and the only fuel we will sell will be low-sulphur diesel fuel. Therefore, we will not additional tanks. We will market our fuel as an environmentally superior fuel, and that is the way we will deal with this new requirement.

Unfortunately, when OBRA 1993 passed in August of 1994, all of those plans were thrown out the window because, all of a sudden, there was a necessity to have dyed fuel in order to be able to sell to tax-exempt users, which is about half the diesel fuel market today. So members then said, what do I do with dyed fuel, and how do I deal with dyed fuel.

I think there was a hope on the part of the IRS and the Congress that it would be a very neat overlay between the tax provisions and the environmental provisions relative to this program. Unfortunately, that did not happen.

Let me talk about some of the problems that have been created as a result of the implementation of the dye system in the fuel. For my members, part of the reason for moving the point of collection was to reduce the number of taxpayers, and also to reduce the level of tax evasion. And by reducing the number of taxpayers, it would considerably reduce the number of people IRS had to audit and monitor.

Unfortunately, what has happened is our people have come under IRS scrutiny at a different level, and that is on refunds that my members must apply for on behalf of their farm accounts, and on behalf of the State and local governments. They buy the fuel tax-free, and my members apply for the refunds on their behalf.

For diesel fuel, those refunds are mandated to be returned in 20 days. For gasoline, there is no time limit on when those refunds should be received. We urge very strongly that the same statutory requirements applicable to diesel fuel be made to gasoline as well. There were problems for many of our customers. You have heard the problems with marinas. You have heard the problem from the standpoint of buses. Many farmers who don't have access to dyed fuel are having to buy undyed fuel and use our members to apply for the refund directly.

Loggers, many other construction users, have to pay the tax, and they have to apply for the refund directly, through rather complicated refund procedures, as were articulated by another witness. Our perspective is that, while the program to move the point of collection has collected considerably more tax, there is considerably greater administrative complexity here, which we think could be reduced and modified to a great extent.

We have some specific solutions we have recommended in our written testimony. And I will be happy to respond to any questions the Committee may have.

The CHAIRMAN. Several years ago, we had a hearing before we got into this. And it was very clear that there was a fair amount of tax evasion going on. Indeed, we picked up about $600 million we did not otherwise have. So, to that extent, the system is partially working.

What I need is suggestions. We do not want to go back to the tax evasion again. I think you have a legitimate problem. How can we not go back to tax evasion, and still simplify your problem?

Mr. CHISHOLM. I think there are a couple of things. One, to require that the gasoline refunds on sales to State and local governments be returned within 20 days is a very simple one that can be done to improve the cash flow situation. It will also allow the diesel refunds and the gasoline refunds to be submitted on the same form, so that the Service is not dealing with two separate claims. Another problem that I did not articulate, but is very real, is kerosene. A lot of people blend kerosene in the wintertime into distillate, in order to make it have a lower freeze point, so it will not gel in cold weather. As a result of that, they have to add dye under IRS regulations to that kerosene, in order to put it into dyed fuel. We think that the fuel is already dyed. When you add kerosene to it, that should not be required.

So there are a number of specific provisions like that, which we detail in our testimony, that we think would help improve this program immensely.

The CHAIRMAN. Thank you.

[The prepared statement of Mr. Chisholm appears in the appendix.]

The CHAIRMAN. And we will conclude with Michael Sciulla, who is the president of the Boat Owners Association of the U.S. Mr. Sciulla?

STATEMENT OF MICHAEL SCIULLA, VICE PRESIDENT, BOAT OWNERS ASSOCIATION OF THE UNITED STATES, ALEXANDRIA, VA

Mr. SCIULLA. Good morning, Mr. Chairman, and thank you for the promotion.

On behalf of the 500,000 members of BOAT/U.S. it is an honor to have the opportunity to share our concerns with you this morning, regarding the Federal dyeing of diesel fuel for recreational boats.

Mr. Chairman, earlier this morning you heard the Treasury Department testify that the current method of collection is the most effective and efficient. Well, it may be efficient, Mr. Chairman, but

it is not fair, it is not right, and the analysis done and presented to this Committee by the Treasury Department is wrong.

I have received numerous letters over the past 2 years from our members across this country, and I would like to share excerpts of them with you.

I have one letter here from Mr. Tim Wynn of Astoria, Oregon, who says, "I need your help. I just purchased a used boat with 200 gallons of diesel capacity, and I cannot purchase fuel locally. There are five locations, including my own marina, where fuel has been sold to all boaters within an 8-mile radius. Because of the new diesel fuel tax, all of these locations have decided to sell to commercial diesel users. The only place I can purchase diesel fuel is a 12-hour boat trip up the Columbia River, at a marina in Washington State. If I plan to resell my boat, who is going to buy it?"

I have a letter here from Charles Culotta of Patterson, Louisiana. “I am the owner of a diesel cruiser. The Intercoastal Waterway is the interstate highway of coastal water transportation. There are literally hundreds of diesel pleasure vessels navigating the Gulf of Mexico on any given day. With the imposition of this diesel tax, fuel is unavailable for pleasure boats between Biloxi, Mississippi and Intercoastal City, Louisiana, a distance of 325 miles. It is not only an inconvenience, Mr. Chairman, it is a safety matter."

Here is a letter from Mr. M.B. Ballard of Houston, Texas. "I went to Cameron, Louisiana from the Gulf late one afternoon in my sailboat, to spend the night in the sheltered water, and purchase desperately needed fuel. Since a storm was forecast for the night and the following days, I planned to return to Houston by the ICW. This would require motoring over 100 miles, but my tank was almost empty. Cameron is a busy commercial boating community, with several fuel docks. However, there is not one drop of clear diesel in the entire port for recreational boaters. Without fuel, the only choice was to brave a significant storm in the Gulf, rather than taking the only safe and sane route home."

Another letter from Mr. Robert Foss of Branson, Missouri. “In June of 1994, we decided to take a cruise on the Big Ben to Florida. Upon our arrival, we were disappointed to learn that, since they only had one pump, and the majority of business was commercial fishing, they had not one drop of clear fuel to sell to recreational boats. We had over 125 miles of open ocean to the Gulf of Mexico to traverse, and had very little reserve fuel. The weather was stormy. It was not a pleasant trip, with the added worry of possibly running out of fuel. Please do your best to resolve this ludicrous situation."

I have numerous examples of marinas who have lost business, and cannot put in a new tank and pump. This from Thomas Bizzeĺ of Holiday Harbor Marina in Pensacola, Florida. “As a result of the new diesel tax, we have had to totally abandon selling diesel fuel to recreational boaters. We are a small family-owned business, unable to afford separate tanks for tax-paid diesel and tax-free diesel. The installation of a new pump would cost $15,000."

Or this from John Taylor, president of Taylor Marine Corporation in Massachusetts. "For the past year, we have been turning away dozens of recreational boats, much to the displeasure of their

owners. They must travel a minimum of 15 miles to the nearest fueling facilities. The current situation is at once ridiculous and terribly frustrating. And I pray that someone in Washington will take remedial action."

There is also price-gouging, Mr. Chairman. We have had numerous reports of commercial diesel fuel selling for 60 cents a gallon and recreational fuel selling for $1.50 a gallon.

It is also hurting the industry. Here is a letter from Mr. S. McKenna of Waterloo, Iowa. I wish Senator Grassley were here. "My sources no longer provide the fuel, and the only source available to our area now is by truck. We need to call so far in advance that it is no longer worth our while. Several of us have decided to sell our boats, so this spring our cruiser is for sale."

Or from Mr. Frank Ernst of Stonybrook, New York. “I finally decided that I was worrying too much about the availability of the proper fuel, not to mention the additional cost. I sold the boat, since I had purchased it for pleasure, not headaches."

Mr. Chairman, in April, 1995, Power and Motor Yacht Magazine published a survey of its readers. The question was: "Do you use your boat more, about the same, or less, as a result of the diesel fuel tax?" The response was 50 percent less, 45.9 percent about the same, 2.9 percent more.

On March 22, 1994, I had the opportunity to testify before the Treasury Department. Basically, the reaction I got from them was that this is Congress' problem. They caused it, let them fix it.

Last year, on June 22, the Senate voted 79 to 20 on the Gorton amendment to fix this problem. Every Member of the Majority of this Committee at the time, and a majority of the Minority Members, voted in favor of that resolution.

I guess I would say, Mr. Chairman, that this diesel fuel tax on recreational boats was put on recreational boats only to raise money to offset the repeal of the luxury tax on boats. I think everybody agrees that the luxury tax was a mistake. This tax is a mistake.

Within the last week, Senators Breaux and Chafee have introduced legislation, S. 1034, that calls for a 2-year moratorium on this tax, to give Treasury the time to come up with an ultimate solution. We support that measure, Mr. Chairman.

Thank you.

[The prepared statement of Mr. Sciulla appears in the appendix.] The CHAIRMAN. Was the Boat Owners Association of the U.S. a part of that agreement?

Mr. SCIULLA. No, sir. I have

The CHAIRMAN. Were you consulted?

Mr. SCIULLA. No, we were not consulted. I have a letter here to Senator Breaux, which I believe is also a copy of a letter we sent to the Members of the Finance Committee at the time, where we oppose that offset, Mr. Chairman.

The CHAIRMAN. You were not consulted at all, or to any consequence, when we made that switch on the luxury tax?

Mr. SCIULLA. No, Mr. Chairman. We did not testify on the luxury tax. And, as I said, we are on the record. We have the paperwork here, which we will be happy to share with you.