Legislature(2015 - 2016)
2016-07-11 Senate Journal
Full Journal pdf2016-07-11 Senate Journal Page 3057 SB 5002 SENATE BILL NO. 5002 BY THE SENATE RULES COMMITTEE BY REQUEST OF THE GOVERNOR, entitled: "An Act relating to the exploration incentive credit; increasing the motor fuel tax; increasing the taxes on cigarettes and tobacco products; taxing electronic smoking products; adding a definition of 'electronic smoking product' and requiring labeling of an electronic smoking product; increasing the excise tax on alcoholic beverages; relating to exemptions from the mining license tax; removing the minimum and maximum restrictions on the annual base fee for the 2016-07-11 Senate Journal Page 3058 reissuance or renewal of an entry permit or an interim-use permit; increasing the mining license tax rate; relating to mining license application, renewal, and fees; increasing the fisheries business tax and fishery resource landing tax; relating to refunds to local governments; and providing for an effective date." was read the first time and referred to the Labor and Commerce and Finance Committees. The following fiscal information was published today: Fiscal Note No. 1, Department of Fish and Game Fiscal Note No. 2, Department of Revenue Governor's transmittal letter dated July 8: Dear President Meyer: Under the authority of Article III, Section 18, of the Alaska Constitution, I am transmitting a bill relating to taxation, including the tax on motor fuel, the tax on tobacco products and taxing electronic smoking products, the excise tax on alcoholic beverages, the mining license tax, the fisheries business tax and fisheries landing tax, and fees for commercial fisheries entry or interim use permits. This is a necessary measure to address our fiscal situation. My approach is a broad based tax bill to address Alaska's current and projected budget deficits. Our current revenue decrease has made it necessary to update our tax laws because for too long many industries have been under-taxed. My proposed measures, while modest, will make a significant difference to the State's budget shortfall. The bill would increase outdated tax rates on motor fuels with increases on all types of motor fuel including aviation gasoline, motor fuel used in and on watercraft, and aviation fuel other than gasoline. The tax on a gallon of motor fuel used or transferred within the state would be raised from eight cents a gallon to 16 cents a gallon. Likewise, the tax on aviation gasoline would be raised to seven cents a gallon (the current rate is four and seven-tenths), the tax on marine 2016-07-11 Senate Journal Page 3059 fuel would be raised to ten cents a gallon (the current rate is five cents), and the tax on aviation fuel other than gasoline (including jet fuel) would be six and one-half cents a gallon (the current rate is three and two-tenths). The bill would also double the credit for highway fuel used to operate an internal combustion engine off-road, from six cents a gallon to 12 cents a gallon. The bill would update our cigarette taxes and would allow us for the first time to collect a tax on electronic smoking products. Smoking technology has advanced beyond single use paper-rolled cigarettes to include multiple use electronic smoking products. Therefore, our tobacco tax statutes (AS 43.50 Cigarette Tax Act) should be revised to include this new product. To further update our outdated tobacco tax structure, I propose to amend the additional tax levy on cigarettes - which has not been raised since 2007 - from 62 mills to 112 mills. This equals an increase of five cents per cigarette, or one dollar per standard pack. I also propose increasing the tax rate on tobacco products (other than cigarettes) from 75 percent of the wholesale price to 100 percent of the wholesale price. These reasonable adjustments will bring our tax structure up to date. The alcoholic beverage tax rates have not been raised for many years. Therefore, the bill would increase the tax rates on alcoholic beverages under AS 43.60 (excise tax on alcoholic beverages). Alcoholic beverage excise taxes are levied on malt beverages, cider with at least 0.5 percent alcohol, wine, and other beverages with a higher alcohol content. The bill would double the tax rates on each gallon or fraction of a gallon. As a result, the excise tax on malt beverages or cider would be $2.14 a gallon or fraction of a gallon; the tax on wine or other beverages would be $5.00 a gallon or fraction of a gallon; and the tax on beverages containing more than 21 percent alcohol by volume would be $25.60 a gallon. The tax on the first 60,000 barrels of beer from small craft breweries, as defined by the federal government, would be increased to 70 cents a gallon. I believe these proposed increases are reasonable, especially considering the high societal cost of alcoholic beverage consumption. Under this bill, the alcoholic beverage industry would bear a fairer share of industry costs to the state, yet still continue as an economically healthy industry. 2016-07-11 Senate Journal Page 3060 The bill also would amend AS 43.60.040(a) related to surety bonds for alcoholic beverage taxpayers. Current law requires a $25,000 surety bond before a license is issued. This amount is out of date as many wholesalers would require a surety bond much greater than that to protect the State's interests. At the same time very small brewers and distillers may require a smaller surety bond. The bill proposes to amend AS 43.60.040(a) to delete the $25,000 bond and instead add language that the surety bond amount would be determined by the Department of Revenue. The mining industry is important to the State, but the current Mining License Tax rates are too low to maintain. My proposal makes necessary adjustments to the tax imposed on mining operations, including changing the exemption from paying the mining license tax for new operations from three and one-half years after production begins to a more reasonable two years. This provides a sustainable balance between assisting new mining operations and taxing revenues from those operations. Additionally, the bill would change the way the mineral and coal deposit exploration incentive credits are used by removing the ability to apply the credit against mineral royalty production payments. The bill also would increase the mining license tax rate from seven percent to nine percent for that portion of net income in excess of $100,000. Further, the bill would increase the tax rates of the fisheries business tax (AS 43.75.015) and the fishery resource landing tax (AS 43.77.010). The tax rates covered by these statutes vary from three percent to five percent of value, depending on the type of fishery. The bill would increase those tax rates by one percentage point across the board. Currently, the revenue generated by these taxes is split evenly between the State and the municipalities where the fisheries are located. The bill would exempt this one percent increase from the revenue sharing arrangement, thereby insuring that the entire increase is applied to the general fund. Some developing fisheries are exempted from the increase. Finally, the bill eliminates the cap on the annual fees charged by the Commercial Fisheries Entry Commission. This fee, which is tied to a percentage of the value of a fishery, is currently capped at $3,000 per year, providing a substantial advantage to the largest and most profitable fisheries. 2016-07-11 Senate Journal Page 3061 The citizens of our state are ready to pitch in to solve our fiscal crisis. My measures, by involving a broad base of industries, would result in each industry bearing a small share of needed tax changes. Together we can continue to assure Alaska's strong and stable financial future. I urge your prompt and favorable action on this measure. Sincerely, /s/ Bill Walker Governor