Legislature(2001 - 2002)
03/25/2002 09:27 AM House FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE BILL NO. 303
An Act relating to the levy and collection of a sales
tax; and providing for an effective date.
Co-Chair Mulder MOVED to ADOPT Amendment #1, #22-LS1206\W.1,
Kurtz, 3/25/01. Representative Lancaster OBJECTED for the
purpose of discussion.
Co-Chair Mulder explained that Amendment #1 was a trigger
mechanism on sales tax. If the applicable tax rate was 3%
th
as of September 30 of the previous year and the Capital
Budget Reserve (CBR) is less than $2 billion dollars, it
would change the amount to 2%. If the CBR were between $2
and $2.5 billion dollars, then the tax would be 1%; if the
CBR were between $2.5 and $3 billion dollars, the percentage
would be zero. Co-Chair Mulder assured members that the
trigger mechanism would provide the Alaskan public that
should there be higher oil prices, tax would decrease.
Representative Lancaster inquired if Amendment #1 this year
would be tied to the Earnings Reserve Account.
Co-Chair Mulder responded that there are many moving parts,
which need to be tied. There is a potential trigger drafted
in Amendment #3, which ties it to the price of oil. He
noted that tying it to the price of oil would not address
the production of oil and estimated that the shock absorber
would tie it to the CBR.
Representative Hudson acknowledged that would be the correct
tie because the government has a constitutional
responsibility to pay any draws from the CBR. Any new
infusion of revenue has to go to the CBR. If the oil
prices or production increased, or new oil was struck, all
the new revenue would pile up into the general fund and at
the end of the year would sweep back over into paying the
CBR. He noted his support that process.
Representative Davies argued that the problem with that
concept is that the permanent fund would continue to be
depleted. He stated that the only revenue measure would be
the earnings from the permanent fund and that acceptance of
the trigger should be a similar draw from the permanent
fund.
Representative Croft objected because the total amount would
be taken out from the permanent fund. He noted that Ex-
Governor Jay Hammond recommended that there should be a pure
dividend tax bracket. Representative Croft suggested that
Alaska should rest somewhere between those two concepts.
The entire taxation picture should now be addressed. The
proposal would take out the only tax Alaska has left,
removing it from the permanent fund earnings. There must be
a broad-based tax and there should be a reestablished
connection with economic development. Economic development
alone would do nothing for the State coffers.
Representative Croft objected to any tax triggers.
Representative Hudson agreed with Representative Croft. He
thought if possible #4, Line 16, should be eliminated:
"Zero if, on September 30 of the previous year, the unedited
balance in the budget reserve fund created by art.IX,
sec.17, Constitution of the State of Alaska, was more than
$3,000,000,000." Making that change would mean that the tax
would never be less than 1%, however, it could be graduated
down. Leaving it at 1% would make forever-combined
collection requirements.
Representative Hudson recommended removing Section #4.
Co-Chair Mulder recommended that action would require
deleting language in Section #3, Line 15: "But not more than
$3,000,000,000; or".
Representative Hudson noted that then conceptually, there
would never be less than 1%, which would always keep the tax
enforced.
Co-Chair Mulder restated the amendment. Representative
Whitaker OBJECTED in order to read it through.
Recognizing that the work draft had not yet been adopted,
Co-Chair Mulder WITHDREW his MOTION to adopt Amendment #1.
Co-Chair Mulder MOVED to ADOPT the work draft #22-LS1206\W,
Kurtz, 3/23/02, as the version of the bill before the
Committee. Representative Davies OBJECTED for purposes of
discussion.
Co-Chair Mulder explained that the technical amendments had
been incorporated into the work draft and that nothing had
been included which was not previously discussed, except for
the "small vendor" clause. Everything else had been
proposed by the Department of Revenue.
DENNY DEWITT, STAFF, REPRESENTATIVE ELDON MULDER, listed the
changes made to the work draft.
· Page 2, Line 26, extensive discussion of the
boroughs ability to levy "special" taxes.
Representative Lancaster questioned if the cities would
collect and retain that tax.
Mr. DeWitt replied that the intent was to leave those
activities as they are today.
Representative Croft referenced Sections 6 & 7, and asked if
a borough could levy a general tax and then a special tax.
He thought that they could claim any special exemptions such
as utilities and then claim again that sales tax.
Mr. DeWitt advised that they would have to enact a special
sales tax relative to that specific item. They could
collect it themselves. He added that another example would
be a bed tax, which would be a special tax.
Representative Croft understood that there will be the same
taxes and exemptions across the State. The way that the
language is written, particularly in Section 7, there is a
potential for a "patchwork" of taxes and exemptions.
Co-Chair Mulder agreed that there will be a tax patchwork,
however, the exemptions would be uniform.
Representative Croft discussed that the exemptions could be
removed by the special taxes.
Mr. DeWitt acknowledged that there is the potential for
doing that for the exemption. An additional tax such as
alcohol would be allowed over the general sales tax in a
community. He restated that if there was a general sales
tax, there could be a special tax on alcohol. In reference
to the general broad-based sales tax, the State would
collect it and it would be uniform across the State. The
municipality buying into it would have the same exemptions
on the broad-based sales tax that the State would have. It
would also reserve the opportunity for the community to add
and collect their own special taxes.
Representative Croft asked if alcohol was a "special" issue.
He advised that the State has always prohibited the
communities from doing that.
Mr. DeWitt interjected that Juneau currently has a special
alcohol tax.
Representative Davies inquired if current language would
allow cities to enact special taxes.
Mr. DeWitt clarified that it would allow cities to enact
special taxes for places that have the authorization under
Title 29 and that they would continue to be able to do that.
Co-Chair Mulder thought that there was confusion and that
the bill would retain the cities and boroughs ability to do
what they are now doing even with the implementation of the
proposed bill.
Representative Davies asked why Section 7 referred only to
"boroughs" and not cities.
Mr. DeWitt understood that to be a drafting decision and
that it would accomplish the same thing.
Mr. DeWitt discussed the changes made to the draft:
· Section 8 - the power of the levy.
· Section 9 begins the use tax, dropping
language on Line 24, "in the State". He
added that Sections (b) & (c) had been
reworded. Section 2 was reworked on Line 15
to include transportation and goods that are
used in connection with or would become an
ingredient.
· Added in Section 7, "brokerage firms and
interested earned or paid".
· Added a technical correction in sub-Section
(8), Page 6, Line 10, "sales and purchases by
governmental entities".
· Referenced Page 8, collection of sales taxes,
adding language to Line 7: "However, a seller
that collects less than $1,000 in tax in a
calendar quarter may remit the tax within 30
days following the last day of the calendar
quarter in which the tax was collected."
· Added "taxi cab" to sub-Section (d) on Page
8, Line 18.
· On Line 25, regarding the exemption
certificate now indicates that the Department
should provide an exemption certificate for
both buyers and sellers.
· In Sections (a) & (b), language was added as
recommended by the Department.
Representative Hudson referenced Page 8, Line 7, commenting
that the change would indicate from a monthly to a calendar
quarter; it would also address the small vendor as long as
they collect less than $1,000 dollars in a calendar quarter.
Co-Chair Mulder MOVED to ADOPT the committee substitute,
#22-LS1206\W, Kurtz, 3/23/02, as the document before
Committee members. There being NO OBJECTION, it was
adopted.
Co-Chair Mulder noted a language change in Amendment #1,
deleting language from Line 15 following "$2,500,000,000;"
though Line 18. Co-Chair Mulder MOVED to ADOPT the changed
Amendment #1. Representative Croft OBJECTED.
Representative Croft stated that when the collection goes
down to 1%, the amount collected would only be $100 million
dollars. He advised that would never reach the anticipated
50/50. That number moves further from any parity between
what is taken from the permanent fund earnings and what is
taxed back.
Representative Croft noted that most of the proposals that
the Fiscal Policy Council started with recognized some of
the lessons learned in 1999:
· By starting with substantial taxes; and
· Narrowing it to 1, now moving it to ½.
He stressed that a tax rate must be established for the
appropriate economy.
A roll call vote was taken on the motion to adopt Amendment
#1.
IN FAVOR: Foster, Harris, Hudson, Lancaster, Whitaker,
Bunde, Williams, Mulder
OPPOSED: Davies, Moses, Croft
The MOTION PASSED (8-3).
Co-Chair Mulder advised that Amendment 3, #22-LS1206\W.3,
Kurtz, 3/25/02, would no longer apply as it was triggered to
the price of oil. Amendment 2, #22-LS1206\W.2, Kurtz,
3/25/02, would make the sales tax a seasonal sales tax. He
stated that Amendment 2 would not be offered at this time.
RECESS: 10:55 A.M.
RECONVENED: 1:55 P.M.
Co-Chair Mulder reiterated that he would not be offering
Amendment 2.
Representative Croft spoke to the seasonal sales tax
provision.
Co-Chair Williams interrupted, requesting that the
discussion be kept to the amendments before the Committee.
Representative Davies stated that the list of exemptions
should include unprepared foods. He MOVED to ADOPT that as
a conceptual amendment. Co-Chair Mulder OBJECTED.
Representative Davies stressed that the proposed sales tax
disproportionably affects the lower income person. In
particular, that tax will impact their necessities as
opposed to discretionary expenditures. One of the most
important expenditures is food. He proposed that unprepared
foods be exempt.
Representative Croft advised that 36 states have a sales tax
and of those, 29 exempt food. Only 9 states tax food at the
same rate without other mitigating measures. Representative
Croft voiced support to exempt food. He pointed out that
taxing food is a regressive sales tax and could be
interpreted as targeting the poor.
Representative Lancaster spoke against adding any additional
exemptions. He stressed that the boroughs are already
allowed so many exemptions that the State will end up where
they started.
Representative Whitaker spoke against the amendment. He
pointed out that Page 5(b) exempts food coupons and stamps.
He claimed that allowance would provide an exemption for the
least fortunate Alaskans by exempting them from paying tax
on food.
Representative Croft acknowledged that those on welfare
would be exempted, but emphasized that the working poor
would not be exempted. He referenced the graph provided by
the Legislative Finance Division. [Copy on File].
Representative Davies reiterated that the enclosed language
would impact the working poor. The nature of the language
is aggressive to the poor people of the State.
Co-Chair Mulder clarified for the record that the sales tax
collected for the State would be 3% not 5.6%.
Representative Whitaker countered and asked what would
happen if the proposed sales tax were as high as the
proposed income tax. He pointed out that the proposed sales
tax was a lower rate. While the percentage of income might
be higher, the dollars involved are somewhat minimal.
Representative Hudson asked further clarification of what
"unprepared foods" are.
TAPE HFC 02 - 64, Side B
Representative Davies replied that milk would be included in
the exemption.
Vice-Chair Bunde spoke against the amendment. He stressed
how complicated it would be for the sales clerks. He added
that all Alaskans need to have ownership of the State
government and that by paying taxes, it would then be fair.
Representative Croft stated that with a sales tax of 3%, the
poor Alaskans would be paying 2% of their income and rich
Alaskans would be paying less than 1%. He referenced the
handout, Chart #2, which more clearly defines the
differences. He stressed that the numbers provided by the
Division of Legislative Finance indicates a definite
disproportionate impact on poor Alaskans.
Representative Whitaker asked what that percentage meant.
He believed that the real numbers indicate how much the
working poor would be charged with a State income tax. He
stated that those in the upper income brackets would be
paying more. Representative Whitaker noted that he quoted
from a statement provided by the Department of Revenue.
[Copy on File]. He discredited the argument that the
proposed tax was a regressive tax effort.
Co-Chair Williams requested that the discussion be kept to
the amendment.
Representative Davies advised that his "principle concern"
is regarding whether the proposed tax would be regressive.
The sales tax is disproportionate to those with less income
as compared to those with more income. The proposed sales
tax has the property of taxing the people with relatively
less income, a higher percentage of their income. That, by
definition is regressive. He stressed that is the meaning
of "regressive". He offered the amendment because sales tax
is regressive and it will impact people's ability to buy
food.
Representative Croft claimed that the key point is that the
amendment addresses the regressive nature of the proposed
tax and that unprepared food is the key point. He stressed
that the argument proposed by Representative Whitaker is
wrong. The number he proposes to use, the sales tax would
raise somewhere around $250 million dollars as compared to
an income tax that would raise $360 million dollars. The
statistics do not tell an accurate story. Also, there is a
Department of Revenue proposal, which analyzes it
differently, indicating that the numbers cannot be compared.
There is a hole, which needs to be filled, and the question
is about how to fill it most fairly.
A roll call vote was taken on the motion.
IN FAVOR: Croft, Davies, Harris, Hudson, Moses
OPPOSED: Foster, Lancaster, Whitaker, Bunde, Mulder,
Williams
The MOTION FAILED (5-6).
Representative Croft MOVED to ADOPT Amendment 2, which would
add an exemption that would make the tax, a seasonal sales
tax. Vice-Chair Bunde OBJECTED.
Representative Croft explained that many Alaskans have the
impression that the fiscal gap could be solved with a
seasonal sales tax. He admitted that the seasonal sales tax
would most likely not be able to fill the gap, but more
importantly, the seasonal nature of the tax does not have
all the consequences that people assume. He added that many
constituents have discussed the option as a possible remedy
to the State's dilemma.
Vice-Chair Bunde testified in opposition to the amendment.
He stated that the amendment perpetuates the notion that
someone else can pay for the services of this State. He
claimed that is a mythical concept.
A roll call vote was taken on the motion.
IN FAVOR: Moses, Croft, Mulder
OPPOSED: Davies, Foster, Harris, Hudson, Lancaster,
Whitaker, Bunde, Williams
The MOTION FAILED (3-8).
Co-Chair Mulder MOVED to REPORT CS HB 303 (FIN) out of
Committee with individual recommendations and with the
accompanying fiscal note. Representative Davies OBJECTED.
Representative Croft stated that the legislation would be
paired with a reduction to the permanent fund. He noted
that the proposed legislation is regressive and not fair.
The Committee has rejected amendments that would make the
legislation more progressive. He added that it would pre-
empt other communities that have a sales tax, and that would
provide an additional burden. The legislation will hurt
poor Alaskans and Alaskan communities that already have a
sales tax.
Representative Davies echoed the comments made by
Representative Croft. He emphasized that the draw on the
permanent fund paired with the legislation makes it
extremely regressive. The revenue that would be generated
is too small and that more revenue will need to be
determined. He spoke in support of a broad-based tax.
Representative Whitaker commented that the two proposals
before the Committee are for either a 3% sales tax or a 4%
income tax. He believed these were valid comparisons. The
least fortunate Alaskans will pay no tax on life essentials.
The more wealthy Alaskans will pay nine times more than the
least fortunate. He agreed that it is not the perfect tax
because every person in the State will pay. The perfect tax
is the one where someone else pays. He stressed that the
least fortunate will be protected and that the proposed
legislation is "fair".
Co-Chair Mulder spoke in favor of moving the bill from
Committee. He added that the proposed legislation would
work well with the permanent fund proposal. He claimed that
his basic objection to having a permanent fund dividend and
an income tax would be that the dividend would then become a
welfare payment. With implementing a sales tax provision,
everyone pays. He claimed that the more a person makes, the
more they spend. The very nature of that demonstrates that
the wealthy will be paying more.
Co-Chair Mulder commented that the State would be surprised
at the amount received from the seasonal sales tax. He
thought that a sales tax could stand the "public muster".
He added that a sales tax has more public support than an
income tax.
Representative Lancaster supported the comments of
Representative Whitaker. He indicated his concern with the
exemption process. He noted that he would support the bill
so that the debate could occur on the House Floor.
Representative Davies rejected Co-Chair Mulder's statement
that the dividend has become a welfare payment. He stressed
that the payment of the dividend is related to an ownership
that Alaskans have to the State's resources. Few Alaskans
do much to deserve the dividend. He thought that it was
fair since all Alaskans own that resource that the dividend
is distributed equally.
He disagreed with comments made by Co-Chair Mulder that
there is more acceptance for a sales tax versus an income
tax. He clarified that statement entered into the category
of a "big lie" and that most public's communication to the
legislator's office has proven that. More people have come
to the conclusion that an income tax would be a better way
to go for Alaska over a sales tax. The impact of a sales
tax will be dramatic on the municipalities.
Vice-Chair Bunde noted that his constituents do not want
taxes, however, they would prefer a sales tax to an income
tax. He explained how the proposal would reduce the
dividend; next year, the dividend would remain the same and
then in the future, the dividend would change.
Co-Chair Mulder commented on the resale exemption and that
the intent of that exemption was not to hurt businesses
which have "value added" in the State of Alaska. The
components that go into a finished product would not be
taxed.
Representative Davies asked if that would include sales
outside the State of Alaska such as logs and fish.
Co-Chair Mulder understood that they would be taxed.
Representative Lancaster disagreed with Co-Chair Mulder. He
stated that neither would be taxed.
Representative Davies clarified that it is not a question of
whether the retail occurs within the State.
A roll call vote was taken on the motion.
IN FAVOR: Harris, Hudson, Lancaster, Whitaker, Bunde,
Williams, Mulder
OPPOSED: Foster, Davies, Moses, Croft
The MOTION PASSED (7-4).
CS HB 303 (FIN) was reported out of Committee with a "do not
pass" recommendation and with a new fiscal note by
Department of Revenue.
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