Legislature(2005 - 2006)SENATE FINANCE 532
04/15/2005 09:00 AM Senate FINANCE
| Audio | Topic |
|---|---|
| Start | |
| SB131 | |
| SB16 | |
| SB158 | |
| SB88 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 66 | TELECONFERENCED | |
| += | HB 67 | TELECONFERENCED | |
| += | SB 130 | TELECONFERENCED | |
| + | SB 131 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | SB 16 | TELECONFERENCED | |
| += | SB 88 | TELECONFERENCED | |
| += | SB 112 | TELECONFERENCED | |
| += | SB 158 | TELECONFERENCED | |
| += | SB 147 | TELECONFERENCED | |
SENATE BILL NO. 158
"An Act prohibiting the imposition of municipal sales and use
taxes on state construction contracts and certain
subcontracts; and providing for an effective date."
This was the second hearing for this bill in the Senate Finance
Committee.
SENATOR CHARLIE HUGGINS, the bill's sponsor, explained that
business conducted in this State should occur in a stable and
predictable climate. "A known" incident that "highlights the
difficulty" encountered when this is not the case was when a
subcontractor, conducting an approximate $400,000 State contract,
was levied a $20,000 tax assessment from a local community.
Senator Huggins continued that that incidence is becoming "a
trend", as addressed in an Alaska Municipal League correspondence
[copy not provided], which noted that three communities have
adopted "a policy of collecting sales taxes from subcontractors
doing business in their community regardless of the funding
source". Those communities have retained legal representation in
this regard. He warned that while the practice might be limited
today, without being addressed, it could become a statewide issue.
The potential cost of this practice "would place an undue burden on
the State; it would be "unfair to contractors" were the Legislature
"not to correct that situation". The solution proposed in this bill
is simple: it would work for all parties; it would create a stable
business environment; it would protect the State; and would clarify
the rules in this regard going forward. "It is not punitive and
does not seek to recoup any monies".
9:46:09 AM
STEVE BOYD, Alaska Chapter, National Electrical Contractors
Association (NECA), testified via teleconference from Anchorage,
and noted that he was available to answer questions.
9:46:21 AM
KATHIE WASSERMAN, Alaska Municipal League, spoke against the bill.
She stressed that, "no municipality in the State taxes a contractor
on a State job. This issue is about the tax imposed on a
subcontractor, hired by the contractor". This legislation could
expand the exemption to such things as the hotel bed tax or the
meal tax charged to contractors while performing a State job. It
could also "be extended to include a subcontractor hired by the
subcontractor that is hired by the contractor. Sales tax is a local
provision" and, therefore, "local governments should exert local
control over those taxes. Restrictions on local sales taxes"
currently exist through the local election process. The State has
curtailed its municipal support that came in the form of such
things as revenue sharing and capital matching grants while local
community expenses relating to such as fuel and the Public
Employees' Retirement System and the Teachers' Retirement System
(PERS/TRS) have increased "dramatically". "Tax revenue is one of
the few remaining revenue streams left to communities". Even
thought the State is exempt from municipality property taxes, State
"properties receive the same benefits and services as local
property" taxpayers do. The decision as to whether or not to tax
subcontractors should be made by the municipality. Were the
imposition of such a tax to have "a detrimental affect on the
economy of the community", local elected officials should initiate
changes to those ordinances.
Ms. Wasserman stated that the terms "consistency" and "stability"
have been used throughout this legislation's proceedings, "yet the
State has chosen not to impose any State taxes". That decision has
been left to local communities. It would be impossible to
incorporate a consistent taxation methodology as the more than 190
communities that do tax have "different needs, different resources,
different locations; there is not and cannot be consistency in
taxing". Oil companies that operate globally must familiarize
themselves with different tax structures in each locale. "A
nationwide tax would be more consistent, probably make things
easier for oil contractors, but would it be great for the State of
Alaska?"
Ms. Wasserman reminded the Committee that the majority of
Department of Transportation and Public Facilities (DOT) projects
are conducted in either Anchorage or Fairbanks. The concern about
large taxation on DOT projects therefore should be alleviated
because neither of these two communities imposes sales taxes. In
addition, most airport projects occurring in the Sate are typically
92 percent to 100 percent funded through Federal Aviation Agency
(FAA) funds rather than State funding. In conclusion, AML is
requesting that the Legislature "trust local communities to do what
is right for our shared constituents".
Senator Olson inquired as to how local communities address road
maintenance issues such as broken asphalt that might result from
heavy equipment used in DOT contract projects.
Ms. Wasserman responded that the community where she resides has
had to deal with such issues. In one case, the community had to
address boardwalk damage with community general maintenance
funding. Demands to the contractor for money to fix the damage
would be inappropriate as all he had done was to "run the
equipment" for a contracted project down the Boardwalk.
Unfortunately the Boardwalk construction was inadequate for that
type of use.
Senator Olson inquired as to what other, oftentimes inadvertent,
burden communities might have had to address in regards to
subcontractors or contractors.
Ms. Wasserman replied that typically when a contractor conducts
work in a community, a certain amount of administrative work must
be conducted by the city. This is usually not accounted for in the
project expenses. It is acknowledged that the workers on the
project do contribute to the local economy via such things as meal
taxes and bed taxes, and other support of local businesses.
However, "there is still a very big revolving seed of money where
the majority of the money and the payroll" moves between the agency
to the large contracting corporations. "The cities a lot of times
certainly do not come out as well as other entities".
9:52:18 AM
Senator Olson noting that during the April 13, 2005 hearing on this
bill, he had asked Steve Boyd of the Alaska Chapter of NECA,
whether a local building permit is required, as that building
permit fee would assist in supporting associated city expenses. The
reply from Mr. Boyd was that no local building permit was required
for the contract work. To that point, he inquired to the reason
that for the permit exemption.
9:52:39 AM
Ms. Wasserman understood that State projects are typically exempt
from the permitting process.
Senator Olson pointed out however, that the contractor is a private
entity.
Ms. Wasserman surmised that when a contractor is working on a State
project, the State exemption would apply.
Senator Stedman stated that many communities have imposed a maximum
tax limitation, of, for example, $1,000 or $500, as the total
amount of tax that could be collected on a single sale. Therefore
$1,000 might be the total tax amount collected on a one million
dollar State contracted project occurring in a community with a
local five percent sales tax. However, it should be noted that some
communities do not have a limit. That is a local prerogative.
Senator Stedman theorized a scenario in which the contractor might
pay the tax on the entire project; however, due to the fact that
most projects have multiple subcontractors, it might be feasible
that each of those subcontractors would also be required to pay the
local sales tax on work relating to that project. This would raise
the issue of multiple layer or "double" taxation. While he agreed
that the sales tax issue should be a decision of local governments,
at some point, there is a concern when dealing with large capital
projects that a local sales tax might be charged numerous times on
the same project.
9:54:51 AM
Ms. Wasserman appreciated the concern; however, countered that DOT
could take the position "that this doesn't work for us", and, as a
result, were negative affects to occur on the community then it
could address the situation and make changes. Another option, which
she believed would not occur as such jobs are sought after, is that
contractors could decide not to accept jobs in various communities.
In conclusion, the decision should be left to the community rather
than DOT or the contractors.
Co-Chair Green opined that the local community could also refuse a
project if they felt that "the detriment to the community would be
greater than the appeal".
Senator Hoffman stated that the issue of double taxation could also
apply to the purchase of, for instance, a case of apples. That
product would be subject to multiple taxes ranging from the airport
tax levied on the carrier delivering it to the community, the gas
tax charged to the transporter delivering it from the airport to
the store, or, it could be transported from the airport to the
store in a rented vehicle to which a local tax would be applied.
The store would than collect the local tax from the consumer who
purchased the apples. It could be difficult to separate the various
taxes in order to specify that only one tax would be levied.
Co-Chair Green expressed that there is a "distinction" between the
imposition of a local tax on a purchase of a product such as an
apple and "the State paying millions of dollars for local projects
… which money does not go to the project". That is the issue being
addressed in this legislation.
9:57:40 AM
Senator Dyson observed that "the sales tax on the services that a
subcontractor provides"… differs "in order of magnitude" from the
taxes placed on the sale of consumer goods such as apples. He
agreed with Co-Chair Green's comment that the action of imposing a
local tax on State resources that are being used to construct
something of "significant value to the local community … sounds
like the local community is looking for another way to bite the
hand that is feeding" it or "providing a huge resource at very
little direct cost to that community".
Co-Chair Wilken moved to report the bill from Committee with
individual recommendations and accompanying fiscal note.
There being no objection, SB 158 was REPORTED from Committee with
zero fiscal note #1, dated April 6, 2005 from the Department of
Commerce, Community and Economic Development.
9:59:40 AM
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