Legislature(2001 - 2002)
03/22/2002 09:20 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 proposed committee substitute
work draft, 22LS1206\T, Kurtz, 3/22/02 (copy on file). There
being NO OBJECTION, it was so ordered.
DENNY DEWITT, STAFF, REPRESENTATIVE ELDON MULDER reviewed
the committee substitute. He noted that the legislation
would bring a sales tax before the Committee. He reviewed
the primary issues discussed by the subcommittee. The first
issue was preemption. The legislation would preempt local
government from charging a different sales tax from the
state. Local governments could add a local tax using the
guidelines of the bill, which would be collected by the
state at no charge to the municipality. There would one type
of sales tax, one set of exemptions, and local governments
could decide if they wanted to add a percentage to the state
tax. Businesses that collect the tax and remit it to the
state appropriately, within the appropriate timeframe, would
keep one percent of the amount collected as a fee for the
collection process.
Representative Davies summarized that the legislation would
require any local entity to use the exemption structure
contained in the bill.
Mr. DeWitt noted that local options for special taxes in
Title 29 would not be affected: including bed taxes.
Mr. DeWitt reviewed the legislation by section. Section 1
assists boroughs with their taxes. Establishes the initial
sales tax and eliminates the collection portion, which would
shift to the state. Sections 2 and 3 confirm privacy at the
state level. Section 4 is the assessment and collection of
taxation. Section 5 allows a borough to levy a general sales
tax on goods and services consistent with the state. Section
6 allows cities the same opportunity. Section 7 begins the
collection of the sales tax and authorizes the state to
collect on behalf of the municipality. Section 8 begins the
sales and use tax. This provision is needed in order to
access the use tax through Internet sales. The use tax
follows the sales tax and is consistent. There are several
areas that would need technical amendments to be recommended
by the Department of Revenue.
Mr. DeWitt reviewed technical amendments. On page 3, line 3:
delete "in the state." He noted the state already has the
ability to levy the tax. Subsections (b) and (c) are
rewritten to replace "tangible personal property" with
"goods or use of real property". He explained that language
would provide consistency.
Mr. DeWitt noted that subsection (2) on page 3, line 26 - 27
would be amended: "real property" and "and transportation"
would be removed. "Property" on line 27 would be changed to
"goods".
LORI BACKES, STAFF, REPRESENTATIVE WHITAKER, explained that
the intent is to allow an exemption for services that are
performed in the act of creating a component of a product
for resale.
TAPE HFC 02 - 63, Side A
Representative Lancaster clarified that plumbing installed
in a house being built would not be taxed because the house
would be taxed when sold. Representative Hudson questioned
if house components would be subject to the sales tax. Co-
Chair Mulder explained that only the finished product would
be taxed. Mr. DeWitt noted that there is a specific section
regarding construction.
Mr. DeWitt reviewed exemptions under section 43.44.020 and
observed that they attempted to include all educational
institutions were included.
(1) goods sold, real property sold, rents, or services
performed that are
(A) explicitly exempted from taxation under
another provision of state law; or
(B) exempt from taxation under federal law,
including sales to the federal government, and
purchases made with
(i) food coupons, food stamps, or other
types of certificates issued under 7 U.S.C.
2011 - 2036 (Food Stamp Act); and
(ii) food instruments, food vouchers, or
other types of certificates issued under 42
U.S.C. 1786 (special supplemental nutrition
program for women, infants, and children);
(2) sales of goods, real property, or services for
resale, including the sale and transportation of
property that are used in connection with or will
become an ingredient or component part of goods
manufactured, processed, or fabricated for resale;
(3) electricity, natural gas, water and sewer utility
services, and fuel for heating or electrical
generation;
(4) funeral, cemetery, and crematory goods and
services;
(5) health care services provided by a person licensed
or certified to provide those services under AS 08, by
a public home care provider as that term is defined in
AS 47.05.017(c), by a health care facility operating
under a certificate of need issued under AS 18.07, by a
hospital licensed under AS 18.20, or by an assisted
living home licensed under AS 47.33;
(6) prescription drugs, devices, and supplies
prescribed by a person licensed to prescribe those
goods under AS 08;
(7) interest earned or paid by banks. savings and loan
associations, credit unions, and investment banks, and
the following sales and services provided by banks,
brokerage firms, savings and loan associations, credit
unions, and investment banks:
(A) services associated with any deposit
accounts, including service fees, insufficient
funds fees, and attachment fees;
(B) fees for the purchase of bank checks, money
orders, traveler's checks, and similar products
for payment;
(C) loan fees and points associated with loan
transactions;
(D) pass-through charges on loan transactions
that include sales tax;
(E) services associated with the sale, exchange,
or transfer of currency, stocks, bonds, and other
securities;
(8) sales by federal, state, or local government
entities;
(9) wages, salaries, commissions, and any other form of
remuneration paid to employees for personal services;
(10) educational services provided by a non-exempt or
exempt religious or other private school reporting to
the commissioner of education and early development
under AS 14.45.030 or 14.45.110(b) or by a
postsecondary educational institution authorized to
operate under AS 14.48;
(11) refined petroleum products taxed under AS 43.40;
(12) real estate rentals of 30 consecutive days or
more;
(13) construction services;
(14) admission to museums and historic sites;
(15) sales made to an entity described in 26 U.S.C.
501(c)(3) (Internal Revenue Code) and exempt from
federal income tax under 26 U.S.C. 501(a);
(16) sales made by an entity described in 26 U.S.C.
501(c)(3) (Internal Revenue Code) and exempt from
federal income tax under 26 U.S.C. 501(a) if the income
from the sale is exempt from federal income taxation;
(17) casual and isolated sales or rentals by a seller
who does not regularly engage in the business of
selling goods or services, or making rentals, but only
if (A) the total sales do not exceed $1,000 a year and
the sales of goods do not occur for more than 14 days
in a calendar year; or (B) the sales of goods are made
by a licensed business to sell business equipment used
in the business and not held as inventory;
(18) sales of insurance and bonds of guaranty and
fidelity, and commissions on those sales.
Mr. Dewitt recommended that brokerage firms be added to the
subsection 7 exemptions. He also recommended that
subsections (A) - (E) include a subsection (F): interest
earned and paid. It was the intent of the subcommittee that
subsection (8) refer to sales and purchases. In subsection
(10) definitions were used to recognize all schools that
could generally be brought under the rubric, in terms of K-
12. Postsecondary schools operate under AS 14.48. Refined
petroleum products that are currently taxed would not be
subject to the sales tax, such as aviation and marine fuel
taxes. Short-term hotel rentals would be exempted. They
would be available to be taxed on a bed tax basis with local
governments.
Representative John Davies questioned how the provision
would affect contracts with tour groups, which block off
hotel rooms for a season. Mr. Dewitt thought that they would
be under the less than 30-day provision, since they are
eventually rented to individuals. Co-Chair Mulder
acknowledged that it is the intent of the subcommittee to
include blocks of rooms under the 30-day provision.
Mr. Dewitt observed that subsection (15) applies to sales
made to a non-profit entity. Subsection (16) applies to
sales made by the non-profit entity, which would apply to
the sale of Girl Scout cookies and other fund raising
activities. The purchase and sale of Girl Scout cookies and
other fund raising items by churches and other non-profits
would be exempted.
Mr. Dewitt noted that garage sales would be exempted under
subsection (17), unless the gross would exceed $1,000
dollars a year. Representative Hudson questioned if arts and
craft shows at malls would be included in the exemption. Co-
Chair Mulder responded that if they are a weekly event it
would not be a causal sale and they would be subject to the
sales tax. The provision is for causal sales: the occasional
sale. Non-profits would be excluded.
Representative Lancaster questioned if a certificate would
be needed to collect the tax. Ms. Backes stated that a
certificate would not be required to collect the tax, but a
certificate would be required for exempt groups.
Mr. Dewitt noted that Sec. 43.44.030 (a) limits the sales
and use taxes levied under AS 43.44.010 to the first $2,000
dollars of each separate sale, rent, or service transaction,
or a maximum tax of $60 dollars.
Mr. Dewitt continued his review of the legislation.
Subsection (b) discusses taxation of long-term personal
property leases. Subsection (c) deals with transactions
involving payment of services rendered or delivered over
time, such as an accountant billed on a monthly basis.
Subsection (d) addresses services on account or billed on a
monthly purchase. The most recently billed or monthly
process would be used. Subsection (e) provides that each
night's rental would be a separate transaction. Subsection
(f) addresses long-term property leases, such as automobile
leases.
Mr. Dewitt explained that the seller would collect the tax
and remit it to the department. The seller would be allowed
to keep one percent of the collections as long as they remit
in a timely fashion with completed forms. Exemptions are
given for coin operated devises, food and beverage at
concession stands, bars, movable vendor carts, metered
sales. He observed that the intent is to add taxis that use
a metering devise to the list. Taxis that charge by zone
could include the tax.
Vice-Chair Bunde questioned why the total price could not
include the tax. Mr. Dewitt agreed that the ticket price
would include the tax.
In response to a question by Vice-Chair Bunde, Ms. Backes
explained that people want to see how much the tax is and if
it is included in the sales price it wouldn't show up as a
separate item on the invoice or receipts.
LARRY PERSILY, DEPUTY COMMISSIONER, DEPARTMENT OF REVENUE
explained that the department thinks that consumers should
know how the price breaks down. Most states require that the
sales tax be shown, so that businesses cannot use it as an
unfair advantage.
Mr. Dewitt reviewed the use tax provision. The use tax for
items brought into the state would be the same as if the
item was purchased in the state.
Proceeds would be deposited into the General Fund and a
certificate of exemption would be issued to those that are
exempt from the sales tax. Nexus language allows the state
to tax companies using Internet or mail order sales that
have a presence in the state.
Mr. Dewitt noted that "or use" needed to be added to page 7,
line 12. He added that language in subsection (b) would be
amended in order to tighten it up. The effective date is
January 1, 2003.
Representative Lancaster questioned how Sec. 43.44.070 would
be implemented. Mr. Persily explained that a contractor
would have to show a resale certificate to the building
supply store when buying lumber. Representative Lancaster
questioned how persons would know that the seller has the
authority to collect the tax. Representative Whitaker
clarified that the business license would give them the
authority to collect the tax.
Representative Hudson asked if the state of Alaska has an
agreement with Seattle regarding collection of tax from
Alaskan residents. Mr. Persily explained that Seattle put
the exemption in their tax code to promote business. There
is no nexus. Someone from Seattle would have to pay the tax
if it were implemented in Alaska.
Representative Hudson observed that there are a variety of
municipal sales tax exemptions such as for senior citizens.
He questioned if local exemptions would be permitted on the
city sales tax assessments. Mr. Dewitt responded that they
would not. The senior citizen property tax would not be
covered in the statute. The city of Juneau could issue
checks to seniors that would cover the cost of their
property tax. Other communities such as Wrangle utilize this
provision. Representative Hudson observed that there is
concern with the uniformity of state law.
Representative Whitaker spoke in support of state primacy
manifested through preemption. It would allow continuity of
business throughout the state of Alaska and nation. Ms.
Backes added that the legislation requires the state to
collect the sales tax for the municipalities, so there may
be savings to the municipalities on the collection. Co-Chair
Mulder clarified that business would retain 1% of the tax
collected.
Representative Hudson discussed the local taxation process
and questioned if the municipal tax amount would be limited.
Mr. Persily clarified that the state would collect the
amount indicated by the municipality. There is no
restriction on seasonal amounts. He assumed that municipal
payments would be made monthly.
Co-Chair Mulder observed that it does not make sense for
small vendors to send their checks in every month. Mr.
Persily observed that taxpayers that make a certain amount
could be required to pay quarterly and those making more
than the threshold could pay monthly. He recommended that
the legislature set a threshold at $500 - $1,000 dollars. He
cautioned that businesses in trouble might be tempted to
utilize the tax sales. Penalties are already included in the
tax code.
Representative Lancaster questioned how exemptions or
special collections would be negotiated within the
municipality or borough. Mr. Persily replied that it is the
intent that municipalities with bed, fuel, alcohol, fish or
other taxes, would collect, enforce and deal with those
taxes on their own. The legislation applies only to general
retail sales and use tax.
In response to a question by Representative Lancaster,
Representative Whitaker discussed the amount of tax that
would be collected. He explained that there are different
models. The Department of Revenue uses a 1997 model, which
is not as sophisticated as desired. The Department of
Revenue model estimates between $250 and $400 million
dollars. The Legislative Finance Division's model estimates
$198 million (consumer) dollars. He concluded that the tax
would derive between $250 and $400 million dollars. Mr.
Persily amended the Department of Revenue's estimate to $240
- $300 million dollars.
Representative Lancaster asked about the set-up costs. Mr.
Persily estimated operating costs, after the initial set up,
at $4.9 million dollars. He stated that a fiscal note would
be provided.
Representative John Davies asked the capital costs. Mr.
Persily explained that the capital cost would be $1.75 - $2
million dollars. Much of the cost would be for computer
programming. The goal would be to set something up for
electronic filing.
Representative Hudson asked for product values of 1-2-3% tax
ranges. Co-Chair Mulder thought that a 1% tax would generate
between $70 and $125 million dollars. Each additional
percent would generate about $100 million dollars.
Representative Lancaster asked about bed and rent tax. Mr.
Persily replied that no community would be able to collect
sales tax on rent.
Representative Lancaster questioned if a special tax could
be applied on a local level. Ms. Backes agreed that the
intent of the legislation is to allow local taxation.
Representative Hudson observed that rent is anything over 30
days.
Representative Lancaster asked if the point of service
delivery was addressed. Ms. Backes clarified that tour
operators would not be tax-exempt.
Representative Carl Moses voiced concern with not including
the sales tax in the price structure. Co-Chair Mulder
observed that the "unfair competition clause" could apply if
some businesses included the sales tax and others did not.
Representative Carl Moses responded that if the tax were
included, the person would be at a disadvantage.
Representative Lancaster stressed that disclosure would be
the issue.
Discussion ensued regarding inclusion of the tax [in the
price structure]. Representative Whitaker reiterated that
the limitation would be up to $2,000 dollars. He emphasized
that the legislation needs to be consistent. Co-Chair Mulder
agreed. Mr. Persily added that a problem would occur if the
separation of tax were not disclosed. The sales tax needs to
be disclosed, which may not be practical. Representative
Lancaster recommended issuing a certification with the rules
and regulations. Vice-Chair Bunde asked the enforcement
mechanism. Mr. Persily commented that the department would
be using business licenses. He emphasized the need for
sufficient budget support for audit work. Representative
Lancaster noted that the fiscal note could be increased if
the Committee wants more enforcement. Representative Carl
Moses observed that if the tax and sales price is included,
it could be backed into the worksheet.
Representative John Davies asked if there were any reason
that a price, which included the sales tax could not be
reported separately in the receipt. Mr. Persily pointed out
that the tax would have to be backed out for tax-exempt
purchases.
TAPE HFC 02 - 63, Side B
Representative Carl Moses maintained that merchants need to
have records of tax-exempt products sold. Vice-Chair Bunde
spoke in support of allowing inclusion of the tax within a
sales price.
Representative John Davies requested a spreadsheet to
indicate the expected revenue by the Division of Legislative
Finance. Co-Chair Mulder responded that there would be a
fiscal note.
HB 303 was heard and HELD in Committee for further
consideration.
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