Legislature(2003 - 2004)

01/15/2004 01:48 PM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
CS FOR SENATE BILL NO. 102(L&C) am(efd fld)                                                                                   
     An Act increasing the amount of revenue received by the                                                                    
     state from charitable gaming activities, and relating                                                                      
     to taxes on pull-tabs.                                                                                                     
Co-Chair  Harris MOVED  to adopt  the  work draft,  #23-GS113                                                                   
1\S, Luckhaupt,  1/13/04, as the  version of the  legislation                                                                   
before  the Committee.    There being  NO  OBJECTION, it  was                                                                   
Co-Chair  Harris inquired  about updated  fiscal notes.   Co-                                                                   
Chair Williams noted that a new  note would need to accompany                                                                   
the work draft just adopted.                                                                                                    
Representative Stoltze questioned  limiting public testimony.                                                                   
He  pointed   out  "heightened"  and  "individual"   concerns                                                                   
regarding the legislation.                                                                                                      
PETER ECKLUND,  FINANCE COMMITTEE STAFF,  REPRESENTATIVE BILL                                                                   
WILLIAMS, addressed  the two major changes from  the previous                                                                   
version of the  bill.  The first change is  indicated on Page                                                                   
2.   The previous version  of the bill had  a 50% net  tax on                                                                   
pull-tabs.  By  current regulation, the top  prize awarded is                                                                   
$500 dollars.   The new  adopted committee substitute  has an                                                                   
11.5% ideal  net tax for games  that have a prize of  $500 or                                                                   
less.   On Lines 2-14,  Page 2, it  is suggested  to increase                                                                   
the upper  limit of prizes to  $1,000.  There is  a graduated                                                                   
tax schedule associated with these payouts.                                                                                     
The other major  change will authorize Alaska  Marine Highway                                                                   
Systems to  have pull-tabs in the  bars on the ferries.   The                                                                   
proceeds  of that  would go  into the  Alaska Marine  Highway                                                                   
Fund  to help  operations  of  that system.    The 11.5%  tax                                                                   
suggested  in the  bill will  raise $5  million dollars  more                                                                   
than current  revenues from  the 3% sales  tax.   The current                                                                   
tax  on pull-tabs  is  3% on  the ideal  net.   The  previous                                                                   
version  of the bill  had it  at 15%,  whereas, the  proposed                                                                   
committee substitute has it at 11.5%.                                                                                           
Mr.  Ecklund explained  that  current regulations  limit  the                                                                   
prize to  $500 dollars  or less.   Currently,  there is  a 3%                                                                   
ideal net tax on any pull-tab  because all the games are $500                                                                   
dollars or less.   Changing that tax on those  types of gains                                                                   
and raising  the prize  winnings from  $500 dollars  to $1000                                                                   
dollars top prize.                                                                                                              
Co-Chair Harris clarified  that right now, the  maximum for a                                                                   
single prize  is $500 dollars.   Mr. Ecklund  stipulated that                                                                   
was for a single prize.                                                                                                         
Representative  Fate  commented   that  it  would  be  an  8%                                                                   
Representative  Fate questioned if  the consequences  of that                                                                   
change have  been considered.   Mr.  Ecklund stated  that the                                                                   
Department  of  Revenue  has been  attempting  to  gauge  the                                                                   
impact on the  industry.  There will be different  effects on                                                                   
each operation  and some charities  will have to  adjust what                                                                   
they receive.  He recommended  that the Department of Revenue                                                                   
testify regarding the change.                                                                                                   
Representative  Joule asked if  there was  a current  list of                                                                   
what the  losses will  be to  the communities.   Mr.  Ecklund                                                                   
responded that  he only  had a list  of the communities  that                                                                   
have a local sales tax.                                                                                                         
Representative  Joule  asked  if  any  additional  money  was                                                                   
going  to  be  "realized"  to the  charities.    Mr.  Ecklund                                                                   
replied that the  minimum paid to the charities  has not been                                                                   
changed in this legislation.                                                                                                    
Representative Stoltze  commented that the pay  out will have                                                                   
an impact on the amount of "play and the margins".                                                                              
Representative  Croft noted  that  the money  would not  come                                                                   
from "no  where".  If the  charities receive the  same amount                                                                   
and there  is a tax, where will  the money come from  and who                                                                   
would pay.                                                                                                                      
Mr. Ecklund  explained that there  are only a few  areas that                                                                   
it  can come  from,  one  operations and/or  expenses,  which                                                                   
could lower the payout, ration  if there is elasticity in the                                                                   
market.  Some charities may receive less money.                                                                                 
Representative Croft thought that  some portion of the amount                                                                   
will  come from  the municipalities  because  of their  local                                                                   
taxation ability.   He stressed  that it will be  coming from                                                                   
local pockets, the operators or the payout amount.                                                                              
Representative  Croft  requested the  numbers  when they  are                                                                   
made  available   on  how  the   action  affects   the  local                                                                   
Representative Stoltze  inquired the actual "real"  number of                                                                   
the net in order that the merit can be determined.                                                                              
Co-Chair  Williams  explained  that  he  had  requested  that                                                                   
discussion  and  asked  that  Mr.  Ecklund  address  the  tax                                                                   
concept  to local  governments.    Mr. Ecklund  advised  that                                                                   
there had been  no changes from the previous  version.  There                                                                   
is  a local  prohibition for  sales tax  and/or taxing  pull-                                                                   
Representative  Joule noted that  it would  be a loss  of $80                                                                   
thousand  dollars  to one  of  his communities.    That is  a                                                                   
substantial  amount   considering  the  additional   loss  of                                                                   
revenue sharing.   These actions create a need  for a "larger                                                                   
debate" on the State's fiscal crisis.                                                                                           
Co-Chair   Williams  reminded   members  that  the   proposed                                                                   
legislation is a revenue generating measure.                                                                                    
STEVEN PORTER,  DEPUTY COMMISSIONER,  DEPARTMENT OF  REVENUE,                                                                   
commented that  the Department would  be working on  a fiscal                                                                   
note attempting to address the  community issues and impacts.                                                                   
Representative Croft asked Mr.  Porter what would happen with                                                                   
a 20%  split with communities.   He requested that  number be                                                                   
run, in hopes that it might "soften"  the impact.  Mr. Porter                                                                   
noted  that  he could  understand  the  State's part  of  the                                                                   
split, but how would it be split  among the communities.  Mr.                                                                   
Porter offered to work on some ideas.                                                                                           
Representative Hawker asked about  potential Internal Revenue                                                                   
Service (IRS) consequences with  the increased payout levels.                                                                   
Mr. Porter replied that there  are cost consequences and that                                                                   
they  would  let  members  know  the  repercussions  of  that                                                                   
Co-Chair Harris  pointed out that  the legislation  will have                                                                   
an effect on the Alaska Marine Highway System (AMHS).                                                                           
MARK  O'BRIEN,   CHIEF  CONTRACTS  OFFICER,  OFFICE   OF  THE                                                                   
COMMISSIONER,   DEPARTMENT   OF   TRANSPORTATION   &   PUBLIC                                                                   
FACILITIES, advised  that the  Department is considering  the                                                                   
bill, however,  has had little  opportunity to  determine the                                                                   
fiscal effect on the Alaska Marine  Highway System.  He added                                                                   
that if it is  legal and financially viable  to put pull-tabs                                                                   
on the ships,  the Department is interested in  looking at it                                                                   
as a source of revenue.  The action  would be consistent with                                                                   
the Governor's position on creating new revenue streams.                                                                        
Co-Chair  Harris  questioned  if  a dedicated  fund  for  the                                                                   
Alaska Marine Highway System would  be an issue.  Mr. O'Brien                                                                   
understood that  current structure would deposit  the revenue                                                                   
into  the Alaska  Maine  Highway  Fund.   He  noted that  the                                                                   
details have not been fully developed at this time.                                                                             
Representative  Joule asked if  this was intended  to deflect                                                                   
costs of  running the Alaska Marine  Highway and if  it would                                                                   
then be deducted out the current general fund budget.                                                                           
Mr. Ecklund  explained that the  manner in which the  bill is                                                                   
currently structured,  the revenues  will be placed  into the                                                                   
Marine Highway  Fund.  Through  the budget process,  the fund                                                                   
plus the  revenues from  the previous year  are added  to the                                                                   
general fund  monies to  create the total  AMHS budget.   The                                                                   
more money raised  in that fund each year,  would help reduce                                                                   
the general fund needed for the ferry system.                                                                                   
Representative Croft referenced  Page 4, and the revenue from                                                                   
pull-tab activities.  He asked  if that would be revenue from                                                                   
all pull tab  activities or the revenue generated  from those                                                                   
activities on the  ferry.  Mr. Ecklund advised  it would only                                                                   
be that revenue generated on the ferry system.                                                                                  
Representative Hawker  commented on the pre-emption  of local                                                                   
sales tax on pull-tab activities.   He referenced "home rule"                                                                   
and "general law" in Section 8.   Representative Hawker asked                                                                   
if  it would  prohibit taxation  by  all municipal  entities.                                                                   
Mr.  Ecklund understood  that  it  would prohibit  all  local                                                                   
taxation.  He offered to get the information clarified.                                                                         
Co-Chair Williams  clarified that portion  has not yet  had a                                                                   
public hearing.   It was added on the Senate  Floor, with not                                                                   
much  debate.   He acknowledged  that there  are people  that                                                                   
would  like to  see  that  area of  the  bill remain  and  of                                                                   
course,  some  would  like  to  see  it  removed.    Co-Chair                                                                   
Williams  pointed  out  that the  Governor  understands  that                                                                   
there will be revenue measures not supported.                                                                                   

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