Legislature(2015 - 2016)HOUSE FINANCE 519

04/06/2015 01:30 PM FINANCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= HB 135 PUBLIC EMPLOYEE ROTH CONTRIBUTIONS TELECONFERENCED
Moved HB 135 Out of Committee
*+ HB 155 FEES; WAIVERS; CREDITS; DEDUCTIONS;TAXES TELECONFERENCED
Heard & Held
*+ HB 15 CREDITS FOR TIME SERVED/GOOD TIME TELECONFERENCED
Heard & Held
<Bill Hearing Rescheduled from 4/3/15>
+ Bills Previously Heard/Scheduled TELECONFERENCED
HOUSE BILL NO. 155                                                                                                            
                                                                                                                                
     "An  Act relating  to fees  charged  by the  commercial                                                                    
     fisheries  entry commission;  repealing an  exploration                                                                    
     incentive credit; amending  the calculation of adjusted                                                                    
     gross  income  for  purposes of  the  tax  on  gambling                                                                    
     activities  aboard large  passenger vessels;  repealing                                                                    
     the amount  that may  be deducted  from the  motor fuel                                                                    
     tax to cover  the expense of accounting  and filing for                                                                    
     the monthly tax return;  repealing a provision allowing                                                                    
     an investigation  expense under the Alaska  Small Loans                                                                    
     Act to be  in place of a fee required  under the Alaska                                                                    
     Business License Act; repealing  the amount that may be                                                                    
     deducted  from  the tobacco  excise  tax  to cover  the                                                                    
     expense of  accounting and filing  for the  monthly tax                                                                    
     return; repealing the discount  on cigarette tax stamps                                                                    
     provided  as compensation  for affixing  the stamps  to                                                                    
     packages;  repealing the  amount that  may be  deducted                                                                    
     from  a tire  fee remittance  to cover  the expense  of                                                                    
     accounting  and filing  for the  quarterly fee  return;                                                                    
     and providing for an effective date."                                                                                      
                                                                                                                                
Co-Chair Thompson began his presentation from a prepared                                                                        
statement:                                                                                                                      
                                                                                                                                
     In the  28th Legislature,  legislation was  passed that                                                                    
     defined Indirect Expenditure as  foregone revenue.  The                                                                    
     legislation  set  forth   a  requirement  that  certain                                                                    
     reports  identify potential  loss of  foregone revenue.                                                                    
     Earlier  this   session  this  committee   received  an                                                                    
     overview   of   the    Legislative   Finance   Indirect                                                                    
     Expenditure  Report identified  certain credits,  fees,                                                                    
     discounts,  and deductions  that should  be terminated.                                                                    
     House  Bill  155  (HB   155)  repealed  those  indirect                                                                    
     expenditures with  an estimated increase of  revenue by                                                                    
     approximately   $450,000.   The  indirect   expenditure                                                                    
     repeal in House  Bill 155 were selected  for repeal for                                                                    
     various  reasons that  range from  the expenditure  did                                                                    
     not  meet legislative  intent, had  limited benefit  or                                                                    
     usage,  and   were  obsolete   due  to   inactivity  or                                                                    
     replacement by electronic filings.                                                                                         
                                                                                                                                
BRODIE  ANDERSON,  STAFF,   REPRESENTATIVE  STEVE  THOMPSON,                                                                    
placed himself on the record and  stated that HB 155 was the                                                                    
next  step  in  addressing  foregone revenue  to  the  state                                                                    
identified in the 2015 Indirect Expenditure Report. HB 155                                                                      
repealed the following indirect expenditures as follows:                                                                        
                                                                                                                                
    •    Small Loan Company Business License Exemption                                                                          
       Pg. 3 of the 2015 Indirect Expenditure Report                                                                            
                                                                                                                                
     •    Commercial Fisheries Entry Commission (CFEC)                                                                          
          Reduced Permit Fees,                                                                                                  
      Pg. 48 of the 2015 Indirect Expenditure Report                                                                            
                                                                                                                                
     •    CFEC Reduced Application Fees                                                                                         
      Pg. 50 of the 2015 Indirect Expenditure Report                                                                            
                                                                                                                                
     •    CFEC Reduced Expediting Fees                                                                                          
      Pg. 51 of the 2015 Indirect Expenditure Report                                                                            
                                                                                                                                
     •    CFEC Reduced Transfer Fees                                                                                            
      Pg. 52 of the 2015 Indirect Expenditure Report                                                                            
                                                                                                                                
     •    Exploration Incentive Credit                                                                                          
      Pg. 97 of the 2015 Indirect Expenditure Report                                                                            
                                                                                                                                
     •    Tobacco Product Tax Deduction for Timely Filing                                                                       
          Pg. 141 of the 2015 Indirect Expenditure Report                                                                       
                                                                                                                                
     •    Cigarette Tax Stamp Discount                                                                                          
          Pg. 142 of the 2015 Indirect Expenditure Report                                                                       
                                                                                                                                
     •    Motor Fuel Tax Timely Filing                                                                                          
          Pg. 143 of the 2015 Indirect Expenditure Report                                                                       
    •    Large Passenger Vessel Gambling Tax Deduction                                                                          
          Pg. 163 of the 2015 Indirect Expenditure Report                                                                       
                                                                                                                                
     •    Tire Tax Discount for Timely Filing                                                                                   
          Pg. 167 of the 2015 Indirect Expenditure Report                                                                       
                                                                                                                                
Mr. Anderson provided a sectional analysis of the bill and                                                                      
read from a prepared statement:                                                                                                 
                                                                                                                                
     Section 1: Adds  a new section AS  16.43.100 to address                                                                    
     the removal of  the low income permit  fees and require                                                                    
     the  (Commercial Fisheries  Entry  Commission) CFEC  to                                                                    
     issue permits at the same cost to all permit holders.                                                                      
                                                                                                                                
     Section 2: Amended AS 16.43.160(a) requiring the                                                                           
     commission to make each person pay the same fee with                                                                       
     the exception of the non-resident surcharge. The non-                                                                      
     resident  exemption was  included to  ensure compliance                                                                    
     with the Carlson decision.                                                                                                 
                                                                                                                                
     Section 3:  Removed references to AS  38.05.180(i), the                                                                    
    Exploration Incentive Credit from AS 41.09.010(a).                                                                          
                                                                                                                                
     Section 4:  Removed references to AS  38.05.180(i) from                                                                    
     AS 41.09.010(b).                                                                                                           
                                                                                                                                
     Section 5:  Removed references to AS  38.05.180(i) from                                                                    
     AS 43.20.043(g).                                                                                                           
                                                                                                                                
     Section 6: Amended 43.55.210  to disallow the deduction                                                                    
     for federal  taxes for the purposes  of calculating the                                                                    
     state  tax  on  large passenger  cruise  ship  gambling                                                                    
     activity.                                                                                                                  
                                                                                                                                
     Section   7:  Amended   AS  43.40.010(c)   by  removing                                                                    
     language that  allowed motor fuel  dealers to  retain a                                                                    
     portion of  the motor  fuel tax  due to  cover expenses                                                                    
     for filing motor fuel tax return.                                                                                          
                                                                                                                                
     Section 8:  Removed references to AS  43.50.540 from AS                                                                    
     43.50590(a)   to   conform   to  the   repeal   of   AS                                                                    
     43.50.540(c) in Section 12.                                                                                                
                                                                                                                                
1:49:19 PM                                                                                                                    
                                                                                                                                
     Section  9:  Removed   references  of  the  Exploration                                                                    
     Incentive  Credit from  AS 43.55.011(m)  to conform  to                                                                    
     the repeal of AS 38.05.180(i) in Section 12.                                                                               
                                                                                                                                
     Section  10:  Removed  references  to  the  Exploration                                                                    
     Incentive    Credit   (AS    38.05.180(i))   from    AS                                                                    
     43.55.023(a)   to  conform   to   the   repeal  of   AS                                                                    
     38.05.180(i) in Section 12.                                                                                                
                                                                                                                                
     Section 11: Removed references  to AS 38.05.180(i) from                                                                    
     AS  43.55.023(l)  to  conform   to  the  repeal  of  AS                                                                    
     38.05.180(i) in Section 12.                                                                                                
                                                                                                                                
Mr. Anderson continued with Section 12 that contained the                                                                       
Statute Repealers:                                                                                                              
                                                                                                                                
        · AS 06.20.030(c) was the subsection that allowed                                                                       
          the license fee Small Loan Company License to                                                                         
          replace the Alaska Business License.                                                                                  
        · AS   16.43.160(d)   was    the   subsection   that                                                                    
          established the reduced fee  for low income permit                                                                    
          holders within the CFEC.                                                                                              
                                                                                                                                
        · AS   38.05.180(i)   was    the   subsection   that                                                                    
          established the Exploration Incentive Credit.                                                                         
                                                                                                                                
        · AS 41.09.030  is the  section that  referenced the                                                                    
          relationship of  the Exploration  Incentive Credit                                                                    
          to Title 41 Chapter 9  (which is Title 41 - Public                                                                    
          Resources / Chapter 09   - Oil and Gas Exploration                                                                    
          Incentive Credits).                                                                                                   
                                                                                                                                
        · AS  43.50.330(b) was  the subsection  establishing                                                                    
          the  filing  deduction  for   the  Excise  Tax  on                                                                    
          Tobacco Products.                                                                                                     
                                                                                                                                
        · AS   43.50.540(c)   was    the   subsection   that                                                                    
          established  the discount  for  the Cigarette  Tax                                                                    
          Stamps.                                                                                                               
                                                                                                                                
        · AS  43.50.540(h) established  a definition  of the                                                                    
          stamps that were eligible for the discount.                                                                           
                                                                                                                                
        · AS   43.98.025(e)   was    the   subsection   that                                                                    
          established the  deduction for filing in  the Tire                                                                    
          Fees.                                                                                                                 
                                                                                                                                
Mr. Anderson cited the three Code repealers in Section 13:                                                                      
                                                                                                                                
        · 20  AAC 05.250(b)  was the  code that  established                                                                    
          the  reduced fee  for  low  income permit  holders                                                                    
          within the CFEC.                                                                                                      
                                                                                                                                
        · 20   AAC  05.425(e)(1)(2)   was   the  code   that                                                                    
          established  the reduced  fee for  expediting fees                                                                    
          for low income permit holders within the CFEC.                                                                        
                                                                                                                                
        · 20 AAC  05.1910(h) was  the code  that established                                                                    
          the reduced  fee for transfer fees  for low income                                                                    
          permit holders within the CFEC.                                                                                       
                                                                                                                                
Mr. Anderson spoke to the final three sections:                                                                                 
                                                                                                                                
     Section 14:  Provided transitional language  related to                                                                    
     the  repeal of  the  Exploration  Incentive Credit  and                                                                    
     CFEC low income transfers.                                                                                                 
                                                                                                                                
     Section 15: Contained the effective  date of January 1,                                                                    
     2016 for the  gambling tax activities based  off of the                                                                    
     federal  tax  calendar  year  and  the  fact  that  the                                                                    
     gambling tax was paid annually.                                                                                            
                                                                                                                                
     Section  16: Contained  the effective  date of  July 1,                                                                    
     2015 for  all other  sections in  order to  comply with                                                                    
     the  State  of Alaska  fiscal  calendar  and all  other                                                                    
     related   fees,   discounts,   deductions   that   were                                                                    
     calculated monthly.                                                                                                        
                                                                                                                                
Representative   Wilson  shared   that  she   supported  the                                                                    
legislation.                                                                                                                    
                                                                                                                                
Representative  Kawasaki  wanted  to  know  whether  HB  155                                                                    
included all  of the  indirect expenditures  recommended for                                                                    
termination  in the  Indirect  Expenditure  Report (copy  on                                                                    
file).                                                                                                                          
                                                                                                                                
Mr. Anderson  responded that  the report  identified several                                                                    
indirect  expenditures for  termination  having  to do  with                                                                    
corporate income  tax. Other indirect  expenditure regarding                                                                    
corporate income tax were recommended  for policy review and                                                                    
reconsideration.  He relayed  that the  sponsor thought  the                                                                    
corporate  income tax  indirect  expenditures  needed to  be                                                                    
further scrutinized and examined  comprehensively as a whole                                                                    
and were not included in the legislation.                                                                                       
                                                                                                                                
1:54:42 PM                                                                                                                    
                                                                                                                                
Representative Kawasaki  asked whether the  finance analysis                                                                    
in the  report was provided  by LFD. Mr.  Anderson confirmed                                                                    
that the  recommendations came from  LFD and added  that the                                                                    
numbers were provided by the Department of Revenue (DOR).                                                                       
                                                                                                                                
Representative Kawasaki  asked whether DOR had  any comments                                                                    
regarding the recommendations from LFD.                                                                                         
                                                                                                                                
JERRY  BURNETT,  DEPUTY   COMMISSIONER,  TREASURY  DIVISION,                                                                    
DEPARTMENT  OF REVENUE,  indicated that  the department  had                                                                    
had discussions about the  recommendations. He reported that                                                                    
the department supported the legislation.                                                                                       
                                                                                                                                
Representative  Kawasaki understood  terminating the  direct                                                                    
expenditures that  had never been  used or did  not generate                                                                    
revenue.  He  wondered  whether  DOR  was  comfortable  with                                                                    
terminating  the credits  that had  a fiscal  impact because                                                                    
the credits  were rarely used  or had a  negligible benefit.                                                                    
Mr. Burnett responded affirmatively.                                                                                            
                                                                                                                                
Co-Chair  Thompson  asked  why   the  new  DOR  fiscal  note                                                                    
contained  an appropriation  for $50  thousand for  updating                                                                    
tax forms  and contractor work  to program the  changes into                                                                    
the Tax  Revenue Management System  (TRMS). He  thought that                                                                    
the appropriation was high.                                                                                                     
                                                                                                                                
Mr.  Burnett responded  that  he would  have  to review  the                                                                    
estimate  from  the  contractor.  He added  that  each  time                                                                    
changes were made to the  system the contractor was required                                                                    
to  update the  system. He  stated that  the amount  was the                                                                    
departments "best estimate" of the contractor's charges.                                                                        
                                                                                                                                
Representative Gattis referred  to legislation regarding the                                                                    
Tire Tax  [HB 88 Fees For  Tires] and hoped that  along with                                                                    
passage  of HB  155 the  tax system  would only  collect the                                                                    
taxpayers' information that was absolutely necessary.                                                                           
                                                                                                                                
Mr. Burnett stated that he  had discussed the issue with the                                                                    
deputy director  of the tax  division and reported  that the                                                                    
division   was  committed   to   reducing   the  amount   of                                                                    
information required.                                                                                                           
                                                                                                                                
1:59:50 PM                                                                                                                    
                                                                                                                                
Co-Chair Neuman  cited the fiscal note  and wondered whether                                                                    
the  department had  a contingency  plan  if the  contractor                                                                    
costs were less than $50 thousand.                                                                                              
                                                                                                                                
Mr.  Burnett replied  that with  passage of  the legislation                                                                    
the fiscal  note would appropriate  the entire  $50 thousand                                                                    
to the department. He qualified  that if the costs were less                                                                    
DOR  would work  with  LFD  and either  lapse  the funds  or                                                                    
include  them in  the supplemental  budget. Co-Chair  Neuman                                                                    
commented that the fiscal note should be further examined.                                                                      
                                                                                                                                
Representative  Guttenberg  cited  page  97  of  the  report                                                                    
regarding  the Oil  and Gas  Production  Tax, State  Royalty                                                                    
credit and read the following:                                                                                                  
                                                                                                                                
     Recommend termination. The  credit appears obsolete and                                                                    
     ineffective given  that it hasn't  been used in  over a                                                                    
     decade.  The  Alternative  Credit for  Exploration  (AS                                                                    
     43.55.025 (a)  (1-4)) appears to  be a  more attractive                                                                    
     incentive.                                                                                                                 
                                                                                                                                
Representative  Guttenberg  indicated  that there  were  two                                                                    
incentives but  only one was  being used. He wanted  to know                                                                    
how it  was determined which  incentive was the best  one to                                                                    
remove.                                                                                                                         
                                                                                                                                
Mr.  Burnett was  not prepared  to answer  the question.  He                                                                    
believed  there had  been an  ongoing discussion  about what                                                                    
credits  were   necessary.  He  guessed  that   the  credits                                                                    
included in  AS 43.55.025 were  the most recent and  the one                                                                    
recommended for termination was outdated.                                                                                       
                                                                                                                                
Representative Pruitt  referenced Section 7, related  to the                                                                    
motor  fuel  tax.  He  asked whether  the  bill  was  simply                                                                    
removing the  incentive to file  on time and no  penalty was                                                                    
applied. Mr. Anderson was not able to answer the question.                                                                      
                                                                                                                                
Mr. Burnett  stated that  all taxes  had penalties  for late                                                                    
filing.  He  elaborated  that penalties  and  interest  were                                                                    
charged  to late  filers. Currently,  filing taxes  was much                                                                    
easier than when the incentives were initially implemented.                                                                     
                                                                                                                                
Representative Pruitt  wanted to  understand the  tax system                                                                    
in  a historical  context. He  confirmed  that currently  an                                                                    
incentive  and  a penalty  was  in  place. He  deduced  that                                                                    
currently incentives were less necessary  due to the ease of                                                                    
filing. Mr. Burnett responded in the affirmative.                                                                               
                                                                                                                                
2:05:32 PM                                                                                                                    
                                                                                                                                
Representative Munoz  asked what the amount  of the gambling                                                                    
tax collected by the state  was.  Mr. Burnett responded that                                                                    
he  would follow  up with  the answer.  Representative Munoz                                                                    
asked what the  amount of revenue was  generated through the                                                                    
gambling tax. Mr. Burnett could  not recall the exact amount                                                                    
and pledged to provide the answer.                                                                                              
                                                                                                                                
Representative  Munoz  asked  why  the  sponsor  decided  to                                                                    
remove  the   deduction  of  federal  taxes   from  gambling                                                                    
proceeds.  Mr.  Anderson  responded  that  typically,  state                                                                    
taxes were  deducted from  federal taxes  and not  the other                                                                    
way around.  He indicated that  the change was  suggested to                                                                    
align with  the state's tax structure.  Representative Munoz                                                                    
asked  if the  state was  assessing the  tax on  the federal                                                                    
portion of gambling proceeds as  well. Mr. Anderson deferred                                                                    
to Mr. Burnett.                                                                                                                 
                                                                                                                                
Mr. Burnett explained  that DOR assessed a tax  based on all                                                                    
of  the  revenues  earned  on   gambling  in  state  waters.                                                                    
Currently,  the  federal  tax paid  was  deducted  prior  to                                                                    
determining the  state tax. The  legislation would  levy the                                                                    
tax  on the  entire earnings  and the  federal tax  would be                                                                    
levied on the revenue less  the state tax, which was aligned                                                                    
with how the department collected most other taxes.                                                                             
                                                                                                                                
Representative   Edgmon   had    questions   regarding   the                                                                    
Commercial Fisheries Entry Commission  (CFEC). He cited page                                                                    
48 from the Indirect Expenditure  Report and asked where the                                                                    
233 individuals  eligible for the  reduced permit  fees were                                                                    
located in the state.                                                                                                           
                                                                                                                                
BEN   BROWN,   COMMISSIONER,  COMMERCIAL   FISHERIES   ENTRY                                                                    
COMMISSION,  DEPARTMENT OF  FISH AND  GAME, replied  that he                                                                    
unaware of  the specific geographic regions  the individuals                                                                    
resided  in  and  offered to  provide  the  information.  He                                                                    
guessed  that  many  of the  individuals  resided  in  rural                                                                    
Alaska.                                                                                                                         
                                                                                                                                
Representative  Edgmon  wondered  what  the  impact  of  the                                                                    
additional costs of the permit  fees would have on the areas                                                                    
where the individuals resided. He  wondered what the reduced                                                                    
fee amounted to per individual.                                                                                                 
                                                                                                                                
Mr. Brown  indicated that the  reduction was 50  percent and                                                                    
fees ranged  from $75  to $3000  depending on  the statutory                                                                    
formula.  Therefore,  the reduction  for  a  $3000. fee  was                                                                    
substantial.  He  believed  that   elimination  of  the  fee                                                                    
reduction  was "relative"  and  that  collectively was  "not                                                                    
that  much for  the  department ($17,921.)  but  could be  a                                                                    
hardship for the individual.                                                                                                    
                                                                                                                                
2:12:26 PM                                                                                                                    
                                                                                                                                
Representative Gara  asked whether  there was any  other tax                                                                    
that operated  like the gambling  tax; allowing  a deduction                                                                    
of federal taxes before paying  state taxes. Mr. Burnett was                                                                    
not aware of any other tax similarly levied in the state.                                                                       
                                                                                                                                
Representative  Gara stated  that he  was having  difficulty                                                                    
understanding  the  statue   references  from  the  indirect                                                                    
expenditure report concerning  exploration incentive credits                                                                    
and what  credits were  terminated in  HB 155.  He expressed                                                                    
confusion  and wanted  to ensure  the wrong  credit was  not                                                                    
being  eliminated.  Discussion  ensued among  the  committee                                                                    
members in an attempt to clarify the issue.                                                                                     
                                                                                                                                
Co-Chair   Thompson   acknowledged   that  the   issue   was                                                                    
complicated and pointed out that  his staff was available to                                                                    
answer committee member's questions.                                                                                            
                                                                                                                                
Representative   Gara  asked   for   confirmation  that   AS                                                                    
38.05.180  (i),   the  exploration  credit   designated  for                                                                    
elimination in the bill had not  been used in over a decade.                                                                    
Mr. Burnett responded in the affirmative.                                                                                       
                                                                                                                                
2:19:30 PM                                                                                                                    
                                                                                                                                
HB  155  was  HEARD  and   HELD  in  committee  for  further                                                                    
consideration.                                                                                                                  
                                                                                                                                

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