Legislature(2015 - 2016)HOUSE FINANCE 519
04/06/2015 01:30 PM FINANCE
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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 House Bill 155 (HB 155) repealed those indirect expenditures with an estimated increase of revenue by approximately $450,000.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 HB 155 repealed the following indirect expenditures as follows: • Small Loan Company Business License Exemption Pg. 3 of the 2015 Indirect Expenditure Report • Commercial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.