Legislature(2017 - 2018)HOUSE FINANCE 519

04/03/2017 01:00 PM FINANCE

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Audio Topic
01:05:38 PM Start
01:07:04 PM HB115
01:47:19 PM Amendments
06:57:06 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Continued at 6:20 PM --
+= HB 115 INCOME TAX; PFD CREDIT; PERM FUND INCOME TELECONFERENCED
Heard & Held
Amendments in Committee
+ Bills Previously Heard/Scheduled TELECONFERENCED
HOUSE BILL NO. 115                                                                                                            
                                                                                                                                
     "An  Act  relating  to  the  permanent  fund  dividend;                                                                    
     relating  to the  appropriation of  certain amounts  of                                                                    
     the earnings reserve account;  relating to the taxation                                                                    
     of  income  of  individuals;   relating  to  a  payment                                                                    
     against the  individual income  tax from  the permanent                                                                    
     fund  dividend  disbursement;   repealing  tax  credits                                                                    
     applied  against  the  tax  on  individuals  under  the                                                                    
     Alaska  Net  Income  Tax  Act;  and  providing  for  an                                                                    
     effective date."                                                                                                           
                                                                                                                                
1:07:04 PM                                                                                                                    
                                                                                                                                
Co-Chair   Foster  shared   that   the  following   speaker,                                                                    
Professor Richard Pomp, had been  hired by the Department of                                                                    
Revenue  (DOR) to  craft  the technical  elements  of a  tax                                                                    
based  on  adjusted gross  income.  The  professor had  been                                                                    
hired by  the administration based  on his expertise  on the                                                                    
subject and  his contract was for  a draft bill. He  had not                                                                    
been hired to  act as a consultant to  the administration or                                                                    
the co-chairs of the House  Finance Committee. He elaborated                                                                    
that Professor Pomp had  assisted in language interpretation                                                                    
and ensuring the language was  accurate. He relayed that the                                                                    
bill before  the committee was  not Professor Pomp's  or the                                                                    
administration's   bill;  it   incorporated   many  of   his                                                                    
technical  elements but  policy decisions  had been  made in                                                                    
the co-chairs'  offices and the  bill had been  redrafted by                                                                    
Legislative  Legal   Services.  He  furthered   that  policy                                                                    
decisions  such   as  the  tax   rates  and   the  allowable                                                                    
deductions had been decided upon by the co-chairs' office.                                                                      
                                                                                                                                
RICHARD POMP,  PROFESSOR OF  LAW, UNIVERSITY  OF CONNECTICUT                                                                    
SCHOOL  OF  LAW,  provided  detail  about  his  professional                                                                    
background.  He relayed  that the  opinions  he would  share                                                                    
during the meeting were his  own and not affiliated with any                                                                    
organization.  He shared  he had  a consulting  practice and                                                                    
had worked  with Alaska  on a  fairly large  case, involving                                                                    
the Tesoro  Corporation, that  had gone all  the way  to the                                                                    
Alaska Supreme Court.  He was happy to report  the state had                                                                    
won.  He  also represented  other  states  and some  of  the                                                                    
Fortune 500 such  as Netflix, AT&T, Toys-R-Us,  GE, GM, CBS,                                                                    
and other.                                                                                                                      
                                                                                                                                
Mr. Pomp noted  that he had provided a summary  of the rolls                                                                    
of  trusts   ["Irrevocable  Trusts"  (copy  on   file)].  He                                                                    
detailed that the  trust section had probably  been the most                                                                    
difficult  part of  the draft  legislation, in  part because                                                                    
there had been a very  conscious attempt to protect Alaska's                                                                    
trust industry. He specified that  in 1997 Alaska was one of                                                                    
the first states to start  to make its trust laws attractive                                                                    
to nonresidents. Unfortunately, since  that time, Alaska had                                                                    
lost its  first-to-market advantage because many  states had                                                                    
jumped  on the  bandwagon,  including Delaware  in 1997.  He                                                                    
understood  the  importance  of  protecting  Alaska's  trust                                                                    
industry, which  he believed  the bill  did. A  multitude of                                                                    
other states  offered high net  worth taxpayers a  chance to                                                                    
establish  trusts  and they  would  not  be taxed  in  those                                                                    
states. He explained the situation  was part of the backdrop                                                                    
the legislation had  to take into account and  deal with. He                                                                    
furthered that  unfortunately it  was a  race to  the bottom                                                                    
because once  one state  provided an  attractive environment                                                                    
for the formation  of trusts, other states  jumped in, which                                                                    
had   resulted  in   numerous   competing  states   offering                                                                    
essentially zero tax on trusts.                                                                                                 
                                                                                                                                
Mr. Pomp  detailed that the legislation  divided trusts into                                                                    
two  groups:  resident  trusts and  nonresident  trusts.  He                                                                    
relayed   that  trust   accounting   was   among  the   most                                                                    
complicated of anything  dealt with in the bill;  it was the                                                                    
province of  a fairly  small group of  specialists -  he did                                                                    
not include  himself in the  category. He continued  that it                                                                    
was an  opaque and sophisticated area  of the law. He  had a                                                                    
group  of Wall  Street practitioners  who had  been advising                                                                    
him on the  topic - he had learned it  was very difficult to                                                                    
get ahead of the practitioners  who were at the cutting edge                                                                    
and  represented powerful,  wealthy  families. He  continued                                                                    
they had  the very  latest in  tax avoidance  techniques and                                                                    
the draft  tended to deal  with the subject, but  there were                                                                    
no  promises in  the particular  area  of the  law that  the                                                                    
games being played  were known. He was familiar  with all of                                                                    
the  games played  pertaining to  other areas  of the  draft                                                                    
legislation. He  expounded that  in the  trust area,  it was                                                                    
very  difficult to  feel comfortable  that everything  being                                                                    
done  was understood.  He explained  that  sometimes it  was                                                                    
necessary  to draft  with a  broad brush  to bring  numerous                                                                    
things into the  tax net and shut down  a significant amount                                                                    
of the game playing.                                                                                                            
                                                                                                                                
                                                                                                                                
1:14:42 PM                                                                                                                    
                                                                                                                                
Co-Chair Seaton  relayed that the committee  would also hear                                                                    
from a trust  attorney later on in the  meeting. He referred                                                                    
to a document provided by  Mr. Pomp ["Short Summary of rules                                                                    
on trusts in  existing version L of HB 115"  (copy on file)]                                                                    
that noted investment income would  not be considered Alaska                                                                    
source income  and cited AS 43.22.045(a)(9).  He stated that                                                                    
if there  was no Alaska  source income  at the start  of the                                                                    
trust for a  nonresident it was fine;  however, Alaska trust                                                                    
law required some  amount of money to be held  in an Alaskan                                                                    
bank. He asked if interest paid  on the money in the Alaskan                                                                    
bank  make the  money Alaska  source income  and potentially                                                                    
make the entire trust Alaska sourced or taxable.                                                                                
                                                                                                                                
Mr. Pomp  replied that he did  not believe so. He  read from                                                                    
AS 43.22.045(a)(9):                                                                                                             
                                                                                                                                
     ...dividends,  interest,  payments  received  under  an                                                                    
     annuity, gains, other  intangible income received from,                                                                    
     or  attributable  to,   intangible  personal  property,                                                                    
     including  stock,  bonds,   notes,  bank  deposits,  or                                                                    
     annuities,  if  the  intangible  personal  property  is                                                                    
     employed in a  business, trade, profession, occupation,                                                                    
     or employment carried on in the state;                                                                                     
                                                                                                                                
Mr.  Pomp  elaborated that  the  latter  part of  the  cited                                                                    
statute was  a reference to the  nonresident beneficiary and                                                                    
not  someone  else's  business  like  a  trust  company.  He                                                                    
explained   that  the   prudent  question   was  whether   a                                                                    
nonresident  beneficiary receiving  investment income  would                                                                    
be  considered employed  in a  business, trade,  profession,                                                                    
occupation, or  employment carried  on in  the state  by the                                                                    
nonresident.  He believed  the answer  was probably  no. The                                                                    
provision was independent of where  the corpus is (where the                                                                    
stocks, bonds, or  cash may be located). He  stated that had                                                                    
not  been made  a  factor under  the  draft legislation.  He                                                                    
summarized  that  it  would  simply  be  whether  "this  had                                                                    
anything to  do with" a  nonresident's business or  trade in                                                                    
Alaska.  He was  sure  that in  the  overwhelming number  of                                                                    
cases the  answer would  be no. He  concluded that  it would                                                                    
not be Alaska source  income and the nonresident beneficiary                                                                    
would not be taxed on the specific items.                                                                                       
                                                                                                                                
Representative  Wilson  asked  about   a  scenario  where  a                                                                    
resident and  nonresident each  had a  trust in  Alaska with                                                                    
the exact  same holdings. She  asked if the  exception would                                                                    
result in  the taxing of residents  while nonresidents would                                                                    
not be taxed.                                                                                                                   
                                                                                                                                
Mr. Pomp  replied that  the general  structure of  the draft                                                                    
followed  the  general  structure  of  the  income  tax.  He                                                                    
detailed that  in general, nonresidents  were taxed  only on                                                                    
Alaska   source   income,   which   was   a   constitutional                                                                    
constraint. A resident  of Alaska was taxed  on their entire                                                                    
income, which  was a pattern  followed by every  other state                                                                    
with  a  personal   income  tax.  The  answer   was  yes,  a                                                                    
nonresident could  be taxed only  on Alaska source  income -                                                                    
it was the state's only  jurisdictional hook with respect to                                                                    
that person.  He used  himself as  an example  and explained                                                                    
that Alaska had  no jurisdictional hook over  him unless the                                                                    
income  he had  received was  attributable to  Alaska source                                                                    
income.  The draft  cast a  very broad  approach as  to what                                                                    
constituted  Alaska  source  income. The  draft  legislation                                                                    
cast a broad  net in reaching nonresidents -  it reached the                                                                    
constitutional limit  of what a  state could do.  He relayed                                                                    
that  a nonresident  could never  be taxed  on their  entire                                                                    
income;  it  had  to  have  some  link  with  Alaska  to  be                                                                    
constitutional.  He specified  it was  a bifurcation  in the                                                                    
jurisdictional  reach  between residents  and  nonresidents.                                                                    
The  rules on  the  trust mirrored  the  concept -  resident                                                                    
trusts were  taxable on all  of their adjusted  gross income                                                                    
and it did not matter whether  the income was from an Alaska                                                                    
source or not.  Nonresident trusts were taxed  only on their                                                                    
Alaska  source  income,  just like  nonresident  individuals                                                                    
were taxed only on their Alaska source income.                                                                                  
                                                                                                                                
Representative  Wilson thought  the  system would  encourage                                                                    
other  states to  bring their  trusts to  Alaska, but  would                                                                    
encourage Alaskans to  go to states like Nevada  in order to                                                                    
receive  the same  kind  of breaks  Alaska  would be  giving                                                                    
nonresident trust beneficiaries in Alaska.                                                                                      
                                                                                                                                
1:21:41 PM                                                                                                                    
                                                                                                                                
Mr. Pomp  replied the  point was  astute. He  explained that                                                                    
all states had  to worry about their residents  setting up a                                                                    
trust in  another location  (e.g. Alaska,  Nevada, Delaware,                                                                    
and  other).  He addressed  what  could  be done  about  the                                                                    
issue. He explained that if it  was a grantor trust - trusts                                                                    
came  in different  sizes and  shapes  - it  was really  not                                                                    
taxed  as a  trust. He  specified that  the grantor  was the                                                                    
person who was taxed and who  set up the trust. He continued                                                                    
that if the trust was revocable  (as many were), it would be                                                                    
a  grantor trust  and  the  grantor would  be  taxed on  the                                                                    
current income  of the trust.  He elaborated that  the trust                                                                    
did not exist in a sense  - the income passed through to the                                                                    
grantor.  In that  sense, if  an  Alaska resident  set up  a                                                                    
grantor trust  in another state,  the Alaska  resident would                                                                    
pick up  the income from the  trust and it would  be taxable                                                                    
to the  resident. Any  time there was  a grantor  trust, the                                                                    
problem  identified  by  Representative  Wilson  went  away.                                                                    
There were  good tax reasons  for grantor trusts  because in                                                                    
the past couple  of years the rate  structure on non-grantor                                                                    
trusts was very compressed -  the top bracket was reached at                                                                    
a  very  low amount  of  income.  At  income of  $12,000  or                                                                    
$13,000 a  person was  already at  the 39.6  percent bracket                                                                    
when it came  to the federal tax rate. He  stressed that the                                                                    
rate was very high.                                                                                                             
                                                                                                                                
Mr. Pomp  continued that many  grantors did not want  to set                                                                    
up a  trust if they did  not have to, that  would accumulate                                                                    
income and  be taxed  at the high  rate. He  elaborated that                                                                    
then  the  3.8  percent  Medicare   tax  was  added  on  net                                                                    
investment income.  Whereas, if it  was set up as  a grantor                                                                    
trust, the income would flow  through to the Alaska resident                                                                    
grantor  and for  federal purposes  they  would receive  the                                                                    
benefit of a  much lower marginal tax rate.  There were very                                                                    
good  tax  reasons  why  a  grantor  trust  from  a  federal                                                                    
perspective  was  to  be  preferred.  The  state  benefitted                                                                    
because the income  flowed through to the  grantor and would                                                                    
be taxed along with the rest  of the grantor's income. For a                                                                    
fairly large  number of trusts,  the problem would  go away.                                                                    
The  problem pertained  only to  the non-grantor  trusts. He                                                                    
acknowledged the  non-grantor trusts  could be very  large -                                                                    
some  people believed  the  non-grantor  trusts were  larger                                                                    
than  grantor  trusts,  but  he  believed  it  was  hard  to                                                                    
generalize.                                                                                                                     
                                                                                                                                
1:26:25 PM                                                                                                                    
                                                                                                                                
Representative Wilson  asked if the bill  contained anything                                                                    
that  needed  to be  altered  due  to  a negative  impact  a                                                                    
provision would  have on a  certain group of people  (e.g. S                                                                    
corporations, LLCs, and/or individuals).                                                                                        
                                                                                                                                
Mr. Pomp  replied that  broadly speaking  he would  not have                                                                    
worried about  an inflation adjustment.  The state was  in a                                                                    
unique  position of  having a  dividend  from the  Permanent                                                                    
Fund,  which   was  worth  much   more  than   the  personal                                                                    
exemptions in the bill. He  would probably not have bothered                                                                    
with  personal  exemptions,  given that  an  adjustment  for                                                                    
family size could be done  through the distribution from the                                                                    
Permanent Fund.  He was  aware that  the dividend  was lower                                                                    
than  it had  been  in the  past  and that  if  oil and  gas                                                                    
remained at  low prices the  dividend would probably  not be                                                                    
as  generous as  it  once  had been.  He  spoke to  economic                                                                    
consequences  and  noted  that everyone  worried  about  the                                                                    
effect of taxation on economic  development. He relayed that                                                                    
states such  as Kansas  had eliminated  its income  tax with                                                                    
the hope that  it would stimulate the economy  and more than                                                                    
pay for  itself in the  long-term. However, the  concept did                                                                    
not seem  to work at the  state level where rates  were much                                                                    
lower than at the federal level.  The hope was it would work                                                                    
at the  federal level  because it  seemed Congress  would do                                                                    
something about lowering rates with  the goal of stimulating                                                                    
economic development.                                                                                                           
                                                                                                                                
Mr.  Pomp continued  that someone  could say  that the  bill                                                                    
taxed wages,  which it obviously  did. An argument  could be                                                                    
made that  it would discourage  people from working.  He did                                                                    
not  believe  there  was  any  empirical  evidence  for  the                                                                    
proposition. When  it came to  the issues, he wanted  to see                                                                    
the  data. There  were numerous  anecdotes floating  around,                                                                    
some of which were  self-serving and others were ideological                                                                    
in nature. He  just wanted to see the evidence  and data. He                                                                    
had  seen no  data that  would suggest  that the  bill would                                                                    
have negative effects on the  Alaska economy. He stated that                                                                    
the   discussion   became   even   more   complicated   when                                                                    
considering what  negative effects would occur  if the money                                                                    
was not  available to spend  on infrastructure  and schools.                                                                    
He  furthered that  taxes  did  not go  into  a black  hole;                                                                    
therefore,  it  would  be necessary  to  finance  government                                                                    
services.  He  questioned  what impact  cuts  to  government                                                                    
services  would have.  He asked  if it  would attract  young                                                                    
entrepreneurs  the  state  may  be  hoping  to  attract.  He                                                                    
continued  that it  was difficult  to speculate  "on any  of                                                                    
this." He communicated  that in the drafting of  the bill he                                                                    
had wanted committee members to  see everything. He believed                                                                    
it was much easier for the  committee to go through the bill                                                                    
and remove items than to leave  items out to begin with. The                                                                    
bill  was broad  and  did not  contain  anything he  thought                                                                    
should not be there.                                                                                                            
                                                                                                                                
                                                                                                                                
Co-Chair Foster  noted they  were coming to  the end  of Mr.                                                                    
Pomp's speaking time.                                                                                                           
                                                                                                                                
Representative  Wilson referred  to  Mr. Pomp's  explanation                                                                    
that people  were taxed at  the time  a trust was  paid out.                                                                    
She wondered about  the purpose of addressing  trusts in the                                                                    
legislation if  it went  to the  individual income  tax when                                                                    
paid out.                                                                                                                       
                                                                                                                                
Mr.  Pomp answered  that there  was a  level of  tax on  the                                                                    
trust  as  it  earned  income  that was  not  paid  out.  He                                                                    
detailed that it  was not desirable to have a  trust used as                                                                    
a mechanism to park their  income and receive the benefit of                                                                    
deferral without there  being a current tax.  When the trust                                                                    
was paid out,  double taxation was eliminated  - the federal                                                                    
rules were  clear there would  be one level of  taxation. He                                                                    
continued that  if it was not  taxed at the trust  level, it                                                                    
basically equated to a tax-free pocket book.                                                                                    
                                                                                                                                
Representative  Wilson did  not think  that made  any sense.                                                                    
She  stated that  even if  money was  being made  within the                                                                    
trust, if  the trust was  taxed based  on how much  money it                                                                    
made and  then again  when it  was paid  out, it  was double                                                                    
taxation.                                                                                                                       
                                                                                                                                
1:33:31 PM                                                                                                                    
                                                                                                                                
Mr.  Pomp  responded  that Representative  Wilson  would  be                                                                    
correct "if that were so."  The federal rules were such that                                                                    
there was  no double taxation.  To the extent the  trust had                                                                    
been taxed  on income  it distributed,  there was  no second                                                                    
level of tax on the recipient.                                                                                                  
                                                                                                                                
Representative Wilson recounted that  she had heard Mr. Pomp                                                                    
state  that money  in the  trust would  be taxed  before any                                                                    
distribution  was  made  (on capital  gains,  interest,  and                                                                    
other)  and  at some  point  once  distributions began,  the                                                                    
individual would be taxed.                                                                                                      
                                                                                                                                
Mr. Pomp answered that the  individual would not be taxed if                                                                    
the money had already been taxed at the trust level.                                                                            
                                                                                                                                
Co-Chair Seaton clarified that a  grantor trust was taxed to                                                                    
the individual  person. Whereas the nonresident  or resident                                                                    
trust  was paid  by the  trust and  when a  distribution was                                                                    
made  it  was not  taxed  again.  There were  two  different                                                                    
trusts that were taxed in  different ways. He compared it to                                                                    
a sub-S corporation and a c corporation.                                                                                        
                                                                                                                                
1:35:28 PM                                                                                                                    
                                                                                                                                
BETHANN CHAPMAN, TRUST  ATTORNEY, FAULKNER BANFIELD, JUNEAU,                                                                    
provided brief detail about her professional career.                                                                            
                                                                                                                                
TANEEKA  HANSEN, STAFF,  REPRESENTATIVE PAUL  SEATON, agreed                                                                    
with  Mr.   Pomp's  testimony  that  there   was  no  double                                                                    
taxation. She  explained that if a  trust accumulated income                                                                    
and paid  nothing out  in the year  it was  accumulated, the                                                                    
income was  taxed by the  trust; it  was not taxed  a second                                                                    
time  when the  individual eventually  received the  income.                                                                    
She detailed that  just like with wages,  the [tax] withheld                                                                    
was recorded  and was not paid  a second time. If  the trust                                                                    
had income distributed straight  to beneficiaries, the trust                                                                    
received  a deduction  for any  income  distributed and  the                                                                    
trust was not taxed on the  income. The rules were clear and                                                                    
set up so the trust was taxed or the beneficiary was taxed.                                                                     
                                                                                                                                
Representative  Wilson did  not understand  the answer.  She                                                                    
believed they were speaking about  different types of trusts                                                                    
that worked differently. She asked for further explanation.                                                                     
                                                                                                                                
1:37:57 PM                                                                                                                    
                                                                                                                                
Ms. Chapman spoke to fundamental  tax law related to trusts.                                                                    
There  were several  types  of trusts  "we  use." Some  were                                                                    
revocable, meaning  the person  establishing the  trust, the                                                                    
grantor,  was the  beneficiary and  could revoke  the trust.                                                                    
She detailed that revocable trusts  were also called grantor                                                                    
trusts under  the Internal Revenue  Code, meaning  they were                                                                    
completely  disregarded for  all income  tax purposes  (they                                                                    
filed   no  separate   tax  returns   -   they  could   file                                                                    
informational  returns, but  generally did  not) and  all of                                                                    
the income  was taxed  to the  individual. The  Alaskan that                                                                    
set  that type  of trust  up,  was the  taxpayer under  both                                                                    
federal law  and under  the legislation.  The other  type of                                                                    
trust  used   were  irrevocable   and  involved   a  grantor                                                                    
transferring  assets into  the trust  without reserving  the                                                                    
right  to  revoke  it.  Those  types  of  trusts  were  used                                                                    
frequently  for the  protection  of  children, to  establish                                                                    
educational  accounts  for  people  with  disabilities,  and                                                                    
other.  Under the  Internal  Revenue  Code, the  irrevocable                                                                    
trusts could be grantor trusts  (even though the grantor had                                                                    
given away the  money, they were still  the taxpayer). There                                                                    
were many reasons that was  done. She referred to Mr. Pomp's                                                                    
discussion  about compressed  rates and  the federal  income                                                                    
tax code, which  was one of the reasons a  parent may set up                                                                    
a trust and pay the tax annually.                                                                                               
                                                                                                                                
Ms. Chapman  discussed the other  type of  irrevocable trust                                                                    
called a  non-grantor irrevocable trust. A  person gave away                                                                    
money,   but  was   no  longer   considered  the   taxpayer;                                                                    
therefore,  the   trust  would  be  the   taxpayer  for  all                                                                    
purposes.  She continued  that  those  types of  non-grantor                                                                    
trusts  may or  may not  pay  income tax  under the  federal                                                                    
code,  depending  on the  structure.  One  of the  types  of                                                                    
trusts was called a simple  trust that acted as the taxpayer                                                                    
(they were non-grantor trusts) and  all of the income had to                                                                    
be  distributed   out  to  the  beneficiary   annually.  She                                                                    
detailed  that the  trust  filed  a tax  return  and took  a                                                                    
deduction for the distribution paid  out and the beneficiary                                                                    
receiving the money paid the tax.                                                                                               
                                                                                                                                
Ms. Chapman relayed  that other types of  trusts were termed                                                                    
complex non-grantor  trusts. She detailed that  there may be                                                                    
an  accumulation   of  income  that   may  or  may   not  be                                                                    
distributed  (e.g. the  income could  be distributed  by the                                                                    
trustee  to  one  of  three   children).  If  there  was  no                                                                    
distribution  of income  or capital  gains, the  trust filed                                                                    
the tax  return, which was  taxed at  the trust rates.  If a                                                                    
distribution  was  made,  usually the  ordinary  income  and                                                                    
sometimes  the   capital  gains   would  come  out   to  the                                                                    
beneficiary on a K-1 (just like  a K-1 used for pass through                                                                    
entities, LLCs,  partnerships, and  S corporations)  and the                                                                    
beneficiary would  pay the  tax. There  would not  be double                                                                    
taxation. She referred to an  example where the tax was paid                                                                    
at the trust  level and no distribution was  made until four                                                                    
years later. She detailed that  under the scenario, anything                                                                    
that was  current income would  be part of  the distribution                                                                    
to the  beneficiary and would  be taxed to  the beneficiary.                                                                    
Anything  that   had  already  been   taxed  was   added  to                                                                    
principal, which  was not taxed. The  trust accounting rules                                                                    
were designed  to ensure there  would not  be a tax  at both                                                                    
levels.                                                                                                                         
                                                                                                                                
1:42:29 PM                                                                                                                    
                                                                                                                                
Representative   Wilson   asked   if  the   bill   contained                                                                    
provisions  that would  discourage residents  from doing  an                                                                    
estate or any other trust.                                                                                                      
                                                                                                                                
Ms. Chapman answered it was an  income tax bill. She did not                                                                    
believe it would discourage people  from doing the same type                                                                    
of planning. She  reasoned that parents would  still want to                                                                    
protect  their children.  She  affirmed  that how  something                                                                    
would  be   taxed  would  be  considered.   There  would  be                                                                    
consideration about  whether to make more  grantor trusts or                                                                    
just have the  tax pay it. She addressed  what was typically                                                                    
done  to minimize  tax. She  referred to  an amendment  that                                                                    
would make the scenario much  simpler for people doing trust                                                                    
planning.  When there  were higher  tax rates  at the  trust                                                                    
level,  it discouraged  the  accumulation  of income,  which                                                                    
sometimes occurred on  the federal level. If  tax rates were                                                                    
similar,  Alaska  would  not  be  discouraging  people  from                                                                    
saving  the  money  for  their   children  for  the  future.                                                                    
Additionally,  people  in  Alaska  would not  be  put  in  a                                                                    
situation where they may have  to make distributions just to                                                                    
minimize income  taxes. She did  not believe the  bill would                                                                    
discourage Alaskans from doing what  they had been doing all                                                                    
along.                                                                                                                          
                                                                                                                                
Vice-Chair  Gara  asked if  Ms.  Chapman  was familiar  with                                                                    
special needs trusts. Ms. Chapman replied "very familiar."                                                                      
                                                                                                                                
Vice-Chair Gara  provided a brief  description of  a special                                                                    
needs trust.  He discussed that  a person with  a disability                                                                    
may  need a  trust  for their  living  expenses including  a                                                                    
special vehicle,  a ramp, medicine, and  living expenses. He                                                                    
asked for  verification his description  of a  special needs                                                                    
trust was accurate.                                                                                                             
                                                                                                                                
Ms. Chapman  replied that his description  was accurate, but                                                                    
she  saw an  amendment  in  the packet  that  was not  quite                                                                    
accurate. She explained that special  needs trusts that were                                                                    
established  under federal  and  state law  for people  with                                                                    
disabilities to keep public assistance  were funded with the                                                                    
individual's  own  money.  She  detailed  that  perhaps  the                                                                    
individual had received an inheritance  or a settlement from                                                                    
a car  accident. She  furthered that  those types  of trusts                                                                    
could only be  used for supplemental needs such as  a van or                                                                    
ramp to  a house. However,  under social security  rules the                                                                    
funds  could not  be  used for  housing,  medical care  that                                                                    
would be provided  by Medicaid, and food. The  other type of                                                                    
trust used was known as  a third-party trust or supplemental                                                                    
needs trust.  She used an  example of a  grandparent wanting                                                                    
to leave a small inheritance  to a child with special needs.                                                                    
The grandparent would create a  trust that would benefit the                                                                    
child  -  those  trusts  were not  known  as  special  needs                                                                    
trusts, but as discretionary  trusts. Her only concern [with                                                                    
the amendment]  was with references  to being used  for food                                                                    
and  shelter -  under social  security rules,  special needs                                                                    
trusts could not be used in that manner.                                                                                        
                                                                                                                                
1:46:16 PM                                                                                                                    
                                                                                                                                
Vice-Chair Gara  relayed that Ms.  Chapman was  referring to                                                                    
his Amendment 18.  He stated the amendment  was defined more                                                                    
broadly  where  the  trust  may   also  include  a  disabled                                                                    
person's need  for housing. The  intention of  the amendment                                                                    
was to  address situations  where a  trustee had  lost their                                                                    
social   security   income   and  wanted   to   lose   their                                                                    
eligibility,  the   funds  in  the  trust   would  still  be                                                                    
nontaxable as  long as  used for those  things. If  a person                                                                    
wanted to  keep their  social security  they would  draft it                                                                    
narrowly,  but if  they  did not  mind  losing their  social                                                                    
security,  the  amendment  would  give  the  individual  the                                                                    
option to have  trust funds tax free. He asked  if there was                                                                    
a problem with the proposal.                                                                                                    
                                                                                                                                
Ms.  Chapman replied  no  and believed  it  was a  wonderful                                                                    
idea.                                                                                                                           
                                                                                                                                
^AMENDMENTS                                                                                                                   
                                                                                                                                
1:47:19 PM                                                                                                                    
                                                                                                                                
Co-Chair Seaton MOVED to  ADOPT Amendment 11, 30-LS0125\L.31                                                                    
(Nauman, 3/30/17) (copy on file):                                                                                               
                                                                                                                                
     Page 11, line 21:                                                                                                          
                                                                                                                                
     Delete "and"                                                                                                               
                                                                                                                                
     Page 11, line 24, following "chapter;":                                                                                    
                                                                                                                                
     Insert "and                                                                                                                
                                                                                                                                
     (F) income of an incomplete gift nongrantor  trust to                                                                      
     which a taxpayer transferred property, less deductions                                                                     
     of the trust, if                                                                                                           
                                                                                                                                
     (i) the income   and  deductions  of the   trust  would                                                                    
     be  taken  into  account in  computing  the  taxpayer's                                                                    
     federal  taxable income  if the  trust in  its entirety                                                                    
     was treated as a grantor trust under the Internal                                                                          
     Revenue Code;                                                                                                              
                                                                                                                                
     (ii) the trust is a resident trust;                                                                                        
                                                                                                                                
     (iii) the trust does not qualify as a grantor trust                                                                        
    under U.S.C. 671 -679 (Internal Revenue Code); and                                                                          
                                                                                                                                
     (iv) the grantor's transfer of assets to the trust is                                                                      
     treated as an incomplete gift under 26 U.S.C. 2511                                                                         
     (Internal Revenue Code);"                                                                                                  
                                                                                                                                
Representative Wilson OBJECTED.                                                                                                 
                                                                                                                                
Ms.  Hansen explained  that the  amendment would  add income                                                                    
back into  federal adjusted gross income  for consideration.                                                                    
She  detailed  it  pertained to  an  incomplete  non-grantor                                                                    
trust. The  language had originally  come from Mr.  Pomp and                                                                    
she had  conversations earlier  in the  day with  some trust                                                                    
companies  and  a trust  attorney.  The  specific trust  was                                                                    
complicated  and would  enable a  person to  create a  trust                                                                    
that for tax  purposes was considered a  non-grantor trust -                                                                    
a trust that  did not come back into a  person's income. She                                                                    
continued that it  was incomplete, meaning a  person did not                                                                    
pay the federal  gift tax and still  retained certain powers                                                                    
of  choosing who,  how, and  when  distributions were  made.                                                                    
There  would  probably not  be  many  Alaskans choosing  the                                                                    
particular trust given its complexity.  She relayed that New                                                                    
York had already taken action  [similar to the amendment] to                                                                    
clarify  that  in  the  specific  trust  where  the  grantor                                                                    
maintained some  control over the income,  the income should                                                                    
be  considered in  the individual's  return just  like in  a                                                                    
normal grantor trust.                                                                                                           
                                                                                                                                
1:49:38 PM                                                                                                                    
                                                                                                                                
Representative  Pruitt asked  if the  amendment provided  an                                                                    
exemption to the adjusted gross income category.                                                                                
                                                                                                                                
Ms.  Hansen answered  that the  income would  be added  back                                                                    
into  adjusted  gross  income. On  the  federal  level,  the                                                                    
specific  trust  [incomplete   non-grantor  trust]  was  not                                                                    
considered a  grantor trust.  The amendment  would designate                                                                    
that   for   the  state   level   and   in  the   particular                                                                    
circumstance, the trust would  be considered a grantor trust                                                                    
and it would be included in adjusted gross income.                                                                              
                                                                                                                                
Representative Pruitt thought the  whole purpose of adjusted                                                                    
gross income was to make  the scenario much more simple than                                                                    
it was about  to become. He asked why  they were considering                                                                    
reversing courses.                                                                                                              
                                                                                                                                
Ms.  Hansen  replied that  the  chances  the item  would  be                                                                    
necessary were  very slim  and most  residents would  not be                                                                    
impacted  by  the  provision.   She  noted  that  subsequent                                                                    
amendments would  lower the tax  rate brackets on  trusts in                                                                    
general.  The  amendment  sponsor  was  supportive  of  that                                                                    
change because  of the many  non-grantor trusts  that should                                                                    
not be taxed  at a 7 percent rate. She  explained it was the                                                                    
one  example   where  very   high  income   individuals  may                                                                    
potentially move  their assets. One of  the primary purposes                                                                    
of the specific trust was for state income tax avoidance.                                                                       
                                                                                                                                
Representative  Pruitt asked  why  they  were including  the                                                                    
provision if they did not expect it to be used.                                                                                 
                                                                                                                                
Co-Chair Seaton  replied that the  goal was to  establish an                                                                    
income   tax  without   numerous  loopholes.   The  specific                                                                    
loophole  had  been seen  in  other  states; therefore,  the                                                                    
amendment would  ensure the specific  loophole could  not be                                                                    
used in  Alaska. The amendment  was a  preventative measure.                                                                    
Delaware incomplete non-grantor  trusts never got completed,                                                                    
but due  to tax avoidance, a  person had money that  did not                                                                    
get taxed.  The amendment established  that if a  person set                                                                    
up  one  of the  specific  trusts  in  Alaska, it  would  be                                                                    
treated  as the  individual's  own  income as  if  it was  a                                                                    
completed grantor trust.                                                                                                        
                                                                                                                                
1:52:40 PM                                                                                                                    
                                                                                                                                
Representative Pruitt stated there  had been a movement from                                                                    
the  initial 15  percent to  the adjusted  gross income.  He                                                                    
believed  the  intent  was  to  make  things  as  simple  as                                                                    
possible. He referred to line  37 of the 1040 form [adjusted                                                                    
gross income line on U.S.  Individual Income tax Return form                                                                    
(copy on file)]. He added there  were not supposed to be any                                                                    
deductions afterwards. He thought  the amendment seemed like                                                                    
the start of  carving out holes seen as  loopholes above and                                                                    
below the  adjusted gross  income lines.  He asked  if there                                                                    
had been a  departure from trying to keep  things simple. He                                                                    
believed they were trying to  make their own system that was                                                                    
loosely based on the federal  system and it would be subject                                                                    
to change  in the future  based on  whether or not  it could                                                                    
bring in more money to pay for state government.                                                                                
                                                                                                                                
Co-Chair  Seaton responded  that  trusts  were very  complex                                                                    
subjects. He  detailed it was a  way in some cases  to avoid                                                                    
tax. If the  legislature did not want  to include loopholes,                                                                    
it should  make what was and  was not allowable as  clear as                                                                    
possible. The amendment attempted  to take the experience of                                                                    
other states  and make sure  people knew they could  not use                                                                    
the incomplete trust as a tax loophole in Alaska.                                                                               
                                                                                                                                
Representative Wilson  asked for verification  the amendment                                                                    
dealt only with resident trusts.                                                                                                
                                                                                                                                
Ms.  Hansen answered  that under  the  amendment the  income                                                                    
would come back to the individual resident for taxation.                                                                        
                                                                                                                                
Representative  Wilson  pointed  out  that  (F)(ii)  of  the                                                                    
amendment  specified that  it pertained  to resident  trusts                                                                    
that were currently not federally taxed.                                                                                        
                                                                                                                                
Ms.  Hansen replied  that  if it  was  a nonresident  trust,                                                                    
there  would  not  be  a  way  for  the  state  to  tax  the                                                                    
individual because  the money would  be going back  into the                                                                    
nonresident's  income. Therefore,  the amendment  could only                                                                    
apply to a resident.                                                                                                            
                                                                                                                                
Representative Wilson thought  the provision would encourage                                                                    
Alaskans to go  to states like Nevada because  the trust was                                                                    
not  federally taxed,  but  would be  taxed  in Alaska.  She                                                                    
reasoned that  if a  person moved the  trust to  Nevada they                                                                    
would not have federal or state taxes.                                                                                          
                                                                                                                                
1:56:17 PM                                                                                                                    
                                                                                                                                
Ms. Hansen  answered that the  trust would still  be taxable                                                                    
because the income  would be added back  into the resident's                                                                    
adjusted  gross income.  She emphasized  that the  amendment                                                                    
was a preventative  measure. The trusts would  likely not be                                                                    
seen in Alaska.                                                                                                                 
                                                                                                                                
Representative Wilson  wanted to  understand the  issue. She                                                                    
was  trying to  determine if  the provision  would encourage                                                                    
individuals to have the trusts in another state.                                                                                
                                                                                                                                
Ms.  Hansen  responded  that  it  may  be  possible  for  an                                                                    
individual  to establish  the particular  type  of trust  in                                                                    
another state, but  all of the income used  to establish the                                                                    
trust  would need  to be  from a  source outside  of Alaska.                                                                    
Additionally,  any trustees  and corpus  of the  trust would                                                                    
have to be out-of-state.                                                                                                        
                                                                                                                                
Representative Wilson  thought some of the  amendments would                                                                    
be  hard to  vote  on. She  had spent  most  of the  weekend                                                                    
trying to  research what  the amendments  would do.  She did                                                                    
not  have  the expertise  on  the  issues and  had  received                                                                    
conflicting answers  about what the amendments  would do and                                                                    
how they would  impact Alaskans. She continued  that if they                                                                    
were really  talking about income  coming out of a  trust, S                                                                    
corporation, or an  LLC, she believed tax  would be recouped                                                                    
based on  the existing  system. She  did not  understand why                                                                    
they were discussing trusts at  all when the issue was about                                                                    
income tax.                                                                                                                     
                                                                                                                                
1:59:09 PM                                                                                                                    
                                                                                                                                
Vice-Chair  Gara supported  the amendment.  He spoke  to the                                                                    
discussion that  the amendment was  complex. He  stated that                                                                    
on  the federal  tax form  [1040] it  was necessary  to make                                                                    
every calculation  already prior to getting  to the adjusted                                                                    
gross income.  Under the  bill a person  would use  the same                                                                    
number  they had  already calculated  on their  federal tax,                                                                    
which  was  not complex.  The  issue  in the  amendment  was                                                                    
whether the legislature wanted someone  to avoid tax if they                                                                    
had a  large amount of money.  He did not believe  a goal of                                                                    
the bill should  be to let the wealthiest  people hide their                                                                    
money from taxation.                                                                                                            
                                                                                                                                
Representative Wilson did not  understand how a person would                                                                    
be able  to hide their  money. She reasoned that  when money                                                                    
was  taken out,  there  would  be a  charge.  She asked  how                                                                    
someone could  be hiding their  money. Additionally,  if the                                                                    
person was hiding their money  in Alaska, she asked if there                                                                    
was any  other avenue for  the person  to do the  same thing                                                                    
somewhere else.                                                                                                                 
                                                                                                                                
Ms.  Chapman  clarified that  they  were  not talking  about                                                                    
hiding money. The  issue was about proper  tax planning. She                                                                    
stated  that Representative  Wilson was  correct in  stating                                                                    
that in  almost all  instances the  state would  receive tax                                                                    
because some assets  would be distributed out  of the trust.                                                                    
The  topic  addressed  by the  amendment  was  an  extremely                                                                    
narrow  subset  of irrevocable  trusts  that  were taxed  as                                                                    
separate  entities for  federal tax  purposes. She  believed                                                                    
the  amendment  aimed  to address  wealthy  Alaskans  taking                                                                    
money from Alaska and moving  it to another state without an                                                                    
income tax. If the funds  were not distributed, Alaska would                                                                    
receive no  tax, whereas, if  money was  distributed, Alaska                                                                    
would  receive the  tax. The  amendment pertained  to trusts                                                                    
established by  residents in  another jurisdiction  that did                                                                    
not make  distributions from  and did  not pay  state income                                                                    
tax. She  noted there  were some rulings  from the  IRS, but                                                                    
she believed whether  the trusts worked or not  was still in                                                                    
debate.  The  amendment  was  trying  to  specify  that  the                                                                    
individual  would still  have to  pay  tax on  the trust  in                                                                    
Alaska even if no distribution was made.                                                                                        
                                                                                                                                
2:02:11 PM                                                                                                                    
                                                                                                                                
Representative  Wilson  surmised  it  was  about  whether  a                                                                    
person paid at  present or later. She  believed Alaska would                                                                    
ultimately receive  the tax. She  stated that  the amendment                                                                    
would  mean  the trust  would  be  taxed at  present  versus                                                                    
waiting  four  or five  years  when  it  was paid  out.  She                                                                    
continued that the money would  ultimately be taxed. She did                                                                    
not believe anyone was hiding money anywhere.                                                                                   
                                                                                                                                
Ms. Hansen replied that the  beneficiaries of the trusts may                                                                    
not be Alaskans.  She continued that it was  a very specific                                                                    
type of  trust - the Alaskan  who created the trust  was not                                                                    
the beneficiary, but they maintained  control over the money                                                                    
in the  way they did  not in  many of the  other non-grantor                                                                    
types of trusts. The individual  was not avoiding the tax on                                                                    
a  federal  level.  She  clarified   that  it  pertained  to                                                                    
planning within the tax law.  On the federal level there was                                                                    
no tax  avoidance, it  was just one  way the  individual had                                                                    
been able  to disassociate that  income with their  state of                                                                    
residency and therefore avoid the state income tax.                                                                             
                                                                                                                                
Representative  Wilson  thought  it   was  important  to  be                                                                    
careful when  referring to tax  avoidance and  surmised that                                                                    
if an  individual was  breaking the law  the IRS  would step                                                                    
in.  She wondered  how the  state  would know  what a  trust                                                                    
earned. She continued  that the trust may not  be located in                                                                    
Alaska. She  surmised that because beneficiaries  may not be                                                                    
Alaskan residents, the state wanted  to make sure to get its                                                                    
share  before the  money was  distributed. She  believed the                                                                    
enforcement system  sounded like  a nightmare.  She wondered                                                                    
how many  people the state would  need to hire to  look into                                                                    
the  trusts  in  other  states   to  determine  how  to  tax                                                                    
individuals. She  opined that  it was  very far  reaching in                                                                    
comparison with  waiting until a  distribution was  made [to                                                                    
receive the tax].                                                                                                               
                                                                                                                                
2:05:05 PM                                                                                                                    
                                                                                                                                
Co-Chair Seaton believed that telling  people that the issue                                                                    
was not  legal would  probably solve  the problem  if people                                                                    
understood it  was illegal  to have a  trust that  was never                                                                    
completed, where the individual  still controlled the money.                                                                    
He  elaborated  that  the issue  was  complex  and  involved                                                                    
attorneys  and  could  involve   tax  court.  The  amendment                                                                    
included language to ensure a  tax loophole was not created,                                                                    
a  loophole  that  had  been   found  in  other  states  and                                                                    
responded to.                                                                                                                   
                                                                                                                                
Vice-Chair Gara  spoke to his understanding  of the concept.                                                                    
He surmised  that the federal  government did not  tax until                                                                    
the distribution occurred  - it did not matter  what state a                                                                    
person moved to  because they were still  subject to federal                                                                    
tax.  He  continued that  states  had  a different  issue  -                                                                    
states were  trying to avoid  a situation where  someone did                                                                    
not  distribute the  trust income  and then  in a  year they                                                                    
wanted to distribute  the income they moved to  a state with                                                                    
no tax. He asked if his understanding was accurate.                                                                             
                                                                                                                                
Ms.  Hansen responded  that the  federal government  did tax                                                                    
trusts that  accumulate income. She  agreed that it  did not                                                                    
matter to the  federal government what state  of residency a                                                                    
trust was established in -  the government would receive the                                                                    
same share  out of the  trust no matter what.  She continued                                                                    
that it did matter to the  state whether or not the resident                                                                    
was able  to move  the asset  out-of-state through  a trust.                                                                    
She noted the subsequent amendments were simpler.                                                                               
                                                                                                                                
Representative Wilson MAINTAINED her OBJECTION.                                                                                 
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Ortiz, Gara, Grenn, Stutes, Foster, Seaton                                                                            
OPPOSED: Pruitt, Thompson, Tilton, Wilson                                                                                       
                                                                                                                                
The MOTION  PASSED (6/4). There being  NO further OBJECTION,                                                                    
Amendment 11 was ADOPTED.                                                                                                       
                                                                                                                                
2:08:20 PM                                                                                                                    
                                                                                                                                
Co-Chair Seaton MOVED to  ADOPT Amendment 12, 30-LS0125\L.32                                                                    
(Nauman, 3/30/17) (copy on file):                                                                                               
                                                                                                                                
     Page 26, line 18, following "law;":                                                                                        
                                                                                                                                
     Insert "or"                                                                                                                
                                                                                                                                
     Page 26, line 27, through page 27, line 4:                                                                                 
                                                                                                                                
     Delete all material.                                                                                                       
                                                                                                                                
Representative Wilson OBJECTED.                                                                                                 
                                                                                                                                
Ms.  Hansen explained  that the  amendment would  adjust the                                                                    
definition  of resident  trust to  ensure the  bill did  not                                                                    
overreach   and   capture   nonresident   trusts   currently                                                                    
administered in  Alaska. The amendment sponsor  did not want                                                                    
to interfere with the trust  industry. She explained that if                                                                    
nonresident trusts were taxed  as resident trusts they would                                                                    
move to  another state. The  original bill draft  included a                                                                    
definition that  was too broad.  The amendment  would delete                                                                    
items C, D, and E, which stated [version L]:                                                                                    
                                                                                                                                
     (C) a trust  consisting of property that is  or will be                                                                    
     disposed of or administered under state law;                                                                               
                                                                                                                                
     (D) a trust with a  fiduciary or beneficiary other than                                                                    
     a   beneficiary  whose   interest  in   the  trust   is                                                                    
     contingent, that  is a resident  of the state,  and the                                                                    
     laws  of the  state will  govern the  administration of                                                                    
     the  trust;  the  residence of  a  corporate  fiduciary                                                                    
     means  the   principal  place  where   the  corporation                                                                    
     transacts the administration of the trust; or                                                                              
                                                                                                                                
     (E)  a  trust that  is  administered  primarily in  the                                                                    
     state and governed by the laws of the state.                                                                               
                                                                                                                                
Ms.  Hansen  elaborated  that   currently  under  the  trust                                                                    
industry  Alaska's  trust  law  required that  part  of  the                                                                    
corpus of the  trust be held in-state in order  for it to be                                                                    
covered  by  Alaska  trust  laws. She  explained  it  was  a                                                                    
benefit  to   Alaska's  communities  and   banking  industry                                                                    
because it  allowed them  to have  money deposited  in local                                                                    
banks that would  not otherwise be there (the  money was not                                                                    
from an  Alaskan source).  The deletion  of the  items would                                                                    
more  closely align  Alaska with  some other  definitions of                                                                    
resident trusts such as New  York, and would allow the trust                                                                    
industry to continue.                                                                                                           
                                                                                                                                
Representative Wilson did not want  to be like New York. She                                                                    
was concerned  that the amendment  would create  two classes                                                                    
of  trusts:  resident  trusts and  nonresident  trusts.  She                                                                    
believed it would make it  enticing for nonresidents to come                                                                    
to the state  to establish trusts because the  state was not                                                                    
going  to  tax them  at  the  same  rate as  residents.  She                                                                    
continued  that it  would force  Alaskans to  go to  another                                                                    
state to get  the same benefit. She thought it  was wrong in                                                                    
every  way. She  was  supportive of  the  trust industry  in                                                                    
Alaska,  but providing  more advantage  to nonresidents  did                                                                    
not make sense to her. She  asked if the amendments had been                                                                    
added  to amendments  the committee  had heard  the previous                                                                    
week.                                                                                                                           
                                                                                                                                
Co-Chair Foster believed everything was in order.                                                                               
                                                                                                                                
Ms. Hansen  replied that the  bill before the  committee had                                                                    
been  updated  to  reflect  the  amendments  that  had  been                                                                    
adopted in the past (to bill  version E). The bill was a new                                                                    
version (version L).                                                                                                            
                                                                                                                                
Co-Chair Seaton  relayed there had been  significant concern                                                                    
about  the   trust  industry  established  in   Alaska.  The                                                                    
amendment  aimed  to  ensure  the  trust  industry  was  not                                                                    
impacted  and  could  be  maintained in  Alaska  as  it  was                                                                    
previously.  He  explained that  Mr.  Pomp  had a  different                                                                    
philosophy,   which  was   to   tax   everything  that   was                                                                    
constitutional  to tax,  including  nonresident trusts.  The                                                                    
co-chairs felt it  had been too broad. He  detailed that the                                                                    
committee  had heard  during  public  testimony that  people                                                                    
wanted  to  make  sure the  trust  industry,  including  the                                                                    
nonresident trust industry, was allowed  to go forward as it                                                                    
had been.                                                                                                                       
                                                                                                                                
2:13:31 PM                                                                                                                    
                                                                                                                                
Representative Wilson MAINTAINED her OBJECTION.                                                                                 
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Thompson,  Gara,  Grenn,  Stutes,  Ortiz,  Seaton,                                                                    
Foster                                                                                                                          
OPPOSED: Pruitt, Tilton, Wilson                                                                                                 
                                                                                                                                
The MOTION  PASSED (7/3). There being  NO further OBJECTION,                                                                    
Amendment 12 was ADOPTED.                                                                                                       
                                                                                                                                
2:14:13 PM                                                                                                                    
                                                                                                                                
Co-Chair Seaton MOVED to  ADOPT Amendment 13, 30-LS0125\L.46                                                                    
(Nauman, 4/3/17) (copy on file):                                                                                                
                                                                                                                                
     Page 9, following line 27:                                                                                                 
                                                                                                                                
     Insert a new subsection to read:                                                                                           
     "(d) A trust that is exempt from federal income tax                                                                        
     because of its purpose or activities is not subject to                                                                     
     tax under this chapter."                                                                                                   
                                                                                                                                
Representative Wilson OBJECTED.                                                                                                 
                                                                                                                                
Ms.  Hansen explained  that the  amendment added  clarifying                                                                    
language that a trust exempt  from federal income tax due to                                                                    
its  purpose or  activities,  was not  subject  to tax.  She                                                                    
relayed  that it  had already  been true  because the  trust                                                                    
would only  be taxed on  taxable income, which was  based on                                                                    
federally  adjusted  gross  income. Those  types  of  trusts                                                                    
would not  have been in  that income. She used  a charitable                                                                    
remainder trust as  an example. She deferred  to Ms. Chapman                                                                    
for additional examples.                                                                                                        
                                                                                                                                
Representative Wilson  asked about the types  of trusts that                                                                    
applied.                                                                                                                        
                                                                                                                                
Ms. Chapman  answered that it would  also include retirement                                                                    
trusts.  For example,  a 401k  with a  private employer  had                                                                    
associated qualified  trusts and was not  subject to federal                                                                    
income tax under Section 401(a).                                                                                                
                                                                                                                                
Representative Wilson asked about  union trusts. Ms. Chapman                                                                    
deferred to Ms. Hansen.                                                                                                         
                                                                                                                                
Ms. Hansen answered  that unions had a type  of trust called                                                                    
Taft-Hartley, which  was a  type of  pension trust  that was                                                                    
exempt federally.  Additionally, some  of the  union medical                                                                    
trusts were also exempt.                                                                                                        
                                                                                                                                
Representative  Wilson   asked  why  the  trusts   had  been                                                                    
included if the bill would not tax federally taxed trusts.                                                                      
                                                                                                                                
Ms. Hansen  answered that the amendment  included clarifying                                                                    
language  only.  If someone  was  reading  through the  bill                                                                    
section related to tax on trusts  they would be able to know                                                                    
the bill would not levy a  tax on trusts exempt on a federal                                                                    
level.                                                                                                                          
                                                                                                                                
2:17:05 PM                                                                                                                    
                                                                                                                                
Representative Pruitt stated that  Amendment 11 had tried to                                                                    
get as much  money as possible by  eliminating loopholes. He                                                                    
commented that  the current  amendment (Amendment  13) would                                                                    
give some people a pass [from  taxes]. He asked why the bill                                                                    
went after more money in one  case and gave people a pass in                                                                    
another case.                                                                                                                   
                                                                                                                                
Vice-Chair Gara  explained it was  a policy call not  to tax                                                                    
trusts  that currently  had an  existing  no-tax policy.  He                                                                    
would listen to  an amendment to the amendment  to add taxes                                                                    
that were not in the bill, but he would probably oppose it.                                                                     
                                                                                                                                
Ms.  Hansen referenced  the  committee's earlier  discussion                                                                    
about incomplete  non-grantor trusts and relayed  that those                                                                    
distributions  would  have  been  federally  taxed  at  some                                                                    
point;  therefore,  those  trusts   did  not  fit  into  the                                                                    
category of  trusts that were  tax exempt for  their purpose                                                                    
or activities.                                                                                                                  
                                                                                                                                
Representative Wilson asked if any  of the trusts related to                                                                    
the  current  amendment  would   be  taxed  when  they  made                                                                    
distributions.                                                                                                                  
                                                                                                                                
Ms.  Chapman  replied  that charitable  trust  distributions                                                                    
were  made to  charities and  were never  taxed; however,  a                                                                    
charitable  remainder trust  could have  interest or  income                                                                    
distributions  to individuals,  which  would  be taxed.  She                                                                    
explained that  if she set  up a charitable  remainder trust                                                                    
where she had  the right to receive the income  for her life                                                                    
and when she  passed away the remainder went  to charity, it                                                                    
was  an exempt  trust under  federal law,  but she  would be                                                                    
taxed on the income because  she was an individual. Anything                                                                    
that  went  to a  charitable  organization  that was  exempt                                                                    
under [Internal  Revenue Code Section]  501, would  never be                                                                    
subject to tax at the federal level.                                                                                            
                                                                                                                                
Representative Wilson  asked if it  was known how  much more                                                                    
money would  come into  the state  if the  amendment failed.                                                                    
Alternatively, she  wondered how  much the state  would lose                                                                    
in income if the amendment passed.                                                                                              
                                                                                                                                
Ms. Hansen answered  that the bill was  not currently taxing                                                                    
the specific trusts, the language was merely clarifying.                                                                        
                                                                                                                                
Representative Wilson WITHDREW her OBJECTION.                                                                                   
                                                                                                                                
There being NO OBJECTION, Amendment 13 was ADOPTED.                                                                             
                                                                                                                                
2:20:08 PM                                                                                                                    
                                                                                                                                
Vice-Chair Gara  asked to roll Amendment  17, 30-LS0125\L.37                                                                    
(Nauman, 3/31/17) (copy on file)  to the bottom of the list.                                                                    
He  thought the  subject  may be  addressed  by a  different                                                                    
amendment.                                                                                                                      
                                                                                                                                
     Page 13, following line 26:                                                                                                
                                                                                                                                
     Insert a new subsection to read:                                                                                           
                                                                                                                                
     "(b) For purposes of this section, the department                                                                          
     shall treat the undistributed and distributed income                                                                       
     of a trust as income."                                                                                                     
                                                                                                                                
     Reletter the following subsection accordingly.                                                                             
                                                                                                                                
Ms.  Hansen   clarified  that   the  sponsor's   office  had                                                                    
discussion earlier in the day  with a trust taxation expert.                                                                    
Part of  the purpose was  to avoid people  creating multiple                                                                    
trusts just to take advantage  of lower tax brackets. On the                                                                    
federal level  rule 26  U.S. Code  643(f) specified  that if                                                                    
the grantor  and beneficiaries  were substantially  the same                                                                    
person, the  trusts were considered  the same trust  for tax                                                                    
purposes. She  believed the intent  was already  captured in                                                                    
the  bill  because the  state  tax  would  be based  on  the                                                                    
federally adjusted  gross income and the  bill specified the                                                                    
trust  income should  be considered  as it  was for  federal                                                                    
purposes.                                                                                                                       
                                                                                                                                
Vice-Chair Gara stated that the  intent in the amendment was                                                                    
not to  have a  flat 7 percent  tax, but for  the tax  to be                                                                    
based on the tax brackets based  on the amount of income. He                                                                    
asked  for verification  the  intent  would be  accomplished                                                                    
somewhere else.                                                                                                                 
                                                                                                                                
Ms.  Hansen  replied that  it  was  the  topic of  a  future                                                                    
amendment.                                                                                                                      
                                                                                                                                
Vice-Chair Gara  asked to roll  the amendment to  the bottom                                                                    
of the list and did not believe it would be needed.                                                                             
                                                                                                                                
There being  NO OBJECTION,  Amendment 17  was rolled  to the                                                                    
bottom of the list.                                                                                                             
                                                                                                                                
2:22:23 PM                                                                                                                    
                                                                                                                                
Vice-Chair Gara MOVED to  ADOPT Amendment 18, 30-LS0125\L.41                                                                    
(Nauman, 3/31/17) (copy on file):                                                                                               
                                                                                                                                
     Page 9, following line 27:                                                                                                 
                                                                                                                                
     Insert a new subsection to read:                                                                                           
                                                                                                                                
     "(d) A  special needs trust or  other trust established                                                                    
     to provide solely for the  housing, living expenses, or                                                                    
     medical care  of a disabled beneficiary  is not subject                                                                    
     to tax under this chapter. In this subsection,                                                                             
                                                                                                                                
     (1) "disabled  beneficiary"  means  a person  who has                                                                      
     a physical  or mental disability or a physical or                                                                          
     mental impairment, as defined in AS 18.80.300;                                                                             
                                                                                                                                
     (2) "special needs trust" has the meaning given in AS                                                                      
     13.36.215(b)."                                                                                                             
                                                                                                                                
Representative Wilson OBJECTED.                                                                                                 
                                                                                                                                
Vice-Chair Gara explained the amendment.  He relayed that in                                                                    
a  number of  circumstances people  with disabilities  had a                                                                    
special  needs  trust  created. For  example,  if  a  person                                                                    
suffered a  terrible brain injury  and needed a lift  to get                                                                    
in  a van,  special equipment  to get  inside their  home in                                                                    
order to live independently,  medical care, living expenses,                                                                    
and recreational  equipment. Trusts  were created  where the                                                                    
money could only be used  for those things - medical related                                                                    
living  expenses. He  detailed that  disability was  defined                                                                    
under Alaska Statute 18.80.300 and  pertained to a mental or                                                                    
physical disability.  The intention of the  amendment was to                                                                    
not tax the  income from those trusts.  The individuals were                                                                    
dealing with  very difficult  life situations  as it  is and                                                                    
the money was only spent  on things related to the difficult                                                                    
life situation.                                                                                                                 
                                                                                                                                
Representative  Wilson  asked   about  the  definition.  She                                                                    
assumed  the amendment  pertained to  AS 18.80.300  (14) and                                                                    
(15). She  noted that subsection (14)  included a definition                                                                    
of  physical  and  mental  disability.  She  read  from  the                                                                    
definition   "a   physical   or   mental   impairment   that                                                                    
substantially limits  a person's  major life  activity, only                                                                    
as  a  result   of  the  attitudes  of   others  toward  the                                                                    
impairment;  or  none of  the  impairments  defined in  this                                                                    
paragraph  but being  treated by  others as  having such  an                                                                    
impairment..."  She did  not believe  the amendment  sponsor                                                                    
was addressing that portion of  the definition. She believed                                                                    
the  amendment  should  be  more   specific  on  whether  it                                                                    
pertained  to  an  actual disability  or  that  someone  was                                                                    
treating them like they had a disability.                                                                                       
                                                                                                                                
Vice-Chair  Gara  replied  that the  language  mentioned  by                                                                    
Representative Wilson  would result in very  minor costs. He                                                                    
believed it was doubtful someone  would create a trust for a                                                                    
perceived  disability; however,  if  they did,  it would  be                                                                    
fine with  him. He noted it  was not very much  money and he                                                                    
could not imagine there being  a $1 million trust to address                                                                    
the small issue.  He surmised it would probably  be a matter                                                                    
of  thousands of  dollars. He  was comfortable  leaving that                                                                    
portion of the definition in the amendment.                                                                                     
                                                                                                                                
2:25:49 PM                                                                                                                    
                                                                                                                                
Representative Wilson  she believed an individual  could not                                                                    
necessarily  have  what  would  generally  be  considered  a                                                                    
disability,  but  still  fit under  the  definition  and  be                                                                    
allowed to set up a trust for housing and living expenses.                                                                      
                                                                                                                                
Vice-Chair Gara stated that  if Representative Wilson wanted                                                                    
to come back with a  clean definition to address the portion                                                                    
of the disability she did  not think needed to be addressed,                                                                    
he would  be happy to  adjust the language. However,  on the                                                                    
fly,  the kind  of  disability  mentioned by  Representative                                                                    
Wilson would  not involve very  much money. It was  a policy                                                                    
call. He could  go along with the  concern if Representative                                                                    
Wilson had  an adjustment to  the language. He  believed the                                                                    
more  important thing  was to  not  tax the  trusts. He  was                                                                    
happy to work with his colleague  if she had a refinement to                                                                    
make.                                                                                                                           
                                                                                                                                
Representative Wilson suggested limiting  Amendment 18 to AS                                                                    
18.80.300  14(a)  "a  physical  or  mental  impairment  that                                                                    
substantially limits a person's  major life activity..." She                                                                    
believed  the  subsection  included the  disabilities  Vice-                                                                    
Chair Gara was referring  to. She furthered that individuals                                                                    
needing extra  assistance would be  the ones setting  up the                                                                    
trust  and utilizing  them. She  did not  believe the  other                                                                    
definitions fit the amendment sponsor's description.                                                                            
                                                                                                                                
Vice-Chair  Gara stated  that he  also wanted  to include  a                                                                    
condition  that may  require  the use  of  a prosthesis  and                                                                    
special   equipment   for   mobility.  He   explained   that                                                                    
Representative  Wilson's  proposed   language  would  delete                                                                    
that. He was happy to work  on a more narrow definition, but                                                                    
he  did not  want  to exclude  individuals  who needed  help                                                                    
because they had lost a limb or other.                                                                                          
                                                                                                                                
Representative  Wilson agreed  and  stated that  subsections                                                                    
(A)  and (D)  would fit  Vice-Chair Gara's  description. She                                                                    
MOVED to  AMEND Amendment 18  to limit the definition  to AS                                                                    
18.80.300 (14)(A) and (D).                                                                                                      
                                                                                                                                
Vice-Chair Gara had no objection to the proposed amendment.                                                                     
                                                                                                                                
There being NO OBJECTION, Amendment 18 was amended.                                                                             
                                                                                                                                
2:29:41 PM                                                                                                                    
                                                                                                                                
Representative Pruitt asked if  a special needs trust needed                                                                    
to be established as a special needs trust.                                                                                     
                                                                                                                                
Ms. Chapman replied that the  definition of 13.36.215(b) was                                                                    
limited  to first-party  trusts,  which  were special  needs                                                                    
trusts  meeting  social  security  rules.  The  trusts  were                                                                    
established  under very  specific  rules.  She believed  the                                                                    
amendment also covered other trusts  that may be broader for                                                                    
individuals with disabilities.                                                                                                  
                                                                                                                                
Representative Pruitt used a trust  established for a senior                                                                    
as an example. He asked whether  a senior who fit within the                                                                    
rules under  discussion would  automatically fall  under the                                                                    
category.  Alternatively, he  wondered if  the trust  had to                                                                    
initially be set  up in a manner specifying it  would be tax                                                                    
exempt  or if  the  trust  could become  tax  exempt if  the                                                                    
individual   found  themselves   fitting  within   18.80.300                                                                    
(14)(A) or (D).                                                                                                                 
                                                                                                                                
Ms. Chapman  answered it would  depend on how the  trust was                                                                    
written.  Typically if  an attorney  was drafting  the trust                                                                    
for someone  with a  disability, they  would include  all of                                                                    
the   limitations.  Sometimes   trusts  were   drafted  more                                                                    
broadly, but  they may include  a provision  specifying that                                                                    
if the  events were to  occur to the  individual beneficiary                                                                    
the definition  would be limited  at that time.  She relayed                                                                    
it would depend on how  the trust was drafted, but generally                                                                    
they  were always  set up  with  the goal  of being  special                                                                    
needs trusts or trusts with disabilities.                                                                                       
                                                                                                                                
2:31:35 PM                                                                                                                    
                                                                                                                                
Representative Pruitt  asked if the trust  could be amended.                                                                    
For  example,  if  an individual  became  disabled  after  a                                                                    
certain period of  drawing from a trust, he  wondered if the                                                                    
trust could be amended.                                                                                                         
                                                                                                                                
Ms. Chapman  answered that the trusts  under discussion were                                                                    
irrevocable  and  the   individual  establishing  the  trust                                                                    
generally  did not  have the  authority to  make amendments.                                                                    
However, under  Alaska law  there was the  ability to  go to                                                                    
court  to obtain  amendments to  trusts if  it an  amendment                                                                    
would  be   in  the   best  interest  of   the  beneficiary.                                                                    
Additionally, there  was a  provision that  granted trustees                                                                    
in  certain  circumstances  the  ability  to  amend  trusts,                                                                    
particularly to create special  needs trusts. The definition                                                                    
referenced under  13.36.215(b) was relating to  that type of                                                                    
trustee powers.  The goal had  been to draft the  trust laws                                                                    
to be very useful to help people with disabilities.                                                                             
                                                                                                                                
Vice-Chair  Gara  stated  that  a special  needs  trust  was                                                                    
created by a  specific class of people. There  could also be                                                                    
a  trust that  did the  same thing  to help  someone with  a                                                                    
disability that  was not called  a special needs  trust. The                                                                    
goal was  regardless of who created  the trust, if it  was a                                                                    
special needs  trust, it  should be tax  free. He  asked for                                                                    
verification that special needs  trusts were, by definition,                                                                    
only those trusts created by a certain class of people.                                                                         
                                                                                                                                
Ms. Chapman  replied in the  affirmative. The  definition of                                                                    
special needs trust  was for people who need  to comply with                                                                    
the  social  security rules  to  continue  to receive  their                                                                    
social  security   and  also  for  Medicaid   purposes.  The                                                                    
definition  in the  amendment would  be  broader. She  added                                                                    
that  other types  of  trusts that  were  not special  needs                                                                    
trusts  were used,  as narrowly  defined under  federal law,                                                                    
for people with disabilities.                                                                                                   
                                                                                                                                
Vice-Chair Gara asked who had to  create the trust for it to                                                                    
be a special needs trust.                                                                                                       
                                                                                                                                
Ms. Chapman  replied that  she did  not have  the definition                                                                    
statute in front of her,  but she believed the provision was                                                                    
referring  to first-party  trusts,  which meant  it was  the                                                                    
individual.  Up   until  recently   the  trust  had   to  be                                                                    
established by  the court, a  parent, or a  grandparent, but                                                                    
federal law  had just recently  changed to make  them easier                                                                    
to establish.                                                                                                                   
                                                                                                                                
Representative  Wilson   asked  for  verification   that  an                                                                    
individual  would  not  have   the  ability  to  take  their                                                                    
irrevocable trust  and call  it a  special needs  trust. She                                                                    
surmised that  under the amendment  the trust would  have to                                                                    
be established as a special needs trust.                                                                                        
                                                                                                                                
Ms.  Chapman clarified  that the  individual could  call the                                                                    
trust  a special  needs trust.  She detailed  it was  a name                                                                    
that had been  used as a shorthand for the  specific type of                                                                    
trust. She  continued that the trusts  were established with                                                                    
names "like  that," but  it may not  comply with  the social                                                                    
security rules. The trust would  just not be qualified under                                                                    
social security.  An individual could call  a trust anything                                                                    
they wanted to. She detailed  that special needs trusts were                                                                    
very restrictive  under federal  law. She concluded  that it                                                                    
was okay if  a trust did not comply with  the federal rules,                                                                    
but they were done for different purposes.                                                                                      
                                                                                                                                
2:35:28 PM                                                                                                                    
                                                                                                                                
Representative Wilson  thought there was something  called a                                                                    
special needs trust,  which was the reason  she was amenable                                                                    
to  the  amendment   and  why  she  wanted   to  ensure  the                                                                    
definition was  accurate. However, she now  believed that if                                                                    
a person said  the trust was special needs and  did not want                                                                    
to pay state  income tax, the individual would  have to fill                                                                    
out  paperwork or  some proof  to show  they fell  under the                                                                    
statutory  definition of  disabled.  She asked  if it  would                                                                    
have to take place to abide by the amendment.                                                                                   
                                                                                                                                
Ms.  Chapman  replied  that  the   way  she  understood  the                                                                    
amendment  was that  if she  had established  a trust  for a                                                                    
disabled beneficiary  that met  the requirements,  the trust                                                                    
would be exempt.                                                                                                                
                                                                                                                                
Representative  Wilson asked  if it  was the  intent of  the                                                                    
amendment. Her  understanding of  the amendment was  to make                                                                    
sure the state  took care of individuals  with a disability.                                                                    
She stated that  she had mistakenly believed  that a special                                                                    
needs trust was an actual  type of trust. She now understood                                                                    
it  was  merely  terminology.   She  wanted  to  ensure  the                                                                    
amendment  would not  result  in  significant regulation  so                                                                    
that "something has  to be proven that  they fall underneath                                                                    
this."                                                                                                                          
                                                                                                                                
Vice-Chair  Gara   cited  line  3  of   the  amendment  that                                                                    
specified a special needs trust  or other trust that did the                                                                    
same thing.  He explained that  the special needs  trust had                                                                    
to be  created by the  beneficiary. He also wanted  the same                                                                    
kind of  trusts created by a  third party to be  covered. He                                                                    
did not  care who created  the trust,  but he did  care that                                                                    
the money was  used for someone with a  disability for their                                                                    
living  expenses, including  recreational expenses,  dignity                                                                    
expenses related  to the disability,  a lift for a  van, and                                                                    
all  items related  to a  person's living  because of  their                                                                    
disability.                                                                                                                     
                                                                                                                                
2:38:06 PM                                                                                                                    
                                                                                                                                
Representative  Wilson WITHDREW  her OBJECTION.  There being                                                                    
NO further OBJECTION, Amendment 18 was ADOPTED as amended.                                                                      
                                                                                                                                
2:38:26 PM                                                                                                                    
                                                                                                                                
Co-Chair Seaton MOVED to  ADOPT Amendment 24, 30-LSO125\L.48                                                                    
(Nauman, 4/3/17) (copy on file):                                                                                                
                                                                                                                                
     Page 9, lines 11 - 13:                                                                                                     
     Delete  "A  seven  percent  tax  is  imposed  for  each                                                                    
     taxable year or portion of  taxable year on the taxable                                                                    
     income of a resident or nonresident trust or estate."                                                                      
     Insert  "A tax  is  imposed for  each  taxable year  or                                                                    
     portion of  a taxable year  on the taxable income  of a                                                                    
     resident  or nonresident  trust  or  estate. Except  as                                                                    
     provided in  (b) of  this section,  the tax  under this                                                                    
     section  for  a  trust  or   estate  is  determined  as                                                                    
     follows:                                                                                                                   
                                                                                                                                
    If the taxable income is           Then the tax is                                                                          
     Less than $50,000                  2.5 percent of the                                                                      
                                        amount in excess of                                                                     
                                        $0                                                                                      
     $50,000 but less than $100,000     $1,250 plus 4                                                                           
                      percent of the                                                                                            
                                        amount in excess of                                                                     
                                        $50,000                                                                                 
     $100,000 but less than $200,000    $3,250 plus 5                                                                           
                      percent of the                                                                                            
                                        amount in excess of                                                                     
                                        $100,000                                                                                
     $200,000 but less than $250,000    $8,250 plus 6                                                                           
                      percent of the                                                                                            
                                        amount in excess of                                                                     
                                        $200,000                                                                                
     $250,000 or more                   $11,250 plus 7                                                                          
                      percent of the                                                                                            
                                        amount in excess of                                                                     
                                        $250,000.                                                                               
     (b)"                                                                                                                       
                                                                                                                                
     Page 9, line 15, following "Code).":                                                                                       
     2Insert "(c)"                                                                                                              
                                                                                                                                
     Reletter the following subsections accordingly.                                                                            
     Page 9, line 24:                                                                                                           
     Delete "(b)(1)"                                                                                                            
     Insert "(d)(1)"                                                                                                            
                                                                                                                                
Representative Wilson OBJECTED.                                                                                                 
                                                                                                                                
Ms. Hansen  explained that the  intent of the  amendment was                                                                    
to  delete the  existing  flat 7  percent  tax currently  on                                                                    
trusts  and insert  the  same  tax and  apply  the same  tax                                                                    
brackets that were applied to  an individual. The one change                                                                    
was that the 2.5 percent tax  began on dollar one instead of                                                                    
the $10,300 tax provided to an individual.                                                                                      
                                                                                                                                
Representative Wilson requested an "at ease."                                                                                   
                                                                                                                                
2:39:39 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
2:40:18 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Representative Wilson WITHDREW her OBJECTION.                                                                                   
                                                                                                                                
Vice-Chair Gara  stated that there  had originally been  a 7                                                                    
percent tax  on trust  income. The amendment  specified that                                                                    
tax on trust income was based  on the income tax schedule in                                                                    
the bill. He  elaborated that lower amounts  of trust income                                                                    
were  taxed at  a lower  rate  and higher  amounts of  trust                                                                    
income were taxed at a higher rate.                                                                                             
                                                                                                                                
There being NO further OBJECTION, Amendment 24 was ADOPTED.                                                                     
                                                                                                                                
2:41:20 PM                                                                                                                    
                                                                                                                                
Co-Chair Seaton  MOVED to  ADOPT Amendment  1, 30-LSO125\L.4                                                                    
(Nauman, 3/27/17) (copy on file):                                                                                               
                                                                                                                                
     Page 8, lines 6 - 17:                                                                                                      
                                                                                                                                
     Delete all material and insert:                                                                                            
    "If the taxable income is          Then the tax is                                                                          
                                                                                                                                
     Less than $20,600                  $0                                                                                      
                                                                                                                                
     $20,600 but less than $100,000     2.5 percent of the                                                                      
                                        amount in excess of                                                                     
                                        $20,600                                                                                 
                                                                                                                                
     $100,000 but less than $200,000    $1,985 plus 4                                                                           
                      percent of the                                                                                            
                                        amount in excess of                                                                     
                                        $100,000                                                                                
     $200,000 but less than $400,000    $5,985 plus 5                                                                           
                      percent of the                                                                                            
                                        amount in excess of                                                                     
                                        $200,000                                                                                
     $400,000 but less than $500,000    $15,985 plus 6                                                                          
                      percent  of the                                                                                           
                                        amount in excess of                                                                     
                                        $400,000                                                                                
     $500,000 or more                   $21,985 plus 7                                                                          
                      percent of the                                                                                            
                     amount in excess                                                                                           
                                        of $500,000."                                                                           
                                                                                                                                
Representative Pruitt OBJECTED.                                                                                                 
                                                                                                                                
Ms.  Hansen explained  that the  amendment would  correct an                                                                    
error in  the brackets, which  was noted when  the committee                                                                    
substitute had been introduced.  The amendment corrected tax                                                                    
brackets for  individuals filing jointly. The  intention had                                                                    
been that  the minimum (the  amount below which the  tax was                                                                    
zero) should have been a  simple doubling of the minimum for                                                                    
the individual  tax brackets. The  amount on  the individual                                                                    
tax brackets  had been $10,300;  however, the  bottom amount                                                                    
in  the  committee substitute  for  the  joint brackets  was                                                                    
$22,600. The  amendment would amend  the brackets  for joint                                                                    
filers so that  the taxable income began  at $20,600 (double                                                                    
the starting amount for individuals).                                                                                           
                                                                                                                                
2:42:29 PM                                                                                                                    
                                                                                                                                
Representative  Pruitt did  not  support  the amendment.  He                                                                    
relayed that he was okay with  the error that gave $50 extra                                                                    
dollars to  married seniors making $30,000.  He believed the                                                                    
mistake  would  be a  gain  for  those individuals.  He  had                                                                    
recently heard from a senior who  had only $127 per month to                                                                    
spare  after  all  of  their  expenses  were  paid.  He  the                                                                    
amendment would mean taking $4 out of that person's $127.                                                                       
                                                                                                                                
Vice-Chair Gara remarked  that there would also  be a $4,000                                                                    
deduction  per person.  For  a couple  it  would be  $28,600                                                                    
before they  were taxed. On top  of that there would  be two                                                                    
Permanent Fund Dividends (PFD),  which would bring the total                                                                    
to over  $31,000 before  being taxed. He  noted it  would be                                                                    
the subject of  another amendment later on.  The person with                                                                    
$1,000 monthly income would not pay tax under the bill.                                                                         
                                                                                                                                
Representative Pruitt replied that he  was well aware of the                                                                    
information  relayed  by  Vice-Chair  Gara.  He  stated  the                                                                    
committee  had  heard  $30,000 the  previous  week  and  the                                                                    
amendment  lowered   the  amount  $2,000   before  including                                                                    
dividends. He stated it was a $50 change to some seniors.                                                                       
                                                                                                                                
Representative Pruitt MAINTAINED his OBJECTION.                                                                                 
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Gara, Grenn, Stutes, Ortiz, Foster, Seaton                                                                            
OPPOSED: Thompson, Tilton, Wilson, Pruitt                                                                                       
                                                                                                                                
The MOTION PASSED (6/4).                                                                                                        
                                                                                                                                
There being NO further OBJECTION, Amendment 1 was ADOPTED.                                                                      
                                                                                                                                
2:45:20 PM                                                                                                                    
                                                                                                                                
Co-Chair Seaton  MOVED to  ADOPT Amendment  2, 30-LS0125\L.5                                                                    
(Nauman, 3/27/17) (copy on file):                                                                                               
                                                                                                                                
     Page 21, lines 22 - 24:                                                                                                    
                                                                                                                                
     Delete   "Regulations   adopted  under   this   section                                                                    
     shall   require   a   person   paying   an  independent                                                                    
     contractor  to   withhold  a  portion  of   the  amount                                                                    
     paid  to  the  independent contractor."                                                                                    
                                                                                                                                
Representative Grenn OBJECTED for discussion.                                                                                   
                                                                                                                                
Ms.  Hansen explained  the amendment.  She relayed  that the                                                                    
current  committee  substitute  required the  department  to                                                                    
establish  regulations for  withholding on  amounts paid  to                                                                    
independent contractors.  It had later been  determined that                                                                    
most  states did  not  do so.  The one  state  that did  had                                                                    
determined  that   about  40  percent  of   the  independent                                                                    
contractors received a refund.  The administrative burden of                                                                    
the provision would be higher than any potential revenue.                                                                       
                                                                                                                                
Representative Grenn WITHDREW his OBJECTION                                                                                     
                                                                                                                                
There being NO further OBJECTION, Amendment 2 WAS ADOPTED.                                                                      
                                                                                                                                
Co-Chair Seaton  MOVED to  ADOPT Amendment  3, 30-LS0125\L.6                                                                    
(Nauman, 3/28/17) (copy on file):                                                                                               
                                                                                                                                
     Page 23, following line 28:                                                                                                
                                                                                                                                
     Insert a new section to read:                                                                                              
                                                                                                                                
    "Sec. 43.22.100.    Information    released to    a                                                                         
     banking  institution.   Notwithstanding  AS  43.05.230,                                                                    
     information on  an individual income tax  return may be                                                                    
     released to a banking  institution to verify the direct                                                                    
     deposit of an income tax  refund or correct an error in                                                                    
     that deposit."                                                                                                             
                                                                                                                                
Representative Wilson OBJECTED.                                                                                                 
                                                                                                                                
Ms.  Hansen  explained that  the  amendment  would insert  a                                                                    
section that  had been included  in the original  version of                                                                    
the  bill. The  section was  administrative and  allowed the                                                                    
release  of  information  on  a  tax  return  to  a  banking                                                                    
institution for  them to  verify the  direct deposit  of the                                                                    
refund or an error in the refund.                                                                                               
                                                                                                                                
Representative  Wilson asked  for verification  that if  she                                                                    
did  not want  the  government in  her  banking account  she                                                                    
could elect to not have an automatic deposit.                                                                                   
                                                                                                                                
Ms. Hansen answered in the affirmative.                                                                                         
                                                                                                                                
Representative Wilson WITHDREW her OBJECTION.                                                                                   
                                                                                                                                
There being NO further OBJECTION, Amendment 3 was ADOPTED.                                                                      
                                                                                                                                
2:47:49 PM                                                                                                                    
                                                                                                                                
Co-Chair Seaton  MOVED to  ADOPT Amendment  4, 30-LS0125\L.9                                                                    
(Nauman, 3/29/17) (copy  on file). [Note: due  to the length                                                                    
of the amendment it has not  been included here. See copy on                                                                    
file for details.]                                                                                                              
                                                                                                                                
Representative Wilson OBJECTED for discussion.                                                                                  
                                                                                                                                
Ms.  Hansen explained  that the  amendment  would make  five                                                                    
changes, most  of which were technical  language changes and                                                                    
related   to   administration   and   tax   compliance   for                                                                    
partnerships  and  S  corporations.  There  was  one  change                                                                    
pertaining to trusts. She referred  to page 9, line 26, item                                                                    
(C) of  the legislation  - there had  been a  drafting error                                                                    
between  the original  bill  and  the committee  substitute.                                                                    
Under 43.22.020 the  tax on trust, item (C)  was intended to                                                                    
say that if  a trust was considered a  nonresident trust and                                                                    
a trustee  was a nonresident banking  corporation, which was                                                                    
acquired  by a  resident  banking  corporation, the  banking                                                                    
corporation  would  remain  a   nonresident  trust  for  the                                                                    
purposes   of  the   situation.   She   detailed  that   the                                                                    
acquisition of  the nonresident banking corporation  was not                                                                    
something the  other trustees or the  beneficiary would have                                                                    
any control over.                                                                                                               
                                                                                                                                
Ms. Hansen continued explaining  the amendment. She directed                                                                    
attention to  page 12, lines  27 and  28 of the  bill, which                                                                    
described  taxable  income  from   a  partnership  or  an  S                                                                    
corporation.  The  amendment  made a  technical  correction.                                                                    
Currently  the section  read "a  partner's or  shareholder's                                                                    
distributive  share," but  it was  more accurate  to say  "a                                                                    
partner's distributive  share and  a shareholder's  pro rata                                                                    
share." She moved to Section  43.22.050 on page 18 where the                                                                    
amendment  would insert  a new  subsection (B).  The section                                                                    
was meant  to deal  with business conducted  in Alaska  by a                                                                    
nonresident individual  or a state,  trust, or  business. If                                                                    
business  was  conducted  by  a  nonresident  business,  the                                                                    
income  distributed to  individuals needed  to be  allocated                                                                    
based on  the multistate  compact. The language  was already                                                                    
included,  but  there  was  currently  no  reference  in  AS                                                                    
43.22.050 to  S corporations  or partnerships,  which needed                                                                    
to be included.                                                                                                                 
                                                                                                                                
Ms.  Hansen  addressed  the  next  change  proposed  in  the                                                                    
amendment. She turned  to page 19, following  line 16, where                                                                    
a new  section would  be inserted  that dealt  with personal                                                                    
service and  S corporations formed  or used to  evade income                                                                    
tax.  The  language was  very  similar  to existing  federal                                                                    
income tax statute language -  several other states also had                                                                    
similar language. States that did  not have the language had                                                                    
found a  significant amount of  state income  tax avoidance.                                                                    
Technical detail information had  been provided by Mr. Pomp,                                                                    
but  it had  not  been included  in  the original  committee                                                                    
substitute in order to take  time to sufficiently understand                                                                    
the   provision.  She   noted   that  renumbering   occurred                                                                    
throughout the amendment. The final  change appeared on page                                                                    
22,  line  4  -  the   section  related  to  withholding  by                                                                    
partnerships  for nonresident  partners. The  following line                                                                    
was inserted:  "The department shall adopt  regulations that                                                                    
allow  a  partnership  subject  to  withholding  under  this                                                                    
section to  file a composite  return." She explained  that a                                                                    
composite  return was  used  in many  states  and allowed  a                                                                    
nonresident partner  to specify that their  only income from                                                                    
a  state was  income  from the  partnership. The  individual                                                                    
certified   the   withholding   amount  was   accurate   and                                                                    
subsequently did not  have to personally file  an income tax                                                                    
return for that specific state.                                                                                                 
                                                                                                                                
2:53:44 PM                                                                                                                    
                                                                                                                                
Representative Wilson  asked if a person  with a nonresident                                                                    
trust could  not use  an Alaska-owned  bank. She  noted that                                                                    
they  were talking  about that  if  a nonresident  financial                                                                    
institution was  bought out by  a resident  institution, the                                                                    
state would  not charge the  nonresident. She asked  about a                                                                    
scenario where the bank was an Alaska bank to start with.                                                                       
                                                                                                                                
Ms. Hansen answered that the  intention of the exception was                                                                    
not for nonresident  trusts, it was for  a trust established                                                                    
by a resident.  The definition of resident trust  is a trust                                                                    
established based  on property  that belonged to  a resident                                                                    
of the  state. She  addressed the  exemption in  the section                                                                    
related to taxing on trusts  and explained that if the trust                                                                    
was outside  of the  state, trustees were  all nonresidents,                                                                    
and there  was no income  or gains from the  trust connected                                                                    
with  the   state,  Alaska   did  not   have  constitutional                                                                    
authority to  tax the trust.  The exemption was not  about a                                                                    
nonresident trust placing  money in an Alaskan  bank or non-                                                                    
Alaskan bank.  It pertained to the  specific situation under                                                                    
AS 43.22.020 (B) in which a  trust created by a resident was                                                                    
not taxable by the state.                                                                                                       
                                                                                                                                
Representative Wilson countered that  the language read that                                                                    
"a nonresident  trustee remains  a nonresident  trustee even                                                                    
if that banking corporation is  later acquired by a resident                                                                    
banking  corporation." She  asked if  a trust  started in  a                                                                    
resident banking corporation would be taxed differently.                                                                        
                                                                                                                                
Ms. Hansen replied in the  affirmative. She detailed that if                                                                    
a  resident   trust  had  an  Alaskan   banking  corporation                                                                    
trustee,  it  would  not qualify  for  the  exemption  under                                                                    
[43.22.020] (B); therefore, they would be taxed.                                                                                
                                                                                                                                
Representative  Wilson was  trying  to figure  out what  the                                                                    
banking corporation had to do  with the issue. She asked for                                                                    
verification that  they were specifically talking  about the                                                                    
type of banking corporation the trust was started in.                                                                           
                                                                                                                                
Ms.  Hansen  answered that  it  was  not about  the  banking                                                                    
corporation  that held  the money,  it was  about whether  a                                                                    
banking corporation was a trustee  in the trust. She did not                                                                    
know if for example the  Peak Trust Company was considered a                                                                    
banking  corporation  or  not. The  specific  section  would                                                                    
apply if a company was  considered a banking corporation and                                                                    
also acted as a trustee.  She clarified that a trust company                                                                    
or trust using  a local bank such as Northrim  Bank, did not                                                                    
automatically  make  the  bank  a trustee.  The  topic  only                                                                    
pertained to  a banking corporation  acting as a  trustee on                                                                    
behalf of a specific trust.                                                                                                     
                                                                                                                                
2:57:45 PM                                                                                                                    
                                                                                                                                
Representative  Wilson was  trying to  ensure the  amendment                                                                    
would not  black-ball any resident banking  corporation. She                                                                    
did  not want  to give  an unfair  advantage to  a different                                                                    
type of banking corporation.                                                                                                    
                                                                                                                                
Ms. Hansen  did not  believe it would  be the  case, because                                                                    
Representative Wilson was speaking  about a trustee that was                                                                    
a nonresident  banking corporation  at the time  the banking                                                                    
corporation  became a  trustee. Once  a banking  corporation                                                                    
was  considered a  nonresident trustee,  their status  would                                                                    
not change.                                                                                                                     
                                                                                                                                
Representative  Wilson read  from  AS  43.22.050 that  dealt                                                                    
with "business conducted  in the state by  a nonresident and                                                                    
directs  the  department  to  regulate  what  is  considered                                                                    
income from  a source within  the state." She asked  why the                                                                    
department  would be  writing regulation  on  income from  a                                                                    
source within the  state. She believed it  should be written                                                                    
within the  bill so that someone  would be able to  read the                                                                    
provision  and know  what income  from a  source within  the                                                                    
state actually meant.                                                                                                           
                                                                                                                                
Ms.  Hansen answered  that the  section also  specified that                                                                    
"regulations   adopted  under   this   subsection  must   be                                                                    
consistent with  AS 43.19 and  AS 43.22.045."  She explained                                                                    
that AS  43.22.045 fell within  the bill and  defined income                                                                    
from  a source  within a  state. If  an entity  had business                                                                    
inside and  outside the  state, it  was necessary  to adjust                                                                    
for the  multistate compact. The section  specified that the                                                                    
state would take  the rules on state source  income laid out                                                                    
in AS 43.22.045  and the multistate compact  rules and would                                                                    
make   sure  they   worked  together   within  the   state's                                                                    
regulations.                                                                                                                    
                                                                                                                                
2:59:49 PM                                                                                                                    
                                                                                                                                
Representative Wilson  referred to  the provision  where the                                                                    
department  would   set  out  regulation   for  partnerships                                                                    
required to  withhold income on  a nonresident  partner. She                                                                    
asked about the reasoning for the language.                                                                                     
                                                                                                                                
Ms. Hansen  responded that there were  two circumstances the                                                                    
situation  may  occur.  The  first  was in  the  case  of  a                                                                    
composite return  where a nonresident partner  may choose to                                                                    
have the partnership withhold for  their benefit so they did                                                                    
not have  to file an  individual income tax  return. Second,                                                                    
the   partnerships  were   already   filing   a  Chapter   K                                                                    
information  return with  DOR.  She believed  it was  fairly                                                                    
common  practice   for  the  partnerships  to   withhold  on                                                                    
nonresident income.                                                                                                             
                                                                                                                                
Representative  Wilson was  fine with  having a  report, but                                                                    
she noted  that many  times when  departments were  asked to                                                                    
set more  regulation, the regulation  did not quite  fit the                                                                    
legislature's intent. She  stated that she would  not have a                                                                    
problem  if the  amendment only  pertained to  how taxpayers                                                                    
would  be recording  the information  and  sending in  their                                                                    
returns.                                                                                                                        
                                                                                                                                
Representative Pruitt spoke to  the portion of the amendment                                                                    
pertaining to  tax avoidance. He understood  the intent, but                                                                    
he  referred to  subsection (B)  where avoidance  or evasion                                                                    
was   defined.  He   was  trying   to  understand   how  the                                                                    
terminology  appropriately defined  avoidance. He  asked how                                                                    
to  determine  accurately  that   a  taxpayer  was  actually                                                                    
avoiding tax.                                                                                                                   
                                                                                                                                
Ms. Hansen  replied that  the language  was very  similar to                                                                    
language  in federal  income tax  rules. She  believed there                                                                    
were well-defined  rules already  guiding the subject  - the                                                                    
amendment used the same language.                                                                                               
                                                                                                                                
Representative  Pruitt  asked   for  verification  that  the                                                                    
particular section would be defined through regulation.                                                                         
                                                                                                                                
Ms.  Hansen  responded that  definitions  could  not be  set                                                                    
forth  in   regulations,  which  was  the   reason  for  the                                                                    
inclusion of  subsection (B) that  defined the  avoidance or                                                                    
evasion of income  tax. The way to  implement the definition                                                                    
would be set forward by regulation.                                                                                             
                                                                                                                                
3:03:33 PM                                                                                                                    
                                                                                                                                
Representative Wilson MAINTAINED her OBJECTION.                                                                                 
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Gara,  Grenn,  Stutes,  Ortiz,  Pruitt,  Thompson,                                                                    
Seaton, Foster                                                                                                                  
OPPOSED: Tilton, Wilson                                                                                                         
                                                                                                                                
The MOTION  PASSED (8/2). There being  NO further OBJECTION,                                                                    
Amendment 4 was ADOPTED.                                                                                                        
                                                                                                                                
3:04:12 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
3:24:43 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Co-Chair Foster noted that the  committee would be moving to                                                                    
Amendment 19.                                                                                                                   
                                                                                                                                
Representative  Thompson MOVED  to ADOPT  Amendment 19,  30-                                                                    
LS0125\L.15 (Nauman, 3/28/17) (copy on file):                                                                                   
                                                                                                                                
     Page 4, line 17:                                                                                                           
                                                                                                                                
     Delete "a new subsection"                                                                                                  
                                                                                                                                
     Insert "new subsections"                                                                                                   
     Page 4, following line 26:                                                                                                 
                                                                                                                                
     Insert a new subsection to read:                                                                                           
                                                                                                                                
     "(c)  In   accordance  with  AS   37.13.145(b)(2),  and                                                                    
     subject  to appropriation,  33  percent  of the  amount                                                                    
     available for  distribution under  (b) of  this section                                                                    
     shall be  reserved for dividends. The  remainder of the                                                                    
     amount  calculated  to  be available  for  distribution                                                                    
     under  (b) of  this  section shall  be  reduced by  the                                                                    
     difference between  the amount  calculated  under   (1)                                                                    
     of this subsection  and the  amount  under  (2) of this                                                                    
     subsection if  the amount calculated under  (1) of this                                                                    
     subsection  exceeds  the  amount   under  (2)  of  this                                                                    
     subsection:                                                                                                                
                                                                                                                                
     (1)    the  total    amount    of    oil     and    gas                                                                    
     production    taxes    under AS 43.55.011  - 43.55.180,                                                                    
     mineral   lease   rentals,  royalties,   royalty   sale                                                                    
     proceeds,  net profit    shares  under AS  38.05.180(f)                                                                    
     and (g), and federal  mineral revenue  sharing payments                                                                    
     and bonuses  received by the state  from mineral leases                                                                    
     that  are  deposited  into  the  general  fund  in  the                                                                    
     current fiscal year;                                                                                                       
                                                                                                                                
     (2) the sum of $1,200,000,000."                                                                                            
                                                                                                                                
Vice-Chair Gara OBJECTED.                                                                                                       
                                                                                                                                
Representative Thompson explained that the amendment with a                                                                     
prepared statement:                                                                                                             
                                                                                                                                
     Amendment  19 sets  a draw  limit,  it's the  mechanism                                                                    
     that limits  withdrawals from  the Permanent  Fund when                                                                    
     oil revenues  increase or  recover, or  production goes                                                                    
     up. It's  designated to  address oil  price volatility.                                                                    
     The draw  limit is triggered when  production taxes and                                                                    
     unrestricted   royalties  reach   $1.2  billion.   Once                                                                    
     triggered  the  amount  calculated by  the  percent  of                                                                    
     market value formula and the  amount withdrawn from the                                                                    
     Permanent Fund is  reduced by $1.00 for  every $1.00 of                                                                    
     oil  production  tax  and royalties  that  exceed  $1.2                                                                    
     billion.  This amendment  mirrors  the provisions  that                                                                    
     the governor's  HB 61 and SB  36 have in them.  This is                                                                    
     the mechanism that addresses  oil price volatility. The                                                                    
     draw limit  is one  of the administration's  most must-                                                                    
     haves, but the draw  limit provides guidance for saving                                                                    
     money during  times of flush  oil revenue.  Without the                                                                    
     draw limit  we would  take the  full percent  of market                                                                    
     value draw even though  oil revenues were sufficient to                                                                    
     cover  state spending.  If low  oil revenue  prices are                                                                    
     the reason that we are  using the Permanent Fund today,                                                                    
     why  would we  continue to  take from  the fund  if oil                                                                    
     revenues  increase  or recover?  The  draw  limit is  a                                                                    
     commitment to  not use today's  crisis as an  excuse to                                                                    
     raid the fund when it  isn't needed. Just like a normal                                                                    
     person would manage  their money, this is  the plan for                                                                    
     supplementing  our  paychecks  with  savings  when  our                                                                    
     paychecks  are low,  but leaving  money in  our savings                                                                    
     when our income recovers.  Leaving money or earnings in                                                                    
     the  fund when  other revenues  cover state  costs will                                                                    
     allow the Permanent  Fund to grow. A  larger fund means                                                                    
     we will have larger  Permanent Fund Dividends. A larger                                                                    
     fund means we will have  larger percent of market value                                                                    
     contributions to  the General  Fund, which  means there                                                                    
     will be more money  for education and capital projects,                                                                    
     and smaller deficits in later years.                                                                                       
                                                                                                                                
Representative  Thompson relayed  that  the amendment  would                                                                    
protect  the state's  future  and would  grow  the fund  for                                                                    
future generations.                                                                                                             
                                                                                                                                
3:28:17 PM                                                                                                                    
                                                                                                                                
Vice-Chair  Gara  OBJECTED  and   noted  the  committee  had                                                                    
previously voted  on the topic  and had deleted it  from the                                                                    
bill. He stressed  that at oil prices of $75  per barrel the                                                                    
state would  not be flush. He  agreed that if the  state was                                                                    
able  to save,  it should.  He discussed  the $1  billion in                                                                    
deferred maintenance for the University  of Alaska alone. He                                                                    
continued that  the cost continued  to increase  because the                                                                    
maintenance continued  to be  deferred. He  did not  want to                                                                    
continue to  spend money  on things  that were  wasteful and                                                                    
that was  in the  eye of  the beholder. In  the past  he had                                                                    
opposed unaffordable  megaprojects and he would  continue to                                                                    
oppose projects  such as  the Susitna dam  and the  Knik Arm                                                                    
Bridge.  He remarked  that at  some point  there were  basic                                                                    
things  that needed  to be  done. He  referenced the  Seward                                                                    
Highway   as  an   example  and   discussed  the   need  for                                                                    
modification  to  reduce  the   number  of  highway  deaths.                                                                    
Additionally,   there   were   dangerous  roads   north   of                                                                    
Anchorage.  He  believed  the  number  $75  per  barrel  was                                                                    
arbitrary. He would  consider proposals like the  one in the                                                                    
amendment,   but  he   did  not   support  specifying   that                                                                    
additional oil  revenue at prices  between $75 and  $100 per                                                                    
barrel  could   not  be  used   for  things   like  deferred                                                                    
maintenance or  road construction.  He had heard  people say                                                                    
the concept would  be unenforceable, but he did  not want to                                                                    
put something in statute that was not enforceable.                                                                              
                                                                                                                                
Co-Chair  Seaton  spoke  in support  of  the  amendment.  He                                                                    
explained  that  when  the   amendment  had  initially  been                                                                    
proposed,  more modeling  and information  had been  needed.                                                                    
Since   that  time   there  had   been  modeling   from  the                                                                    
administration  showing  the   cap  lowered  volatility  and                                                                    
depletion  of  the  reserve  and  made  sure  the  potential                                                                    
failure rate  was lowered to  less than 1 percent.  He added                                                                    
that  modeling from  the Legislative  Finance Division  also                                                                    
showed the  same results that  the action would  make things                                                                    
much more stable over time.                                                                                                     
                                                                                                                                
3:31:40 PM                                                                                                                    
                                                                                                                                
Representative Pruitt spoke in  support of the amendment. He                                                                    
believed  the amendment  was  a key  piece  of ensuring  the                                                                    
long-term  stability of  the Permanent  Fund. The  amendment                                                                    
would mean the failure rate  would be minimal in comparison.                                                                    
He clarified that the amendment  would not reduce the amount                                                                    
of  oil and  gas  revenues available,  it  would reduce  the                                                                    
Permanent  Fund  utilization;  it  was  a  dollar-for-dollar                                                                    
exchange of  oil money for  what would have been  spent from                                                                    
Permanent  Fund  money.  He reiterated  that  the  amendment                                                                    
would ensure  the strength of  the Permanent Fund,  which he                                                                    
believed was one of the  most important things that could be                                                                    
done.                                                                                                                           
                                                                                                                                
Vice-Chair  Gara referred  to discussion  about the  failure                                                                    
rate. He stated that with  the amendment there was a failure                                                                    
rate of approximately  1 percent and without  it the failure                                                                    
rate was approximately 2 percent  over 25 years. He believed                                                                    
the difference  was negligible.  He did  not want  anyone to                                                                    
believe the  bill as  written provided  any great  danger of                                                                    
failure.  He  reasoned  that   under  any  circumstance  the                                                                    
legislature would act if something  terrible happened in the                                                                    
stock market.                                                                                                                   
                                                                                                                                
3:33:24 PM                                                                                                                    
                                                                                                                                
Co-Chair Seaton  asked to hear  about the failure  rate from                                                                    
the commissioner  of DOR. He  believed the failure  rate was                                                                    
closer to 8 percent without the provision.                                                                                      
                                                                                                                                
RANDALL  HOFFBECK,  COMMISSIONER,   DEPARTMENT  OF  REVENUE,                                                                    
confirmed that the  failure rate without the  draw limit was                                                                    
8.17 percent.                                                                                                                   
                                                                                                                                
Co-Chair Seaton  asked what  the failure  rate was  with the                                                                    
draw limit. Commissioner Hoffbeck answered 0.83 percent.                                                                        
                                                                                                                                
Representative   Wilson  asked   if   there  were   negative                                                                    
consequences   of   passing  the   amendment.   Commissioner                                                                    
Hoffbeck  replied in  the negative  and elaborated  that the                                                                    
administration supported the amendment.                                                                                         
                                                                                                                                
Representative  Wilson  asked   why.  Commissioner  Hoffbeck                                                                    
responded that  the only reason  there was  consideration of                                                                    
using Permanent  Fund earnings  was due  to current  low oil                                                                    
and gas tax  and royalty revenues. If  revenues returned, it                                                                    
would  no  longer  make  sense to  continue  to  also  spend                                                                    
Permanent Fund  earnings at that point.  The amendment would                                                                    
provide a systematic process for  turning off the use of the                                                                    
earnings reserve when it was no longer necessary.                                                                               
                                                                                                                                
3:35:17 PM                                                                                                                    
                                                                                                                                
Representative  Wilson equated  it  to a  check and  balance                                                                    
solution  to keep  state spending  in control.  Commissioner                                                                    
Hoffbeck replied in the affirmative.                                                                                            
                                                                                                                                
Vice-Chair  Gara referred  to a  table from  the Legislative                                                                    
Finance Division  that showed a  cumulative failure  rate of                                                                    
2.4 percent over 24 years.                                                                                                      
                                                                                                                                
Commissioner  Hoffbeck  replied  that the  model  Vice-Chair                                                                    
Gara was referencing pertained to SB 26.                                                                                        
                                                                                                                                
Vice-Chair Gara stated that the  current bill had additional                                                                    
revenue from income tax (that was not included in SB 26).                                                                       
                                                                                                                                
Commissioner Hoffbeck  replied that when  the administration                                                                    
talked about a  fiscal plan it assumed that  all plans would                                                                    
achieve the  full closure of  the deficit. All of  the plans                                                                    
without  a  structural  change  to  close  the  deficit  had                                                                    
failure rates of 50 to 80 percent.                                                                                              
                                                                                                                                
3:36:25 PM                                                                                                                    
                                                                                                                                
Vice-Chair Gara asked what the  total UGF available under HB                                                                    
115 would  be if the  limit kicked  in at the  $1.2 billion.                                                                    
Commissioner Hoffbeck did not have the number on hand.                                                                          
                                                                                                                                
Vice-Chair Gara  asked if anyone  on the committee  knew. He                                                                    
repeated the question.                                                                                                          
                                                                                                                                
Representative Thompson  responded that  DOR's probabilistic                                                                    
model  anticipated that  the three  affected revenues  would                                                                    
provide  about $3  billion per  year based  on a  percent of                                                                    
market  value of  $2 billion  in  baseline revenue  totaling                                                                    
around $1 billion of the  production taxes and royalties. He                                                                    
stated  it would  bring  the  three revenues  up  to the  $3                                                                    
billion; the  trigger had  been moved to  $1.2 billion  as a                                                                    
compromise.                                                                                                                     
                                                                                                                                
Vice-Chair  Gara  wanted  to  know how  much  UGF  would  be                                                                    
available if the amendment passed.                                                                                              
                                                                                                                                
Representative Thompson replied $3  billion with the percent                                                                    
of market value and the other revenues.                                                                                         
                                                                                                                                
Commissioner Hoffbeck added  that the UGF at oil  of $75 per                                                                    
barrel  (about  where the  trigger  would  take effect)  was                                                                    
about $3.8 billion to $3.9 billion.                                                                                             
                                                                                                                                
Vice-Chair Gara  stressed that school  funding had  not gone                                                                    
up in years; it was $30  million less than it had been three                                                                    
years earlier. He emphasized that  people were talking about                                                                    
a  $70 million  cut to  school funding.  He elaborated  that                                                                    
Anchorage was discussing laying  off 99 teachers without the                                                                    
cut -  potentially another 200  teachers and staff  would be                                                                    
lost.  He  detailed  there   were  not  enough  prosecutors;                                                                    
therefore,  criminals were  walking  out on  the street.  He                                                                    
mentioned  other deficiencies  such as  a lack  in troopers,                                                                    
declines  in University  funding,  and insufficient  funding                                                                    
for energy  projects. He  believed the  amendment instituted                                                                    
an artificial  mechanism. He referenced an  explanation that                                                                    
the provision would  not have to be followed  because it was                                                                    
not constitutionally mandated,  which he did not  find to be                                                                    
a good  reason to pass the  amendment. He did not  know what                                                                    
would  need  to  be  spent  five years  in  the  future.  He                                                                    
surmised it  was a  difference in  philosophy on  whether or                                                                    
not  the  legislature should  try  to  address the  public's                                                                    
needs annually or  whether it should be done  with a formula                                                                    
"five years before you know what's going to happen."                                                                            
                                                                                                                                
3:40:32 PM                                                                                                                    
                                                                                                                                
Commissioner Hoffbeck  clarified that  it only  included the                                                                    
three categories of income -  unrestricted other funds (from                                                                    
taxes  and  other  fees),  oil  and  gas  revenue,  and  the                                                                    
Permanent Fund  draw. The  total did  not include  any other                                                                    
new  revenues that  may be  passed. It  provided about  $600                                                                    
million  in  headroom  over  the  current  budget  prior  to                                                                    
kicking in.                                                                                                                     
                                                                                                                                
Representative Wilson  asked for  verification it  would not                                                                    
include  any reforms  (e.g. Medicaid  reform or  other) that                                                                    
may  save money.  Commissioner Hoffbeck  responded that  any                                                                    
monies  saved  with  reductions  in  expenditures  could  be                                                                    
reappropriated  someplace else;  it  did  really impact  the                                                                    
calculation.  Cuts   to  one   area  made   money  available                                                                    
elsewhere because  the amendment  would not restrict  use of                                                                    
the funds.                                                                                                                      
                                                                                                                                
Representative   Wilson   supported   the   amendment.   She                                                                    
commented  that   the  amendment   pertained  to   just  one                                                                    
component of  the calculation. She continued  that they were                                                                    
going  into  the Permanent  Fund  for  the first  time.  She                                                                    
continued that the state was  in the situation partly due to                                                                    
some of the choices the legislature  did not want to make in                                                                    
terms of  where to  decrease government. She  furthered they                                                                    
had  also been  making smarter  choices on  legislation that                                                                    
had been passed that would  bring savings. She addressed the                                                                    
statement that the state would  not have sufficient funds to                                                                    
fix existing  infrastructure. She hoped changes  would bring                                                                    
a  smarter  and  more  efficient  government  that  may  not                                                                    
require  as much  funding. She  stated the  public had  been                                                                    
very  clear that  it was  nervous  about how  the money  was                                                                    
spent. She believed  the amendment would act as  a check and                                                                    
balance. She  spoke to an increase  in resource development,                                                                    
corporate   taxes,  business   licensing,  and   other.  She                                                                    
stressed the amendment  would not result in a  lack of money                                                                    
to fund important items.                                                                                                        
                                                                                                                                
Representative Thompson pointed out  that when oil prices or                                                                    
production  were high,  other revenues  increased. He  cited                                                                    
corporate  income tax  and investment  revenue and  other as                                                                    
examples. He  stated that  the aforementioned  revenues were                                                                    
not impacted by  the draw limit. He reasoned  there was more                                                                    
money to spend even with the dollar-for-dollar offset.                                                                          
                                                                                                                                
3:44:04 PM                                                                                                                    
                                                                                                                                
Representative Pruitt  added that if more  oil was produced,                                                                    
more royalties  were going into the  Permanent Fund, meaning                                                                    
there would be more money to  make money off of and a larger                                                                    
opportunity  for  percent  of  market value  dollars  to  be                                                                    
available. It allowed for growth in several places.                                                                             
                                                                                                                                
Vice-Chair Gara MAINTAINED his OBJECTION.                                                                                       
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Wilson,  Grenn, Stutes,  Ortiz, Pruitt,  Thompson,                                                                    
Tilton, Foster, Seaton                                                                                                          
OPPOSED: Gara                                                                                                                   
                                                                                                                                
The MOTION  PASSED (9/1). There being  NO further OBJECTION,                                                                    
Amendment 19 was ADOPTED.                                                                                                       
                                                                                                                                
3:45:12 PM                                                                                                                    
                                                                                                                                
Co-Chair Seaton  MOVED to ADOPT Amendment  5, 30-LS0125\L.17                                                                    
(Nauman, 3/29/17) (copy on file):                                                                                               
                                                                                                                                
     Page 7, line 6:                                                                                                            
                                                                                                                                
     Delete "AS 43.22.070(h)"                                                                                                   
                                                                                                                                
     Insert "AS 43.22.070(i)"                                                                                                   
                                                                                                                                
     Page 19, lines 26 - 27:                                                                                                    
                                                                                                                                
     Delete "A person required to pay tax under this                                                                            
     chapter"                                                                                                                   
                                                                                                                                
     Insert "A taxpayer"                                                                                                        
                                                                                                                                
     Page 19, following line 30:                                                                                                
                                                                                                                                
     Insert a new subsection to read:                                                                                           
                                                                                                                                
     "(b) The department  shall determine  and  publish                                                                         
     the  federal  adjusted  gross income  below  which  an                                                                     
     individual  is not  required  to  file  a tax  return                                                                      
     under  this section."                                                                                                      
                                                                                                                                
     Reletter the following subsections accordingly.                                                                            
                                                                                                                                
Representative Wilson OBJECTED for discussion.                                                                                  
                                                                                                                                
Ms.  Hansen  explained that  the  amendment  would make  two                                                                    
administrative   changes    in   Section    43.22.070   (the                                                                    
administrative section  of the  bill). First,  the amendment                                                                    
clarified the  language around  who was  required to  file a                                                                    
return with  the department. The  section currently  read "a                                                                    
person required  to pay tax  under this chapter  is required                                                                    
to  file a  return with  the department"  and the  amendment                                                                    
would  change the  language to  "a taxpayer  is required..."                                                                    
She  detailed that  a  taxpayer was  anyone  subject to  the                                                                    
chapter whether  or not  they actually have  a tax  due. She                                                                    
characterized  the original  language  as ambiguous  because                                                                    
there were  some individuals who  would not have a  tax due.                                                                    
Second, the  amendment would add subsection  (b), which read                                                                    
"the  department shall  determine  and  publish the  federal                                                                    
adjusted gross  income level  below  which   an   individual                                                                    
is not   required   to   file  a  tax   return  under   this                                                                    
section."  The language  was similar  to what  was published                                                                    
and  updated  annually at  the  federal  level. The  federal                                                                    
language specified  that a person  making less  than $10,350                                                                    
in gross  income was  not required  to file  - due  to their                                                                    
personal deduction  and exemption  they did  not have  a tax                                                                    
liability. The amendment would give  the department the same                                                                    
authority  to  publish  the table  to  prevent  people  with                                                                    
$1,000 in income from filing.                                                                                                   
                                                                                                                                
Representative Wilson referred  to the amendment explanation                                                                    
that it  would also allow  the department to outline  when a                                                                    
dependent  could file  on their  parents' return.  She asked                                                                    
where it was included in the amendment.                                                                                         
                                                                                                                                
Ms. Hansen replied  that she had learned  from speaking with                                                                    
DOR that an  individual would cover an  individual and could                                                                    
also be  interpreted to  cover a  dependent. On  the federal                                                                    
level  a dependent  was able  to file  under their  parents'                                                                    
return when they  had less than the amount  required for the                                                                    
federal  tax  level  ($10,000 earned  income  or  $1,000  of                                                                    
unearned income).  Under the legislation, if  the individual                                                                    
did  not have  a tax  due they  could be  filed under  their                                                                    
parents' return.                                                                                                                
                                                                                                                                
3:48:36 PM                                                                                                                    
                                                                                                                                
Representative Wilson understood the  concept of including a                                                                    
minimum  so people  knew when  they  did not  have to  file.                                                                    
However, she did not believe  it related to whether a person                                                                    
could claim a  child as a dependent on their  taxes. She did                                                                    
not  believe the  amendment pertained  to  when a  dependent                                                                    
could be filed  on a parent's return. She  surmised that the                                                                    
amendment only  related to whether  a dependent had  to file                                                                    
on their own because of their income amount.                                                                                    
                                                                                                                                
Ms. Hansen answered in the affirmative.                                                                                         
                                                                                                                                
Representative Wilson  summarized that the  amendment merely                                                                    
established a  minimum on who  had to file, no  matter their                                                                    
age.                                                                                                                            
                                                                                                                                
Representative  Wilson WITHDREW  her OBJECTION.  There being                                                                    
NO further OBJECTION, Amendment 5 was ADOPTED.                                                                                  
                                                                                                                                
3:49:32 PM                                                                                                                    
                                                                                                                                
Co-Chair Seaton  MOVED to ADOPT Amendment  6, 30-LS0125\L.18                                                                    
(Nauman, 3/29/17) (copy on file):                                                                                               
                                                                                                                                
     Page 11, following line 14:                                                                                                
                                                                                                                                
     Insert new subparagraphs to read:                                                                                          
                                                                                                                                
     "(B) a Joss on the sale or exchange of an obligation                                                                       
     issued by or on behalf of                                                                                                  
                                                                                                                                
     (i) the state;                                                                                                             
                                                                                                                                
     (ii) a municipality of the state; or                                                                                       
                                                                                                                                
     (iii) a public instrumentality, public authority, or                                                                       
     public corporation created under state law;                                                                                
                                                                                                                                
     (C) a  Joss  from  the   sale  or  exchange  of  shares                                                                    
     in    a   unit  investment  trust    if  the loss    is                                                                    
     attributable  to an  obligation    issued   by   or  on                                                                    
     behalf of                                                                                                                  
                                                                                                                                
     (i) the state;                                                                                                             
                                                                                                                                
     (ii) a municipality of the state; or                                                                                       
                                                                                                                                
     (iii) a public instrumentality, public authority, or                                                                       
     public corporation created under state law;"                                                                               
                                                                                                                                
     Reletter the following subparagraphs accordingly.                                                                          
                                                                                                                                
     Page 12, following line 6:                                                                                                 
                                                                                                                                
     Insert a new subparagraph to read:                                                                                         
                                                                                                                                
     "(G) a gain from the sale or exchange of an obligation                                                                     
     issued by or on behalf of                                                                                                  
                                                                                                                                
     (i) the state;                                                                                                             
                                                                                                                                
     (ii) a municipality of the state; or                                                                                       
                                                                                                                                
     (iii) a public instrumentality, public authority, or                                                                       
     public corporation created under state law;"                                                                               
                                                                                                                                
    Reletter the following subparagraphs accordingly. 6                                                                         
                                                                                                                                
     Page 23, line 14:                                                                                                          
                                                                                                                                
     Delete "AS 43.22.030(a)(2)(H)"                                                                                             
                                                                                                                                
     Insert "AS 43.22.030(a)(2){1)"                                                                                             
                                                                                                                                
Representative Wilson OBJECTED.                                                                                                 
                                                                                                                                
Ms. Hansen explained the  amendment clarified the definition                                                                    
of taxable  income under the  legislation. The  bill already                                                                    
added  most  municipal  obligations  into  federal  adjusted                                                                    
gross  income;  the items  were  not  taxed by  the  federal                                                                    
government in most cases, but  were taxed by the majority of                                                                    
states.  In  the definition  under  AS  43.22.030 (i)(A)  it                                                                    
stated  "interest   on  obligations  of  another   state,  a                                                                    
political   subdivision   of   another   state,   a   public                                                                    
instrumentality of another state,  or the local authority of                                                                    
another state."  The language was  due to existing  case law                                                                    
that a state was allowed  to tax obligations issued by other                                                                    
states, but exempt obligations issued  by that state. In the                                                                    
language in (i)(a) the bill  was already exempting municipal                                                                    
obligations  from Alaska  or bonds  issued by  the state  or                                                                    
municipalities of  Alaska. The  amendment helped  to clarify                                                                    
that. There were  a few cases where Alaska  bonds were taxed                                                                    
at  the federal  level.  She furthered  that because  Alaska                                                                    
municipal  bonds  were  exempted  in  (i)(a),  the  language                                                                    
needed  to  clarify  that  in  the  rare  case  the  federal                                                                    
government  taxed Alaska  municipal bonds,  the state  would                                                                    
make adjustments.  She detailed that  a loss would  be added                                                                    
in for an Alaska municipal bond  that may have been taken as                                                                    
a deduction  from federal gross  income and  subtracting any                                                                    
gains from  Alaska municipal bonds  or state bonds  that may                                                                    
have been taxed at the federal level.                                                                                           
                                                                                                                                
Representative  Wilson  asked  for verification  that  if  a                                                                    
person had  an Alaska bond, it  would be a deduction  at the                                                                    
state  level (just  like  with the  PFD) if  it  was in  the                                                                    
person's  federal  adjusted   gross  income,  regardless  of                                                                    
whether  it made  money  or  had to  be  claimed on  federal                                                                    
taxes.                                                                                                                          
                                                                                                                                
Ms. Hansen  answered that any  gains included in  a person's                                                                    
federal  adjusted gross  income would  not be  taxed by  the                                                                    
state.                                                                                                                          
                                                                                                                                
Representative Wilson  asked for verification it  was a non-                                                                    
starter  if  a person  had  to  file federally.  Ms.  Hansen                                                                    
replied in the affirmative.                                                                                                     
                                                                                                                                
Representative  Wilson WITHDREW  her OBJECTION.  There being                                                                    
NO further OBJECTION, Amendment 6 was ADOPTED.                                                                                  
                                                                                                                                
3:52:52 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
3:53:21 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Co-Chair Seaton  MOVED to ADOPT Amendment  7, 30-LS0125\L.19                                                                    
(Nauman, 3/29/17) (copy  on file). [Note: due  to the length                                                                    
of the amendment it has not  been included here. See copy on                                                                    
file for details.]                                                                                                              
                                                                                                                                
Representative Wilson OBJECTED.                                                                                                 
                                                                                                                                
Ms.  Hansen   explained  that   the  amendment   made  eight                                                                    
clarifying  changes  relating  to   tax  rates  and  taxable                                                                    
income. The  primary intention was  to increase  the clarity                                                                    
of  the language.  The first  was a  change to  AS 43.22.010                                                                    
where the tax  and tax brackets were laid  out. She referred                                                                    
to existing language "derived or  connected with a source in                                                                    
the state of  a nonresident," which could  be interpreted as                                                                    
saying the state  that the nonresident is  connected to. The                                                                    
language  was changed  to make  it clear  the provision  was                                                                    
talking  about  income  that was  derived  or  connected  to                                                                    
Alaska. Pages  8 and 9  the title of AS  43.22.015 currently                                                                    
read "allocation of individual  income." The amendment would                                                                    
change the  titled to read  more accurately  as "calculation                                                                    
of tax  on a nonresident individual."  The section addressed                                                                    
the  factor  used  to  calculate  tax  owed  by  nonresident                                                                    
individuals. Currently  the factor  was basically all  of an                                                                    
individual's  taxable  income  was the  denominator  of  the                                                                    
calculation  and any  of the  taxable income  from a  source                                                                    
within  Alaska was  the numerator.  The  result was  applied                                                                    
against  the  individual's  taxes. The  amendment  clarified                                                                    
that the numerator was  the nonresident individual's taxable                                                                    
income  and  added  the   language  "under  43.22.045,"  the                                                                    
location where  income from  a source  within the  state was                                                                    
defined.                                                                                                                        
                                                                                                                                
Ms.   Hansen  moved   to  page   11  related   to  allowable                                                                    
deductions. The  amendment would add the  words "directly or                                                                    
indirectly"  to read  "income that  is  related directly  or                                                                    
indirectly  to income  taxable under  the  state and  income                                                                    
exempt under  the federal Internal  Revenue Code."  The goal                                                                    
was to align with established tax law.                                                                                          
                                                                                                                                
3:56:28 PM                                                                                                                    
                                                                                                                                
Ms. Hansen referred  to page 12, line 10  of the legislation                                                                    
where  the  amendment  clarified  the  trust  would  not  be                                                                    
eligible  for the  per person  exemption; the  exemption was                                                                    
intended for people and not  entities. She turned to page 15                                                                    
where  state source  income was  defined for  income from  a                                                                    
source  within  the  state  for  nonresidents.  The  current                                                                    
language  was unclear  and implied  that the  activity items                                                                    
listed  (including  compensation  and salary  or  wages  for                                                                    
personal  services rendered  for  employment training;  site                                                                    
inspection;  research   and  development;  and   farming  or                                                                    
fishing  within  the  state) were  considered  ancillary  or                                                                    
connected  to out-of-state  activities. The  amendment would                                                                    
reorder the current language to  clarify that the activities                                                                    
were considered taxable within the state.                                                                                       
                                                                                                                                
Representative Wilson pointed  to page 11, line  23 that the                                                                    
amendment would  change to read "adjusted  gross income that                                                                    
is directly or indirectly related  to income." She asked for                                                                    
an example of indirect.                                                                                                         
                                                                                                                                
Ms. Hansen believed indirect  would include interest income.                                                                    
She did  not receive  exact examples; the  proposed language                                                                    
matched language of  existing tax laws in  other states. She                                                                    
deferred to DOR for further detail.                                                                                             
                                                                                                                                
Representative Wilson  was concerned about how  far reaching                                                                    
indirect income was.                                                                                                            
                                                                                                                                
BRANDON   S.   SPANOS,   DEPUTY  DIRECTOR,   TAX   DIVISION,                                                                    
DEPARTMENT  OF REVENUE  (via teleconference),  answered that                                                                    
indirect  income  could  have   multiple  meanings.  In  the                                                                    
business  community indirect  income  could be  non-business                                                                    
income  (income   earned  outside   the  normal   course  of                                                                    
business).  Additionally,  indirect  income  could  be  from                                                                    
securities or other items that  were not normally part of an                                                                    
individual's wages.  He cited  winning a  game of  chance or                                                                    
lottery, which  would not be  a normal course of  a person's                                                                    
business income.                                                                                                                
                                                                                                                                
4:00:47 PM                                                                                                                    
                                                                                                                                
Representative Wilson  stated she  could understand  how the                                                                    
scenarios  in Mr.  Spanos' description  would be  considered                                                                    
indirect for  a business; however,  she did not  believe the                                                                    
examples would  be indirect for an  individual. For example,                                                                    
she  wondered  if  she  would  have to  pay  income  tax  on                                                                    
earnings from winning the lottery in another state.                                                                             
                                                                                                                                
Mr. Spanos replied  that if a person was  an Alaska resident                                                                    
and won  the lottery  in another state,  the portion  of the                                                                    
winnings that were taxable federally  would flow through the                                                                    
individual's adjusted  gross income and would  be taxable in                                                                    
Alaska.                                                                                                                         
                                                                                                                                
Representative Wilson asked how  the scenario was classified                                                                    
as  indirect. She  asked if  anything outside  of wages  was                                                                    
counted as indirect.                                                                                                            
                                                                                                                                
Mr. Spanos  replied that  it could  be. Indirect  income was                                                                    
defined as income that was  not directly earned through some                                                                    
activity an individual was engaged  in. He cited interest on                                                                    
a bank account as an example.                                                                                                   
                                                                                                                                
Co-Chair Foster  recognized Representative  Jonathan Kreiss-                                                                    
Tomkins in the room.                                                                                                            
                                                                                                                                
Representative Thompson  stated his understanding that  if a                                                                    
person won  the lottery  in California  they would  be taxed                                                                    
personal income tax the State  of California and the federal                                                                    
government  would tax  the winnings  as well.  He asked  for                                                                    
verification the individual would also  have to pay taxes in                                                                    
Alaska.                                                                                                                         
                                                                                                                                
Mr.  Spanos  believed  that  in  the  specific  example  the                                                                    
California   tax  would   be   higher   and  therefore   the                                                                    
individual's credit  would be up  to the limit of  what they                                                                    
would  have paid  in  Alaska. The  individual  would not  be                                                                    
double taxed. If  the individual won the lottery  in a state                                                                    
without  an income  tax,  they  would pay  the  full tax  in                                                                    
Alaska.  Whereas, if  the individual  won the  lottery in  a                                                                    
state with  a smaller income  tax, the individual  would get                                                                    
credit for  the amount of tax  paid in that state  and would                                                                    
pay any difference in Alaska.                                                                                                   
                                                                                                                                
Representative  Wilson WITHDREW  her OBJECTION.  There being                                                                    
NO further OBJECTION, Amendment 7 was ADOPTED.                                                                                  
                                                                                                                                
4:03:13 PM                                                                                                                    
                                                                                                                                
Co-Chair Seaton  MOVED to ADOPT Amendment  8, 30-LS0125\L.23                                                                    
(Nauman, 3/30/17) (copy on file):                                                                                               
                                                                                                                                
     Page 22, following line 4:                                                                                                 
                                                                                                                                
     Insert a new subsection to read:                                                                                           
                                                                                                                                
     "(c) Withholding under this section  is not required by                                                                    
     a partnership that                                                                                                         
                                                                                                                                
     (1)    is a publicly traded partnership,  as defined in                                                                    
     26 U.S.C. 7704(b) (Internal Revenue Code); and                                                                             
                                                                                                                                
     (2)   files with  the department an  annual information                                                                    
     return   reporting   the    name,   address,   taxpayer                                                                    
     identification number, and  other information requested                                                                    
     by the  department    concerning     each    unitholder                                                                    
     whose    distributive   share  of   partnership income,                                                                    
     regardless of source, is more than $1,000."                                                                                
                                                                                                                                
Representative Wilson OBJECTED.                                                                                                 
                                                                                                                                
Ms.   Hansen  explained   the  amendment   addressed  public                                                                    
testimony that  publicly traded  partnerships should  not be                                                                    
required to withhold for  their nonresident partners because                                                                    
they  could change  hands so  quickly.  The amendment  would                                                                    
provide  an   exemption  for  withholding   requirements  on                                                                    
partnerships that  a publicly  traded partnership  would not                                                                    
be required to withhold.                                                                                                        
                                                                                                                                
Representative   Wilson  appreciated   the  amendment,   but                                                                    
observed it  sounded like  a report  would be  required from                                                                    
the companies.  She how  hard it would  be for  companies to                                                                    
pull the  information together. She  noted it  would include                                                                    
any  source exceeding  $1,000. She  asked  if the  amendment                                                                    
pertained to a  list that had to  include individuals living                                                                    
in-state  versus out-of-state.  She  asked  what the  report                                                                    
entailed.                                                                                                                       
                                                                                                                                
Ms. Hansen responded  that in terms of  in-state versus out-                                                                    
of-state,  it   was  listed  as   each  unit   holder  whose                                                                    
distributive share  of the partnership income  was more than                                                                    
$1,000. She believed it was  very similar to K-1 information                                                                    
return that  was already filed. She  referenced testimony by                                                                    
a Tesoro  representative who  had cited  Iowa as  an example                                                                    
that  also required  the  information  return. She  believed                                                                    
companies  were  likely filing  a  similar  return with  the                                                                    
federal  government.  She  did   not  believe  it  would  be                                                                    
burdensome.                                                                                                                     
                                                                                                                                
Representative Wilson  asked if  they knew  for a  fact that                                                                    
companies   filed  the   same   report   with  the   federal                                                                    
government.                                                                                                                     
                                                                                                                                
Ms. Hansen  replied that  she knew  with certainty  that the                                                                    
report  was required  in Iowa.  She  knew that  partnerships                                                                    
were  required  to  file  a K-1  return.  She  believed  the                                                                    
information  required   for  both  reports  would   be  very                                                                    
similar. She noted that DOR  would be the entity responsible                                                                    
for crafting the  actual return a company  would be required                                                                    
to file.                                                                                                                        
                                                                                                                                
Representative  Wilson WITHDREW  her OBJECTION.  There being                                                                    
NO further OBJECTION, Amendment 8 was ADOPTED.                                                                                  
                                                                                                                                
4:05:54 PM                                                                                                                    
                                                                                                                                
Co-Chair Seaton  MOVED to ADOPT Amendment  9, 30-LS0125\L.25                                                                    
(Nauman, 3/30/17) (copy  on file). [Note: due  to the length                                                                    
of the amendment it has not  been included here. See copy on                                                                    
file for details.]                                                                                                              
                                                                                                                                
Representative Wilson OBJECTED.                                                                                                 
                                                                                                                                
Ms.  Hansen   explained  the  amendment.  She   referred  to                                                                    
sections of the bill pertaining  to the allocation of income                                                                    
(e.g.  distributive  shares  from  a  business  with  income                                                                    
allocated  to  partners).  The amendment  would  remove  the                                                                    
current phrase "income  or a gain, loss,  or deduction," and                                                                    
would replace  it with  "an item of  income, gain,  loss, or                                                                    
deduction." The  phrasing was established across  all states                                                                    
and  was   used  for  allocations,  especially   related  to                                                                    
partnership shares.  The amendment would make  things easier                                                                    
for  interpretation   by  businesses   and  the   courts  if                                                                    
necessary.                                                                                                                      
                                                                                                                                
Representative Pruitt  referred to the language  change from                                                                    
income to  item. He  asked if the  language referred  to the                                                                    
benefits that  could come  with being  an S  corporation. He                                                                    
detailed  there were  certain times  where a  shareholder or                                                                    
director  of an  S  corporation  may use  a  company car  or                                                                    
receive benefits or  "perks." He asked if  the amendment was                                                                    
trying to get at that  specific situation. He furthered that                                                                    
it reached  beyond the salary  a person would  receive shown                                                                    
on an individual's W-2 form.                                                                                                    
                                                                                                                                
Ms.  Hansen  replied  that  she  did  not  believe  so.  She                                                                    
explained  that  the  bill  used  federally  adjusted  gross                                                                    
income  and only  took things  that showed  up as  federally                                                                    
taxable  income.  She  addressed  the  need  to  adjust  for                                                                    
federal  bonds,  which  the  state  could  not  tax,  versus                                                                    
municipal bonds, which the state  could tax. For example, if                                                                    
a partnership  owned a  municipal or  federal bond  that was                                                                    
part of  the income source,  the income or  deduction needed                                                                    
to be  adjusted based on  how the  item (the bond)  had been                                                                    
allocated among  the partnerships on the  federal level. She                                                                    
deferred to DOR for further detail.                                                                                             
                                                                                                                                
4:08:55 PM                                                                                                                    
                                                                                                                                
Mr.  Spanos shared  that he  had  not been  involved in  the                                                                    
specific  language  change. He  viewed  item  of income  and                                                                    
income  as synonymous.  He noted  that the  Internal Revenue                                                                    
Code used  the language  "item of income"  frequently, which                                                                    
was perhaps why other states were using the same language.                                                                      
                                                                                                                                
Ms. Hansen  expanded upon  the reason  for the  change. When                                                                    
drafting    legislation,    Legislative    Legal    Services                                                                    
Legislative  tried to  be  as concise  as  possible. In  the                                                                    
current  situation,  it  was not  necessary  to  use  "item"                                                                    
because  the  income,  gain, loss,  or  deduction  were  the                                                                    
items. However,  the specific language in  the amendment was                                                                    
clearly  established language  used  throughout the  federal                                                                    
and state tax codes.                                                                                                            
                                                                                                                                
Representative  Wilson WITHDREW  her OBJECTION.  There being                                                                    
NO further OBJECTION, Amendment 9 was ADOPTED.                                                                                  
                                                                                                                                
4:10:27 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
4:11:34 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Co-Chair Seaton MOVED to  ADOPT Amendment 10, 30-LS0125\L.35                                                                    
(Nauman, 3/31/17) (copy on file):                                                                                               
                                                                                                                                
     Page 19, line 31, following "(b)":                                                                                         
                                                                                                                                
     Insert "A person  required to file a  return under this                                                                    
     chapter shall file the return on  a form or in a format                                                                    
     prescribed by the department. The  return is due to the                                                                    
     department at  the same  time and  in the  same manner,                                                                    
     including extensions, as  the taxpayer's federal income                                                                    
     tax  return  to  the  United  States  Internal  Revenue                                                                    
     Service."                                                                                                                  
                                                                                                                                
     Page 20, line 27:                                                                                                          
                                                                                                                                
     Delete "A taxpayer"                                                                                                        
     Insert "An individual"                                                                                                     
                                                                                                                                
     Page 20, line 29:                                                                                                          
                                                                                                                                
     Delete "taxpayers"                                                                                                         
     Insert "individuals"                                                                                                       
                                                                                                                                
     Page 20, following line 29:                                                                                                
                                                                                                                                
     Insert a new subsection to read:                                                                                           
                                                                                                                                
     "(i)   The  department   shall  adopt regulations  that                                                                    
     set out  requirements  for  a spouse, upon  request, to                                                                    
     be partially  or fully relieved from  joint and several                                                                    
     liability resulting from the I 9   joint filing of a                                                                       
     tax return."                                                                                                               
                                                                                                                                
     Page 23, following line 22:                                                                                                
                                                                                                                                
     "(b) Sections 26 U.S.C.   6654, 6662, 6664, 6694, 6695,                                                                    
     6700 - 6702, 6707, 6713,  7201, 7202, 7206, 7207, 7216,                                                                    
     7407,  and  7408  (Internal  Revenue  Code),  as  those                                                                    
     sections  read  on  January 1,  2017,  are  adopted  by                                                                    
     reference as a part of this chapter."                                                                                      
                                                                                                                                
     Reletter the following subsection accordingly.                                                                             
                                                                                                                                
     Page 23, line 24, following "(a)":                                                                                         
                                                                                                                                
     Insert "and (b)"                                                                                                           
                                                                                                                                
Representative Wilson OBJECTED for discussion.                                                                                  
                                                                                                                                
Ms. Hansen  explained that the amendment  was administrative                                                                    
and  had  been  mentioned  by  Mr.  Spanos  earlier  in  the                                                                    
meeting.  The amendment  clarified that  the tax  return was                                                                    
due to  DOR at the  same time  the federal tax  returns were                                                                    
due,  including any  extensions the  federal government  may                                                                    
offer. The current section "070"  in the bill specified that                                                                    
the tax was due at the same  time as federal tax, but it did                                                                    
not specify  when the  return was due.  She pointed  to page                                                                    
20, lines  27 and  29 clarified  that individual  was exempt                                                                    
from electronic  filing. She  explained that  previously the                                                                    
language had used the word  "taxpayer," which could apply to                                                                    
partnerships  withholding  on  behalf of  their  nonresident                                                                    
partners.   All   corporations   were   required   to   file                                                                    
electronically,  although  there  were  waivers  they  could                                                                    
obtain.  The amendment  would add  a subsection  on page  20                                                                    
outlining that  the department shall adopt  regulations that                                                                    
set out requirements  for a spouse to be  partially or fully                                                                    
relieved  from liability  from the  tax  under the  specific                                                                    
chapter.  She detailed  that normally  when  a couple  filed                                                                    
jointly  both spouses  were considered  liable for  the tax,                                                                    
but  there were  certain circumstances  where spouses  could                                                                    
apply to be held separately liable.                                                                                             
                                                                                                                                
Ms.  Hansen  directed  attention   to  page  23  to  Section                                                                    
43.22.095 where  definitions from the Internal  Revenue Code                                                                    
were  adopted as  if they  were referenced  in the  chapter.                                                                    
Some  of the  penalties used  by the  Internal Revenue  Code                                                                    
would also  be adopted.  She referred  to penalties  for the                                                                    
failure to  report transactions,  failure to collect  or pay                                                                    
tax,  understatement  by  a tax  preparer,  and  failing  to                                                                    
prevent   a  tax   preparer   from   engaging  in   unlawful                                                                    
activities. The  amendment would  adopt a list  of penalties                                                                    
by reference.                                                                                                                   
                                                                                                                                
4:15:21 PM                                                                                                                    
                                                                                                                                
Representative Wilson  remarked that for almost  every state                                                                    
an  individual was  liable  for what  their  spouse did  and                                                                    
typically  both  individuals were  required  to  sign a  tax                                                                    
return.   She  wondered   why  they   would  alleviate   the                                                                    
responsibility.                                                                                                                 
                                                                                                                                
Ms. Hansen  answered that  in most cases  it would  still be                                                                    
required. She deferred to Mr. Spanos for additional detail.                                                                     
                                                                                                                                
Mr.  Spanos  answered that  other  states  had the  type  of                                                                    
allowance as well. The specific  situation related to a case                                                                    
where  an individual  had committed  fraud and  their spouse                                                                    
was unaware of  the fraud. Under the  scenario, the innocent                                                                    
spouse would  not be  liable for  the penalty  in additional                                                                    
taxes imposed. The individual could  apply and would have to                                                                    
prove to DOR or the court  that they had no knowledge of the                                                                    
fraud.                                                                                                                          
                                                                                                                                
Representative  Wilson believed  a  person  should not  sign                                                                    
something they did  not believe was accurate.  She asked how                                                                    
someone would prove they did not know something.                                                                                
                                                                                                                                
Mr.  Spanos  responded  that because  Alaska  did  not  have                                                                    
individual income tax  the issue had not been  dealt with in                                                                    
Alaska previously. He  provided an example of  a husband who                                                                    
owned  a business  partnership  that  was committing  fraud.                                                                    
Under  the scenario  the income  doubled  on the  individual                                                                    
income tax  return. He  explained that  the wife  had signed                                                                    
the  return, but  she would  have  had no  knowledge of  the                                                                    
fraud taking place.  Most states had a  provision allowing a                                                                    
person to prove what they would  need to provide in order to                                                                    
prove they had  no knowledge of the fraud. He  would need to                                                                    
speak with other states in  order to write the regulation if                                                                    
the amendment passed.                                                                                                           
                                                                                                                                
Representative Wilson  asked if  the federal  government had                                                                    
the provision.                                                                                                                  
                                                                                                                                
4:17:36 PM                                                                                                                    
                                                                                                                                
Mr. Spanos believed so, but he did not know for certain.                                                                        
                                                                                                                                
Representative Wilson surmised  it would be very  hard for a                                                                    
person to  prove they did  not know something.  She detailed                                                                    
that when an individual signed  their income tax return they                                                                    
were verifying  the information was  correct to the  best of                                                                    
their knowledge.  She thought  the amendment  language would                                                                    
mean a  person would not  have to file a  significant amount                                                                    
of information in  order to be relieved  from the liability.                                                                    
She  asked   if  there  was   someone  available   from  the                                                                    
Department of  Law (DOL)  who would  be responsible  for the                                                                    
provision. She thought it could be expensive.                                                                                   
                                                                                                                                
Co-Chair Foster relayed there was  no one available from DOL                                                                    
at present.                                                                                                                     
                                                                                                                                
Representative  Wilson  could  not agree  with  the  portion                                                                    
without  knowing  the cost  and  whether  it could  even  be                                                                    
utilized.  She  would  be surprised  to  learn  the  federal                                                                    
government had similar loopholes.                                                                                               
                                                                                                                                
Co-Chair Seaton  clarified there  instances of  joint filers                                                                    
where  one  spouse  was  a  resident and  the  other  was  a                                                                    
nonresident.  He  explained  that  an  individual  could  be                                                                    
conducting  business in  Alaska  and the  spouse could  file                                                                    
jointly  in  another  state.  He  surmised  that  under  the                                                                    
example a  spouse may not  have knowledge of what  had taken                                                                    
place. There were provisions specifying  that all of the tax                                                                    
was counted as  resident tax - there was  not tax avoidance.                                                                    
There may  be a  non-working spouse  who was  a nonresident.                                                                    
There  could  be a  reasonable  situation  where one  spouse                                                                    
could claim  they had nothing  to do with the  situation. It                                                                    
had been one of the  problems with the previous bill version                                                                    
related to joint filers (one of  whom was a resident and the                                                                    
other  was  a nonresident).  He  stated  that with  adjusted                                                                    
gross income the issue had been somewhat solved.                                                                                
                                                                                                                                
Representative   Wilson   appreciated  the   comments,   but                                                                    
underscored  that  the  spouse  [with no  knowledge  of  the                                                                    
fraud] would  still be  required to sign.  She spoke  to her                                                                    
personal  experience with  tax  filing.  She continued  that                                                                    
even with  one person  in-state and the  other out-of-state,                                                                    
she  surmised DOR  would still  require both  individuals to                                                                    
sign. She did  not know what the cost would  end up being if                                                                    
the issue went  to court. She wondered  what information the                                                                    
state  would require  for a  person to  prove they  were not                                                                    
liable. She  stated that in  most cases the more  people who                                                                    
were  responsible for  paying increased  the likelihood  the                                                                    
tax would get paid.                                                                                                             
                                                                                                                                
4:22:28 PM                                                                                                                    
                                                                                                                                
Representative Wilson MAINTAINED her OBJECTION.                                                                                 
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Grenn,  Stutes, Ortiz,  Pruitt, Thompson,  Foster,                                                                    
Seaton                                                                                                                          
OPPOSED: Tilton, Wilson                                                                                                         
                                                                                                                                
Vice-Chair Gara was absent from the vote.                                                                                       
                                                                                                                                
The MOTION  PASSED (7/2). There being  NO further OBJECTION,                                                                    
Amendment 10 was ADOPTED.                                                                                                       
                                                                                                                                
4:23:16 PM                                                                                                                    
                                                                                                                                
Representative  Ortiz  MOVED  to  ADOPT  Amendment  14,  30-                                                                    
LS0125\L.29 (Nauman, 3/30/17) (copy on file):                                                                                   
                                                                                                                                
     Page 12, line 7:                                                                                                           
                                                                                                                                
     Delete "and"                                                                                                               
                                                                                                                                
     Page 12, line 10, following the second occurrence of                                                                       
     "individual":                                                                                                              
                                                                                                                                
     Insert"; and                                                                                                               
                                                                                                                                
     (I)    50 percent  of municipal property taxes  paid in                                                                    
     the taxable  year on the  residence in the state  of an                                                                    
     individual;  the deduction   under   this  subparagraph                                                                    
     may  not   be  taken   for  more  than   one  residence                                                                    
     for  each  tax return"                                                                                                     
                                                                                                                                
Representative Pruitt OBJECTED.                                                                                                 
                                                                                                                                
Representative  Ortiz  explained  that the  amendment  would                                                                    
allow  an individual  to deduct  up to  50 percent  of their                                                                    
local  property taxes  paid for  an  Alaskan residence.  The                                                                    
deduction  would  be limited  to  one  residence per  return                                                                    
filed. He explained  that the concept was  fairly simple and                                                                    
spoke  to the  idea  of  giving credit  to  people who  were                                                                    
currently  paying property  taxes. He  detailed there  was a                                                                    
2.65 mill assigned  to property taxes that  went directly to                                                                    
support   state  education   costs.   The  amendment   would                                                                    
effectively  acknowledge   that  and  give  credit   to  the                                                                    
individuals paying that particular  tax. The deduction would                                                                    
be put against the federal  adjusted gross income line (like                                                                    
the  personal  income  exemption   of  $4,000  and  the  PFD                                                                    
deduction);  the amendment  would enable  the individual  to                                                                    
add 50 percent of their  property tax bill before getting to                                                                    
the Alaska adjusted gross income.                                                                                               
                                                                                                                                
Representative Pruitt  clarified that did not  object to the                                                                    
amendment,  but he  planned  to offer  an  amendment to  the                                                                    
amendment, which was currently being photocopied.                                                                               
                                                                                                                                
Co-Chair Foster  asked for  clarification on  the amendment.                                                                    
He referred  to Representative Ortiz's explanation  that the                                                                    
deduction would be included above  the adjusted gross income                                                                    
line.  He  calculated   that  if  a  person   had  a  $4,000                                                                    
exemption,  a $1,000  deduction for  the PFD,  and a  $1,000                                                                    
property tax  deduction. He asked  for verification  that if                                                                    
the individual  earned $50,000, their adjusted  gross income                                                                    
would be $44,000.                                                                                                               
                                                                                                                                
Representative  Ortiz   agreed.  He  added   that  committee                                                                    
members had received a copy of  an email from Mr. Spanos who                                                                    
had  done  an  analysis   of  the  amendment's  impact.  The                                                                    
amendment  would reduce  the amount  of income  taken by  an                                                                    
income tax by about $6.3  million. He believed the projected                                                                    
revenue from an income tax  was about $65 million, which the                                                                    
amendment would reduce by about $6.3 million.                                                                                   
                                                                                                                                
Representative  Wilson remarked  that renters  paid property                                                                    
taxes. She  elaborated that any  good landlord  would ensure                                                                    
that the costs were included  in the rent. She detailed that                                                                    
some  states  gave  credit for  renters.  She  reminded  the                                                                    
committee that individuals who may  not be able to afford to                                                                    
buy a  home were  still paying.  She believed  the amendment                                                                    
would  pick   one  group  over  another,   which  she  found                                                                    
concerning.                                                                                                                     
                                                                                                                                
4:27:27 PM                                                                                                                    
                                                                                                                                
Representative Grenn echoed  Representative Wilson's concern                                                                    
and was  trying to  determine how to  draft an  amendment to                                                                    
provide  a  deduction  to  renters. He  used  a  10  percent                                                                    
deduction from renters' income per year as an example.                                                                          
                                                                                                                                
Representative Tilton  asked if the definition  of residence                                                                    
was  included.  She noted  that  the  amendment specified  a                                                                    
deduction could  not be taken  from more than  one residence                                                                    
and she  believed the  sponsor was  speaking to  a residence                                                                    
inside and outside  the state. She asked if  it was possible                                                                    
to have more than one residence in the state.                                                                                   
                                                                                                                                
Representative Ortiz cited  the specific amendment language:                                                                    
"50 percent of municipal property  taxes paid in the taxable                                                                    
year on  the residence in the  state of an   individual; the                                                                    
deduction   under  this  subparagraph  may   not  be   taken                                                                    
for  more  than  one   residence  for  each  tax return." He                                                                    
clarified  that if  a person  had two  residences in  Alaska                                                                    
they would not be able to take a second deduction.                                                                              
                                                                                                                                
Representative  Tilton  asked   for  clarification  that  an                                                                    
individual would  select the residence that  would bring the                                                                    
most beneficial deduction.                                                                                                      
                                                                                                                                
Representative Ortiz agreed.                                                                                                    
                                                                                                                                
4:29:34 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
4:41:08 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Representative  Pruitt   MOVED  to  ADOPT  Amendment   1  to                                                                    
Amendment 14.                                                                                                                   
                                                                                                                                
Co-Chair Seaton OBJECTED for discussion.                                                                                        
                                                                                                                                
Representative  Pruitt  explained   that  the  amendment  to                                                                    
Amendment  14 would  exempt income  received  from the  U.S.                                                                    
government as  retirement pay  for a  retired member  of the                                                                    
Armed Services of the U.S.  and National Guard of any state.                                                                    
The   amendment  acknowledged   appreciation  of   the  U.S.                                                                    
military  personnel and  would  include  in the  opportunity                                                                    
from  removing  it  from   an  individual's  adjusted  gross                                                                    
income.                                                                                                                         
                                                                                                                                
Co-Chair Seaton  asked for verification that  "some of this"                                                                    
was already exempt above adjusted gross income.                                                                                 
                                                                                                                                
Representative Pruitt responded that  some of the retirement                                                                    
was exempt, but a portion was considered income.                                                                                
Mr.  Spanos  believed  some retirement  income  was  already                                                                    
excluded from  adjusted gross  income, but  he did  not have                                                                    
the specifics. He offered to get back to the committee.                                                                         
                                                                                                                                
Co-Chair Seaton  objected to the  amendment to  Amendment 14                                                                    
because  a  portion  of  the  retirement  income  for  Armed                                                                    
Services were already excluded  under adjusted gross income.                                                                    
He spoke to the amount  determined by the federal government                                                                    
for military members for deduction.  He imagined there was a                                                                    
worksheet  an  individual  went   through  and  the  outcome                                                                    
depended on  the person's  level of  income. He  surmised it                                                                    
would all be  calculated prior to getting  to adjusted gross                                                                    
income.                                                                                                                         
                                                                                                                                
4:44:00 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
4:44:54 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Representative  Ortiz was  not opposed  to the  idea of  the                                                                    
amendment to  Amendment 14; however,  he believed  the issue                                                                    
was separate and that there should be a separate amendment.                                                                     
                                                                                                                                
Representative  Wilson disagreed.  She underscored  that the                                                                    
door had been opened on things  to be included and things to                                                                    
be excluded.  She believed there  had been testimony  on the                                                                    
topic -  the committee had  heard from military  and seniors                                                                    
about their  income. She stated that  young military members                                                                    
did not make  high pay - many were on  food stamps and other                                                                    
support.  She  believed  if  the   committee  was  going  to                                                                    
consider an  exemption for one  group it needed  to consider                                                                    
all groups.  She thought the  military was important  to the                                                                    
state. She  also did  not believe enough  could be  done for                                                                    
service members.                                                                                                                
                                                                                                                                
4:46:48 PM                                                                                                                    
                                                                                                                                
Vice-Chair Gara recognized there  were military members that                                                                    
did not  make much in the  way of a pension.  He referred to                                                                    
his colleague's  statement that  some military  members were                                                                    
on food  stamps. He  elaborated that the  bill did  not tax,                                                                    
with  the   PFD,  income  below  roughly   $15,500  [for  an                                                                    
individual]  and $31,000  for a  joint filer.  Additionally,                                                                    
$4,000  was tax  free  per dependent.  He  thought the  food                                                                    
stamp issue was addressed. He  asked what portion of pension                                                                    
income was already excluded from taxation.                                                                                      
                                                                                                                                
Mr. Spanos responded  that he had access  to the information                                                                    
online and  it appeared that military  retirement pay, based                                                                    
on age or  length of service, was  considered taxable income                                                                    
for  federal purposes.  However,  disability retirement  pay                                                                    
and  veterans  benefits  were fully  excluded  from  taxable                                                                    
income.                                                                                                                         
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Grenn,  Stutes, Ortiz,  Pruitt, Thompson,  Tilton,                                                                    
Wilson, Gara, Foster                                                                                                            
OPPOSED: Seaton                                                                                                                 
                                                                                                                                
The  MOTION   PASSED  (9/1).   There  being   NO  OBJECTION,                                                                    
Amendment 1 to Amendment 14 was ADOPTED.                                                                                        
                                                                                                                                
4:50:09 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
4:50:24 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Representative Pruitt  MOVED to ADOPT Amendment  2 Amendment                                                                    
14.                                                                                                                             
                                                                                                                                
Representative Wilson OBJECTED.                                                                                                 
                                                                                                                                
Representative  Pruitt  explained   that  the  amendment  to                                                                    
Amendment 14 would exempt social  security benefits [from an                                                                    
income tax].  He discussed the large  and growing population                                                                    
of  seniors  in Alaska.  He  had  been  told by  the  Alaska                                                                    
Council  on  Aging  that  Alaska  had  the  fastest  growing                                                                    
population of retired individuals  per capita. The amendment                                                                    
would  recognize  that an  income  tax  would put  an  undue                                                                    
burden on some of the state's seniors.                                                                                          
                                                                                                                                
Representative  Wilson wanted  to amend  the amendment.  She                                                                    
stated there  were many  individuals who  received pensions,                                                                    
but  did not  receive social  security benefits  due to  the                                                                    
kind of job  they had. She opined that if  the exemption was                                                                    
given to  some seniors  it should be  given to  all seniors.                                                                    
She suggested adding "and pensions" to the amendment.                                                                           
                                                                                                                                
Representative  Pruitt  did  not  have a  problem  with  the                                                                    
suggestion.                                                                                                                     
                                                                                                                                
4:52:14 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
4:53:49 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Co-Chair Foster noted  the committee would take  a break. He                                                                    
asked  Representative   Pruitt  to  withdraw   his  proposed                                                                    
Amendment  2  to  Amendment  14 and  bring  back  a  written                                                                    
amendment after the break.                                                                                                      
                                                                                                                                
Representative Pruitt  WITHDREW Amendment 2 to  Amendment 14                                                                    
with the intent to address the issue later.                                                                                     
                                                                                                                                
4:54:45 PM                                                                                                                    
RECESSED                                                                                                                        
                                                                                                                                
6:29:30 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Representative Ortiz WITHDREW Amendment 14.                                                                                     
                                                                                                                                
Representative Ortiz  WITHDREW Amendment  15, 30-LS0125\L.29                                                                    
(Nauman, 3/30/17) (copy on file).                                                                                               
                                                                                                                                
6:30:06 PM                                                                                                                    
                                                                                                                                
Vice-Chair Gara MOVED to  ADOPT Amendment 16, 30-LS0125\L.27                                                                    
(Nauman, 3/30/17) (copy  on file). [Note: due  to the length                                                                    
of the amendment it has not  been included here. See copy on                                                                    
file for details.]                                                                                                              
                                                                                                                                
Representative Wilson OBJECTED.                                                                                                 
                                                                                                                                
Vice-Chair Gara  explained that  he had  worked with  DOR on                                                                    
the amendment language. He stated  that sometimes a bill was                                                                    
difficult   to  read   and  he   believed  people   had  the                                                                    
misimpression they  would start getting taxed  at $10,000 of                                                                    
salary  or  pension,  which was  inaccurate.  The  amendment                                                                    
included legislative intent language  that income as defined                                                                    
under the  bill up to  $14,300 for  an individual and  up to                                                                    
$28,600 for joint filers was  not subject to the income tax.                                                                    
He added that  a $4,000 personal deduction  was included. He                                                                    
MOVED to  AMEND Amendment  16 for clarity.  He noted  he had                                                                    
run the amended language by Mr. Spanos for accuracy:                                                                            
                                                                                                                                
     Page 1, line 6:                                                                                                            
     After "individual", insert: ", plus income from                                                                            
     Permanent Fund Dividends,"                                                                                                 
                                                                                                                                
     Page 1, line 9:                                                                                                            
     After "dependents", insert ", plus income from                                                                             
     Permanent Fund Dividends,"                                                                                                 
                                                                                                                                
     Page 1, Lines 13 and 14:                                                                                                   
     DELETE:                                                                                                                    
     "(4) in addition to the deductions described in this                                                                       
     section, the permanent fund dividend will not be                                                                           
     subject to the income tax under AS 43.22."                                                                                 
                                                                                                                                
     Renumber all remaining sections accordingly.                                                                               
                                                                                                                                
Representative Wilson OBJECTED.                                                                                                 
                                                                                                                                
Vice-Chair Gara  explained that  the amendment  to Amendment                                                                    
16 would move the concept  in paragraph 4 into subsections 1                                                                    
and  2.  He read  the  amendment  language. In  addition  to                                                                    
deductions described in  his original amendment explanation,                                                                    
the PFD would  not be subject to the income  tax. The intent                                                                    
was to include  clear language at the beginning  of the bill                                                                    
what income would not be taxed by the bill.                                                                                     
                                                                                                                                
Representative  Wilson WITHDREW  her OBJECTION.  There being                                                                    
NO OBJECTION, Amendment 1 to Amendment 16 was ADOPTED.                                                                          
                                                                                                                                
Representative Wilson  understood Amendment 16  pertained to                                                                    
legislative intent. She asked  for verification the brackets                                                                    
in the bill were changed, but the amounts were not.                                                                             
                                                                                                                                
Vice-Chair  Gara replied  that it  was accurate  at present,                                                                    
but if  the brackets in the  bill and the income  levels and                                                                    
deductions were  changed, the amendment language  would need                                                                    
to be rewritten.                                                                                                                
                                                                                                                                
Representative  Wilson  thought  there  was  some  inflation                                                                    
proofing in the  bill and wondered if that  would change any                                                                    
of the amendment's legislative intent.                                                                                          
                                                                                                                                
Vice-Chair  Gara responded  that the  inflation proofing  in                                                                    
the future would  make less income taxable -  there would be                                                                    
a higher income  limit. The intent would become  part of the                                                                    
uncodified  law  and  would  not  show  up  in  statute.  He                                                                    
detailed  that  legislative  intent  could  not  change  the                                                                    
wording of the  bill. The legislative intent  would not have                                                                    
an  impact  when the  schedule  was  taken  over by  DOR  to                                                                    
inflation proof the amount of income that was not taxable.                                                                      
                                                                                                                                
6:34:50 PM                                                                                                                    
                                                                                                                                
Representative  Wilson  asked   for  verification  that  the                                                                    
amendment language  would just be  for people to  follow the                                                                    
issue  along in  the bill.  She  surmised that  if the  bill                                                                    
passed and  became law any  legislative intent would  not be                                                                    
included in statute.                                                                                                            
                                                                                                                                
Vice-Chair Gara replied that uncodified  law did not show up                                                                    
in  statute books,  but it  could  be found  if someone  was                                                                    
looking for intent.  The bill was clear  that the nontaxable                                                                    
income portion  would increase with increases  in inflation.                                                                    
He reasoned that if desired  it would be possible to include                                                                    
language specifying that the amounts  in subsections 1 and 2                                                                    
would  be   inflation  proofed  per  the   legislation.  The                                                                    
amendment would not show up  in statute and would not change                                                                    
the meaning of the bill.                                                                                                        
                                                                                                                                
Representative  Wilson WITHDREW  her OBJECTION.  There being                                                                    
NO further OBJECTION, Amendment 16 was ADOPTED as amended.                                                                      
                                                                                                                                
6:36:22 PM                                                                                                                    
                                                                                                                                
Representative  Pruitt MOVED  to ADOPT  Amendment 18.5,  30-                                                                    
LS0125\L.33 (Nauman, 3/31/17) (copy on file):                                                                                   
                                                                                                                                
     Page 1, lines 4- 8:                                                                                                        
                                                                                                                                
     Delete  "relating   to  the   taxation  of   income  of                                                                    
     individuals, partners, shareholders  in S corporations,                                                                    
     trusts, and estates; relating to  a payment against the                                                                    
     individual income tax from  the permanent fund dividend                                                                    
     disbursement;   repealing  tax credits  applied against                                                                    
     the tax on individuals under  the Alaska Net Income Tax                                                                    
     Act;"                                                                                                                      
                                                                                                                                
     Page 7, line 5, through page 27, line 14:                                                                                  
                                                                                                                                
     Delete all material.                                                                                                       
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
     Page 29, lines 6- 11:                                                                                                      
                                                                                                                                
     Delete all material.                                                                                                       
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
     Page 29, line 13:                                                                                                          
                                                                                                                                
     Delete all material.                                                                                                       
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
     Page 29, lines 25 - 28:                                                                                                    
                                                                                                                                
     Delete all material.                                                                                                       
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
     Page 29, line 31, through page 30, line 3:                                                                                 
                                                                                                                                
     Delete all material.                                                                                                       
                                                                                                                                
     Page 30, line 4:                                                                                                           
     Delete "(b)"                                                                                                               
     Insert "TRANSITION: REGULATIONS."                                                                                          
                                                                                                                                
     Page 30, line 10:                                                                                                          
                                                                                                                                
     Delete "sec. 24" in both places                                                                                            
                                                                                                                                
     Insert "sec. 20" in both places 14                                                                                         
     Page 30, line 12:                                                                                                          
                                                                                                                                
     Delete "24, 26, and 27"                                                                                                    
                                                                                                                                
     Insert "20, 21, and 22"                                                                                                    
                                                                                                                                
     Page 30, 1ine 15:                                                                                                          
                                                                                                                                
     Delete all material.                                                                                                       
                                                                                                                                
     Renumber the following bill sections accordingly. 23                                                                       
     Page 30, line 18:                                                                                                          
                                                                                                                                
     Delete "sees. 28 - 32"                                                                                                     
                                                                                                                                
     Insert "sees. 23- 26"                                                                                                      
                                                                                                                                
Co-Chair Seaton OBJECTED.                                                                                                       
                                                                                                                                
Representative Pruitt explained the amendment would remove                                                                      
the income tax portion of the bill.                                                                                             
                                                                                                                                
Co-Chair Seaton MAINTAINED his OBJECTION.                                                                                       
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Pruitt, Thompson, Tilton, Wilson                                                                                      
OPPOSED: Gara, Grenn, Stutes, Ortiz, Seaton, Foster                                                                             
                                                                                                                                
The MOTION FAILED (4/6).                                                                                                        
                                                                                                                                
6:37:57 PM                                                                                                                    
                                                                                                                                
Co-Chair Seaton MOVED to ADOPT Amendment 20, 30-LS0125\L.12                                                                     
(Nauman, 3/28/17) (copy on file):                                                                                               
                                                                                                                                
     Page 1, lines 2- 3:                                                                                                        
                                                                                                                                
     Delete "relating to the management of the budget                                                                           
     reserve fund;"                                                                                                             
                                                                                                                                
     Page 3, lines 10- 18:                                                                                                      
                                                                                                                                
     Delete all material.                                                                                                       
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
     Page 4, line 27:                                                                                                           
                                                                                                                                
     Delete "sec. 8"                                                                                                            
     Insert "sec. 7"                                                                                                            
                                                                                                                                
     Page 6, line 13:                                                                                                           
                                                                                                                                
     Delete "sec. 12"                                                                                                           
     Insert "sec. 11"                                                                                                           
                                                                                                                                
     Page 29, line 27:                                                                                                          
                                                                                                                                
     Delete "sec.  17"                                                                                                          
     Insert "sec. 16"                                                                                                           
                                                                                                                                
     Page 29, line 28:                                                                                                          
                                                                                                                                
     Delete "sec. 17"                                                                                                           
     Insert "sec. 16"                                                                                                           
                                                                                                                                
     Page 30, line 10:                                                                                                          
                                                                                                                                
     Delete "sec. 24" in both places                                                                                            
     Insert "sec. 23" in both places                                                                                            
                                                                                                                                
     Page 30, line 12:                                                                                                          
                                                                                                                                
     Delete "24, 26, and 27"                                                                                                    
     Insert "23, 25, and 26"                                                                                                    
                                                                                                                                
     Page 30, line 15:                                                                                                          
                                                                                                                                
     Delete "Sections 16, 17, 20, 22, and 25"                                                                                   
     Insert "Sections 15, 16, 19, 21, and 24"                                                                                   
                                                                                                                                
     Page 30, line 16:                                                                                                          
                                                                                                                                
     Delete "Section 9"                                                                                                         
     Insert "Section 8"                                                                                                         
                                                                                                                                
     Page 30, line 17:                                                                                                          
                                                                                                                                
     Delete "Section 13"                                                                                                        
     Insert "Section 12"                                                                                                        
                                                                                                                                
     Page 30, line 18:                                                                                                          
                                                                                                                                
     Delete "sees. 28 - 32"                                                                                                     
     Insert "sees. 27 - 31"                                                                                                     
                                                                                                                                
Representative Wilson OBJECTED.                                                                                                 
                                                                                                                                
Co-Chair Seaton  explained that  the amendment  would delete                                                                    
the following  language "relating  to the management  of the                                                                    
budget reserve  fund." He  specified that  Legislative Legal                                                                    
Services  and DOL  had expressed  that  the language  caused                                                                    
single subject concern.                                                                                                         
                                                                                                                                
Representative Wilson stated that  the bill already included                                                                    
two  different subjects:  the Permanent  Fund and  an income                                                                    
tax. She believed that at a  time when the state was looking                                                                    
for any way to make extra  money off of its money, it seemed                                                                    
the  state would  want to  take  advantage of  the item  the                                                                    
amendment would delete.                                                                                                         
                                                                                                                                
Representative  Pruitt  agreed  that the  bill  was  already                                                                    
violating the single subject rule  with its inclusion of the                                                                    
Permanent Fund  and the  income tax.  He did  not understand                                                                    
why the bill  could include those subjects  but not language                                                                    
pertaining to managing  the money in the  budget reserve. He                                                                    
stressed  that if  the  committee was  going  to remove  the                                                                    
budget  reserve language  for that  reason,  it should  also                                                                    
apply  the   single  subject  rule   to  the   entire  bill.                                                                    
Otherwise, he believed the state would get sued.                                                                                
                                                                                                                                
Representative Wilson MAINTAINED her OBJECTION.                                                                                 
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Gara, Grenn, Stutes, Ortiz, Seaton, Foster                                                                            
OPPOSED: Pruitt, Thompson, Tilton, Wilson                                                                                       
                                                                                                                                
The MOTION  PASSED (6/4). There being  NO further OBJECTION,                                                                    
Amendment 20 was ADOPTED.                                                                                                       
                                                                                                                                
6:40:39 PM                                                                                                                    
                                                                                                                                
Co-Chair Seaton MOVED to  ADOPT Amendment 21, 30-LS0125\L.11                                                                    
(Nauman, 3/28/17) (copy on file):                                                                                               
                                                                                                                                
     Page 1, lines 1 - 2:                                                                                                       
                                                                                                                                
     Delete "relating to the Alaska permanent fund;                                                                             
     relating to the procurement by the Alaska Permanent                                                                        
     Fund Corporation;"                                                                                                         
                                                                                                                                
     Page 2, line 1, through page 3, line 2:                                                                                    
                                                                                                                                
     Delete all material.                                                                                                       
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
                                                                                                                                
     Page 4, line 27:                                                                                                           
                                                                                                                                
     Delete "sec. 8"                                                                                                            
     Insert "sec. 6"                                                                                                            
                                                                                                                                
     Page 6, line 13:                                                                                                           
                                                                                                                                
     Delete "sec. 12"                                                                                                           
     1nsert "sec. 10"                                                                                                           
                                                                                                                                
     Page 29, line 27:                                                                                                          
                                                                                                                                
     Delete "sec. 17"                                                                                                           
     Insert "sec. 15"                                                                                                           
                                                                                                                                
     Page 29, line 28:                                                                                                          
                                                                                                                                
     Delete "sec. 17"                                                                                                           
     Insert "sec. 15"                                                                                                           
                                                                                                                                
     Page 29, line 31:                                                                                                          
                                                                                                                                
     Delete "(a)"                                                                                                               
                                                                                                                                
     Page 30, lines 4 - 7:                                                                                                      
                                                                                                                                
     Delete all material.                                                                                                       
                                                                                                                                
     Page 30, line 10:                                                                                                          
                                                                                                                                
     Delete "sec. 24" in both places                                                                                            
     Insert "sec. 22" in both places                                                                                            
                                                                                                                                
     Page 30, line 12:                                                                                                          
                                                                                                                                
     Delete "24, 26, and 27"                                                                                                    
     Insert "22, 24, and 25"                                                                                                    
                                                                                                                                
     Page 30, line 14:                                                                                                          
                                                                                                                                
     Delete all material.                                                                                                       
                                                                                                                                
     Renumber the following bill sections accordingly.                                                                          
     Page 30, line 15:                                                                                                          
                                                                                                                                
     Delete "Sections 16, 17, 20, 22, and 25"                                                                                   
     Insert "Sections 14, 15, 18, 20, and 23"                                                                                   
                                                                                                                                
     Page 30, line 16:                                                                                                          
                                                                                                                                
     Delete "Section 9"                                                                                                         
     Insert "Section 7"                                                                                                         
                                                                                                                                
     Page 30, line 17:                                                                                                          
                                                                                                                                
     Delete "Section 13"                                                                                                        
     Insert "Section 11"                                                                                                        
                                                                                                                                
     Page 30, line 18:                                                                                                          
                                                                                                                                
     Delete "sees. 28- 32"                                                                                                      
     Insert "sees. 26 - 29"                                                                                                     
                                                                                                                                
Representative Wilson OBJECTED.                                                                                                 
                                                                                                                                
Co-Chair Seaton explained that the  amendment would delete a                                                                    
provision  that   violated  the  single  subject   rule.  He                                                                    
detailed that  the bill  related to  revenues for  the state                                                                    
and  the  bill  related  to a  procurement  process  by  the                                                                    
Permanent Fund, which was quite different.                                                                                      
                                                                                                                                
Representative Pruitt asked if DOL  had been asked about its                                                                    
thoughts  on the  single subject  rule before  the provision                                                                    
had  been added.  He stated  that  the bill  was already  in                                                                    
violation  of the  single subject  rule. He  elaborated that                                                                    
the  legislation would  use  some of  the  money the  Alaska                                                                    
Permanent Fund  Corporation (APFC) had wisely  been managing                                                                    
for the state  and would not give the  corporation the tools                                                                    
to manage it appropriately. He  continued that APFC had said                                                                    
it needed the language the  amendment would delete, which he                                                                    
noted  had been  included in  a bill  the previous  year and                                                                    
there had been  no concerns at that time.  He believed there                                                                    
was a  double standard going  on. He asked  what Legislative                                                                    
Legal Services  had said about  the whole bill.  He believed                                                                    
the agency  had specified that  the whole bill  violated the                                                                    
single subject rule.                                                                                                            
                                                                                                                                
6:42:35 PM                                                                                                                    
                                                                                                                                
Representative Wilson  wanted to see the  legal opinion. She                                                                    
did  not recall  receiving a  legal opinion  related to  the                                                                    
previous amendment or  the current one. She  stated that the                                                                    
committee had  voted "on it"  the previous week and  she had                                                                    
never received  a call from Legislative  Legal Services. She                                                                    
could not  imagine the agency  would not want to  ensure the                                                                    
committee "stayed on the straight  and narrow" pertaining to                                                                    
the   legislation.  It   was  her   understanding  that   if                                                                    
legislation  violated  the  single  subject  rule  it  could                                                                    
result in  the entire bill  getting thrown out.  She thought                                                                    
all committee  members would  want to  be very  careful with                                                                    
the single  subject rule. She  stated that the  language the                                                                    
amendments would remove had just  been put into the bill and                                                                    
would have violated the rule,  compromising the entire bill.                                                                    
She commented on  the broadness of the bill  title and noted                                                                    
that  during  her tenure  in  the  legislature it  had  been                                                                    
possible to "pretty  much stick anything in as  long as it's                                                                    
got  something in  common."  She stated  that  the bill  was                                                                    
going after  people's hard earned  money. She  reasoned that                                                                    
the  language the  amendment would  remove would  save money                                                                    
and result in more money going  to the people if it remained                                                                    
in  the  bill. She  underscored  that  the language  did  no                                                                    
damage and gave APFC - that  had shown it knew how to invest                                                                    
money  -  the  ability  to   do  its  job  better  and  more                                                                    
efficiently.  She stated  that  including  the language  was                                                                    
smart. She reasoned that when  efficiency could be increased                                                                    
and  more  money  could  be  made  on  existing  funds,  the                                                                    
legislature  should be  doing everything  it  could to  make                                                                    
that happen.                                                                                                                    
                                                                                                                                
Vice-Chair Gara stated that he  would support the concept in                                                                    
a  way that  could  be done  constitutionally. He  continued                                                                    
that legislators  had all sworn to  uphold the constitution.                                                                    
He  opined  that  people  had   been  very  loose  with  the                                                                    
constitutional provision on the  single subject rule in past                                                                    
years. He relayed  that he had taken  significant "heat" for                                                                    
trying  to follow  what he  believed was  the constitutional                                                                    
role.  He  stressed that  the  legislature  knew from  legal                                                                    
memos  that if  something was  inserted in  legislation that                                                                    
violated the  constitutional provision it  could potentially                                                                    
make the  entire bill  unconstitutional and  the legislature                                                                    
would not find  out until a court ruling. He  stated that he                                                                    
would  love to  include a  foster care  bill in  the current                                                                    
legislation,  but that  was not  possible  because it  would                                                                    
violate the  single subject rule. He  referred to statements                                                                    
made that including the Permanent  Fund and an income tax in                                                                    
one  bill was  an issue  he would  also consider.  He stated                                                                    
they  were both  revenue  bills,  but he  would  want to  be                                                                    
convinced there  was no single  subject problem - so  far he                                                                    
had been convinced there was  not. Whereas, the language the                                                                    
amendment would remove seemed  to violate the constitutional                                                                    
provision.   He  would   support   the   subject  in   other                                                                    
legislation.                                                                                                                    
                                                                                                                                
Co-Chair Seaton discussed that the  bill was a state revenue                                                                    
restructuring  act. The  provision that  Amendment 21  would                                                                    
delete had  been added to the  bill as an amendment.  He did                                                                    
not  know whether  the  maker of  the  amendment obtained  a                                                                    
legal memo  stating it  would be a  violation of  the single                                                                    
subject rule.  He elaborated that  when constructing  a bill                                                                    
it  was  common  to  receive memos  from  Legislative  Legal                                                                    
Services advising  of a problem.  He relayed that  an income                                                                    
tax  and the  Permanent Fund  restructuring both  fell under                                                                    
the  topic  of  the  state  revenue  restructuring  act.  He                                                                    
furthered that a procurement process  by APFC was outside of                                                                    
revenue restructuring - it was a managerial method.                                                                             
                                                                                                                                
Representative  Pruitt asked  if there  was a  legal opinion                                                                    
specifying  the  bill did  not  violate  the single  subject                                                                    
rule.                                                                                                                           
                                                                                                                                
Co-Chair  Seaton replied  he had  no  legal opinion  stating                                                                    
that   the   bill   as   introduced   (the   state   revenue                                                                    
restructuring act) violated the single subject rule.                                                                            
                                                                                                                                
6:48:06 PM                                                                                                                    
                                                                                                                                
Representative  Wilson  read from  a  legal  opinion on  the                                                                    
single subject rule dated April 16, 2016:                                                                                       
                                                                                                                                
     All that  is necessary is  that the act  should embrace                                                                    
     some  one  general  subject;  and  by  this  is  meant,                                                                    
     merely, that  all matters treated of  should fall under                                                                    
     some one general idea, be  so connected with or related                                                                    
     to  each   other,  either   logically  or   in  popular                                                                    
     understanding, as  to be parts  of, or germane  to, one                                                                    
     general subject.                                                                                                           
                                                                                                                                
Representative  Wilson stated  "talking about  the Permanent                                                                    
Fund,  this talks  about the  Permanent Fund  - I  would say                                                                    
that that would definitely pass the one subject rule."                                                                          
                                                                                                                                
Co-Chair Seaton explained the bill  before the committee was                                                                    
a state revenue restructuring  act and a procurement process                                                                    
did not  deal with revenue.  The procurement process  was an                                                                    
internal revenue  process by  APFC and  fell outside  of the                                                                    
revenue restructuring topic.                                                                                                    
                                                                                                                                
Representative Pruitt MAINTAINED the OBJECTION.                                                                                 
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Gara, Grenn, Stutes, Ortiz, Foster, Seaton                                                                            
OPPOSED: Thompson, Tilton, Wilson, Pruitt                                                                                       
                                                                                                                                
The MOTION  PASSED (6/4). There being  NO further OBJECTION,                                                                    
Amendment 21 was ADOPTED.                                                                                                       
                                                                                                                                
6:49:54 PM                                                                                                                    
                                                                                                                                
Vice-Chair  Gara  WITHDREW  Amendment  21.5,  30-LS0125\L.38                                                                    
(Nauman,  3/31/17)  (copy  on file).  He  relayed  that  the                                                                    
amendment had been written before  the spending cap had been                                                                    
passed by the  committee. The spending cap  left no earnings                                                                    
reserve  money  available to  put  into  a larger  dividend;                                                                    
therefore, the amendment no longer worked.                                                                                      
                                                                                                                                
6:50:31 PM                                                                                                                    
                                                                                                                                
Representative Pruitt WITHDREW  Amendment 22, 30-LS0125\L.34                                                                    
(Nauman, 3/31/17) (copy on file).                                                                                               
                                                                                                                                
Representative  Wilson  MOVED  to ADOPT  Amendment  23,  30-                                                                    
LS0125\L.20 (Nauman, 3/31/17) (copy  on file). [Note: due to                                                                    
the length of  the amendment it has not  been included here.                                                                    
See copy on file for details.]                                                                                                  
                                                                                                                                
Co-Chair Seaton OBJECTED.                                                                                                       
                                                                                                                                
Representative  Wilson explained  that  the amendment  would                                                                    
sunset the bill three years  after the effective date of the                                                                    
Permanent Fund  Act. She elaborated  that a  separate sunset                                                                    
would be  established for  the income  tax because  it would                                                                    
take  longer [to  take effect].  The sunset  would not  shut                                                                    
down  the program,  but it  would force  the legislature  to                                                                    
reevaluate the issue. She reasoned  that oil prices could be                                                                    
different at that  time and there may  be additional revenue                                                                    
resources.                                                                                                                      
                                                                                                                                
6:51:11 PM                                                                                                                    
                                                                                                                                
Co-Chair  Seaton   asked  for  verification   the  amendment                                                                    
pertained to 50 percent of all mineral leases offered.                                                                          
                                                                                                                                
Representative  Wilson  explained  that  whenever  a  sunset                                                                    
occurred it  reverted [statute] back  to its  previous state                                                                    
[prior to the passage of  legislation] if the sunset was not                                                                    
extended.  If  the  legislature  determined  to  extend  the                                                                    
sunset, the bill would remain the same.                                                                                         
                                                                                                                                
Co-Chair Seaton  opposed the amendment. He  relayed that the                                                                    
legislature was looking for  a long-term, comprehensive, and                                                                    
sustainable  fiscal  plan.  The amendment  would  mean  that                                                                    
would not  occur. Without knowing  what would happen  in the                                                                    
future, the provision would require  expensive audits to try                                                                    
to go forward in merely two years [from the present].                                                                           
                                                                                                                                
Representative  Wilson  provided  wrap up.  She  underscored                                                                    
that  the  amendment  would   include  a  three-year  sunset                                                                    
provision.  She  stressed  that it  was  not  automatic  and                                                                    
nothing  in  the  building was  automatic.  She  stated  the                                                                    
amendment would  force the legislature to  determine whether                                                                    
the  bill was  working.  She reasoned  the  sunset could  be                                                                    
extended at  any time for  as many years as  the legislature                                                                    
chose.  She  believed  the  provision  communicated  to  the                                                                    
public  that the  state may  not  be in  the current  fiscal                                                                    
crisis  forever.   The  amendment  would  convey   that  the                                                                    
legislature would  take another look  at the issue  in three                                                                    
years' time. She emphasized that  the amendment did not stop                                                                    
the  anything from  happening.  She  believed the  amendment                                                                    
would  tell  the  public  that  the  legislature  was  doing                                                                    
numerous things  to make government  smarter and to  do what                                                                    
it could so state resources would be developed more easily.                                                                     
                                                                                                                                
Representative  Wilson reiterated  that the  amendment would                                                                    
force  the legislature  to  review the  bill;  it would  not                                                                    
automatically go away, it would  merely be reconsidered. She                                                                    
stated that  in three years  oil may be  at $80 to  $100 per                                                                    
barrel, mining  may be  going well, and  there may  be other                                                                    
industries  that were  not currently  in Alaska.  She stated                                                                    
that at  that time the  legislature may decide that  the gap                                                                    
no longer needed to be filled  by the provisions in the bill                                                                    
because  it  had been  filled  by  doing other  things.  She                                                                    
believed  everyone  around  the committee  table  wanted  to                                                                    
bring  in   revenue  in  other  ways   besides  just  taxing                                                                    
Alaskans.  She  stated  that  the  amendment  would  send  a                                                                    
message to  the public that  the legislature was  willing to                                                                    
look at  the issue again  in three years. She  reasoned that                                                                    
if  the state  still needed  the  revenue at  that time,  it                                                                    
would be  possible to  remove the sunset  or extend  it. She                                                                    
continued  it  would  allow  the  legislature  to  determine                                                                    
whether the appropriate  amount of money had  been used from                                                                    
the  Permanent Fund  and  whether the  state  ended up  with                                                                    
unintended consequences  from the income tax.  She explained                                                                    
that  the sunset  provision would  take  effect three  years                                                                    
after the  effective dates of  the bill;  therefore, because                                                                    
the income tax would not  start for another year, the sunset                                                                    
would occur  three years after  that time. She  believed the                                                                    
sunset  was  the least  the  legislature  could do  for  the                                                                    
public.                                                                                                                         
                                                                                                                                
Co-Chair Seaton MAINTAINED his OBJECTION.                                                                                       
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Tilton, Wilson, Pruitt, Thompson                                                                                      
OPPOSED: Gara, Grenn, Stutes, Ortiz, Seaton, Foster                                                                             
                                                                                                                                
The MOTION FAILED (4/6).                                                                                                        
                                                                                                                                
Vice-Chair Gara WITHDREW Amendment 17, 30-LS0125\L.37                                                                           
(Nauman, 3/31/17) (copy on file). He believed the contents                                                                      
had been addressed by another amendment.                                                                                        
                                                                                                                                
HB 115 was HEARD and HELD in committee for further                                                                              
consideration.                                                                                                                  
                                                                                                                                
Co-Chair Foster addressed the schedule for the following                                                                        
day.