Legislature(2003 - 2004)
03/12/2003 04:03 PM House L&C
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
HB 162-INCREASE BUSINESS LICENSE FEE Number 2374 VICE CHAIR LYNN announced that the final order of business would be HOUSE BILL NO. 162, "An Act increasing the fee for a state business license; and providing for an effective date." TAPE 03-20, SIDE B Number 2388 EDGAR BLATCHFORD, Commissioner, Department of Community and Economic Development, presented HB 162 on behalf of the governor. He explained that HB 162 represents an effort to balance the budget. The legislation increases the business license fee from $25 to $200 per year; the fee is collected on a biennial basis. He acknowledged that this is an increase, but the cost of a business license has remained the same since 1949. He reviewed Alaska's growth in population since 1940, when the population in the Territory of Alaska was 75,000; in 1950, the population was 138,000, a large percentage of that number being military personnel. By the first full year after statehood, in 1960, the population was 230,000. A business license that cost $25 in 1950, adjusted for inflation, would cost $188 in 2003. COMMISSIONER BLATCHFORD said that with this increase, there would be an estimated $8.5 million of additional revenue for FY 04. This would provide general fund revenues for a variety of state services, including public safety, road maintenance, and education. He said the department provides technical support to small, medium, and large businesses, technical assistance in international trade, and assistance to businesses exporting Alaska products. The department also provides important Alaska economic information. He testified that the proposed fee is a very important piece of the Governor's plan to bring Alaska's house in order while growing the overall economy. He urged the committee to support HB 162. Number 2264 REPRESENTATIVE ROKEBERG asked Commissioner Blatchford if he would support changing the word "fee" to "tax" in the bill. COMMISSIONER BLATCHFORD said no. REPRESENTATIVE ROKEBERG asked about the past controversy of Alaskan businesses having to send their business license fees to an address outside Alaska. He asked if collections could be done within the state. COMMISSIONER BLATCHFORD said he didn't know about the controversy but said he would respond in detail before tomorrow. Number 2170 RONALD JORDAN, Small Business Owner, described himself as an Anchorage resident for the past 30 years. He testified on HB 162, agreeing that the current fee for a business licenses is too low; he said wouldn't object to an increase. He said he faxed a proposal to Representative Rokeberg to stair-step the license fees by the number of employees in the business. In Washington state, for example, a state business license costs $15, but cities such as Leavenworth have their own business license fees. He said that if the increase remains as proposed in HB 162, the $400 up-front biennial fee will stifle the start- up of many small enterprises. He proposed instead a $100 fee for [a new business in] the first year. The State of Alaska can access the number of employees by checking the business's Quarterly Contribution Reports filed [with the Department of Labor & Workforce Development]. Number 2111 REPRESENTATIVE ROKEBERG noted that there's an amendment from Chair Anderson with a step-up fee based on the number of employees in the business. Representative Rokeberg noted that he had prepared a possible amendment with step increases starting at $25 a year with gross receipts less than $25,000, ranging up to $200 for businesses with gross receipts $200,000 or more. Number 2031 REPRESENTATIVE ROKEBERG noted that Mr. Jordan has started a number of successful businesses in Anchorage. He asked if a small business with few employees and small gross receipts would be discouraged from even starting a business. MR. JORDAN replied that the bigger entities like BP or Alaska Airlines have a bigger business base [and can afford a higher fee]. Alaska is made up of a lot of small businesses, and for a person just starting up, when the first year or two is really tight, $200 to $300 can make all the difference. Number 1917 REPRESENTATIVE ROKEBERG asked Commissioner Blatchford whether he had considered a graduated tax scheme. He also asked him to speak to the concern about small businesses not getting a license because the cost is too high. COMMISSIONER BLATCHFORD said the $400 biennial fee appears to be a healthy increase from the $25 annual fee. He said that his staff will look at a graduated tax if the committee requests it. COMMISSIONER BLATCHFORD, in response to a question by Representative Lynn, said the administration looked at the most agreeable fee that would be easily applied in an equitable fashion. He said that raising the fee from $25 to $200 seemed like a logical step. Number 1842 REPRESENTATIVE ROKEBERG reiterated that the committee is considering two possible amendments [using a graduated fee]. He asked the commissioner about the ease of verifying either the number of employees or gross receipts for a business. COMMISSIONER BLATCHFORD said he would check with staff and respond to the committee by tomorrow afternoon; he could then tell the committee how much information he would have available and how complete it would be. Number 1770 DAVE JANKA, Owner/operator, Auklet Charter Services, testified that he does not support HB 162 as presently written. He does support a graduated system of fees. He said the $175 annual increase will make a big difference for an owner-operated business that is seasonal with a part-time employee. All these fees -- the city business license, the Fish and Game registration -- add up for a small business. He described how the fees for the Alaska Travel Industry Association membership and the Department of Fish and Game vessel license are calculated on a graduated basis. He agreed that the business license fee is really a tax. He said that when he receives his business license he would like information that shows what services he gets when he pays his fee. For the small owner/operator, one to five employees, he suggested a $30 fee. A business with 200 or 300 employees should be paying $500 to $700. Number 1647 REPRESENTATIVE ROKEBERG asked Mr. Janka if he thought that people wouldn't get a license if the fee were too high. Would it be better to have a lower initial rate for a start-up business? MR. JANKA recalled his past experience starting a part-time photography business, for which he bought the state and city business licenses. If the fee had been $200, he would have taken pictures and accepted cash without paying for a business license. He estimated that many people would do that. Number 1591 REPRESENTATIVE GUTTENBERG asked Mr. Janka the difference between a tax and a fee. MR. JANKA said a tax goes into the general fund for operation of state services; a fee pays for the delivery of a [specific] service. Number 1547 RICK URION, Director, Division of Occupational Licensing, Department of Community & Economic Development, addressed the question about whether it would be easier to base a graduated license fee on gross sales or the number of employees. He said the number of employees was the far easiest method because every employer in the state is required to file a Quarterly Contribution Report with the Department of Labor & Workforce Development. He said those numbers are available. Number 1496 REPRESENTATIVE ROKEBERG agreed that it's best to keep the [criteria] simple; he noted that a business's gross and net income depends on its accountant. He asked Mr. Urion if the [Division of Occupational Licensing] collects the business license fee and if he was asked to research the increased business license fee before the legislation was drafted. MR. URION explained that he was not asked in advance to do research but since the bill has been introduced, he has researched different variables. REPRESENTATIVE ROKEBERG asked Mr. Urion's opinion about whether a graduated scale would generate more income if it were more affordable for entry-level businesses. MR. URION said he can only speculate about how many people would not buy the $200 licenses. He said it's also speculation as to how many people today don't buy the $25 business license. REPRESENTATIVE ROKEBERG suggested that this question could be answered using economic analysis. He posited that the state would collect more income from the lower stratum of economic activity if the fee were reasonable. Number 1362 VICE CHAIR LYNN asked how many businesses might drop out on the top end of a graduated scale. MR. URION said he learned from the Department of Labor & Workforce Development that about 65,773 licenses, or 90 percent, are for businesses with 0 to 4 employees. About 8 percent of licensed businesses employ 5 to 19 workers; and 2 percent, or 15,062 employers, have 20 or more employees. He estimated that no large employers would drop out because of a $200 fee. Number 1273 REPRESENTATIVE DAHLSTROM moved to adopt Amendment A.1 [23- GH1102\A.1, Bannister, 3/12/03], which reads: Page 1, lines 4 - 5: Delete all material and insert: "* Section. 1. AS 43.70.030(a) is amended to read: (a) The license fee for each business [IS $25] per year is (1) $50 if the business had not more than five employees at any time during the preceding calendar year; (2) $100 if the business had at least six but not more than 25 employees at any time during the preceding calendar year; (3) $200 if the business had more than 25 employees at any time during the preceding calendar year." VICE CHAIR LYNN described the amendment. Number 1238 REPRESENTATIVE ROKEBERG objected for purposes of discussion. He said he approved of this approach but was shocked to learn that 90 percent of the businesses in the state have 0 to 4 employees. He suggested that for large corporations with only one employee in Alaska, the license fee should be based on a combination of employees and gross receipts. Most small businesses, with 0-1 employee would be on the low end; the next step up would be 2 employees. He favors the approach using the employee count because it's readily available. He suggested that the committee could adopt the proposed Amendment A.1, then put the bill aside and ask the department to do its research. Number 1133 REPRESENTATIVE GUTTENBERG asked what kind of a business has zero employees. REPRESENTATIVE ROKEBERG reiterated how a large corporation with zero employees could do millions of dollars of business in the state; he asked whether the legislature wants to exempt this type of business from a higher business license fee. He cautioned that if legislators created a graduated fee structure, they still need to raise $8.5 million in revenue. For the 90 percent of the business licenses, there clearly has to be some kind of an increase to meet the governor's goal of $8.5 million in new revenue. Small business is the backbone of the state, he said. VICE CHAIR LYNN asked Representative Rokeberg if he withdraws his objection for purposes of adopting the amendment. Number 1055 REPRESENTATIVE ROKEBERG moved to amend proposed Amendment A.1 to change the "five employees" on line 5 to "two employees". He then immediately withdrew his proposed amendment to Amendment A.1. REPRESENTATIVE ROKEBERG withdrew his objection to adoption of Amendment A.1 and proposed that HB 162 be held over for the administration to use a graduated scale. Number 0980 VICE CHAIR LYNN asked if there were any objections to adoption of Amendment A.1. There being no objection, it was so ordered. VICE CHAIR LYNN said HB 162 will be held over. REPRESENTATIVE ROKEBERG said it's important for the committee to give the administration direction on how to revise HB 162. He asked Mr. Urion to give members copies of his report showing breakouts of business licenses by the number of employees. He said there are two ways to [raise the revenue]: try to [retain a single fee amount] or reduce the fee amount [according] to a schedule that makes sense. The committee needs to tie its decision to some data and may need to make some distinctions between small businesses with 0-1 person and businesses with 2 or 3 employees. He said his own business employs 20 people but grosses less than $1 million; he couldn't afford an $800 a year business license in order to help raise the [governor's $8.5 million goal]. On the other hand, he added, if a business's gross receipts exceeded $10 million, that business would be at the high end [of the graduated scale]. Number 0872 MR. URION said his division would be happy to provide any research the committee would like. He said his supervisors confirmed that they were not wedded to HB 162 as it is currently written. Number 0837 MIKE WINDRED, Director of Operations, Alaska Travel Adventures, noted that his company has five business licenses. He spoke in favor of HB 162 and said he favored the simplicity of the bill. If the system becomes complicated - whether its gross receipts or the number of employees - the bill will require a larger fiscal note. Now, everybody pays the same amount for a business license and its very easy for the state to administer. He researched what other states do and noted that most states have an application fee, for example, the State of Washington charges $15. But in Washington state, the actual business license varies according to the type of business: $30 for an egg handler and $700 for a cabaret in Bellevue. Alaska's system is simple and straightforward and he urged the committee to keep it so. He said his company is a member of the Alaska Travel Industry Association, in which 95 percent of the businesses have fewer than 5 employees. He calculated that because 90 percent of businesses in Alaska are small businesses, if the $200 fee were cut in half [because of businesses refusing to renew their licenses], the state would lose $3.6 million in revenue. To make up the lost $3.6 million off [the remaining] 7,500 business licenses, the state would have to charge a very large fee. He urged the committee not to put too big a burden on any one group of businesses. Number 0702 KEITH MONTGOMERY, Owner, Montgomery Construction, a business license to do small jobs, got a handy man's contractor's license, and paid $1,000 for a bond. His wife has a business license to do childcare for one child. Both businesses are sole proprietorships. He called HB 162 the labor tax because it taxes working people, one big shot at a time. He said he might work under the table if HB 162 passed, but he wants to be a responsible citizen and to pay his own way. He would be willing to pay an increased fee, but $200 a year each is too much for he and his wife. He said he's also taking classes towards an occupational health and safety certification wants to get a license for that work. He suggested a fee of $50 for businesses with 0 to 2 people. He said he wants to be able to accept work and to give his customers invoices and receipts for their tax purposes. MR. MONTGOMERY responded to a question from Representative Rokeberg about whether he works another job. He explained that he is a skilled carpenter and completed a four-year apprenticeship; he works for a contractor. He earns $10,000 a year or less through his handy-man license. He said [his construction business] helps feed four future voters of Alaska. Number 0424 REPRESENTATIVE ROKEBERG asked Mr. Montgomery how his family would handle buying two business licenses at once for $800. MR. MONTGOMERY agreed that the $800 would be a big hit and might cause him to take his work "underground." He said he loves woodworking and would continue to do it. He said that the [$200 annual] cost is very steep for [small businesses] that want to do the right thing. Number 0318 VICE CHAIR LYNN said today's testimony on HB 162 was a good example of how citizens can help the committee do its work. There being no other witnesses, he closed public testimony for the day. He announced again that HB 162 would be held over.
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