Legislature(2015 - 2016)BARNES 124
03/28/2016 01:00 PM RESOURCES
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HB 253-ELCTRNC TAX RETURN;MINING LIC. TAX & FEES 2:01:05 PM CO-CHAIR TALERICO announced that the final order of business is HOUSE BILL NO. 253, "An Act requiring the electronic filing of a tax return or report with the Department of Revenue; establishing a civil penalty for failure to electronically file a return or report; relating to exemptions from the mining license tax; relating to the mining license tax rate; relating to mining license application, renewal, and fees; and providing for an effective date." CO-CHAIR NAGEAK moved to adopt the proposed committee substitute for HB 253, Version 29-GH2924\N, Nauman, 3/17/16, as the working document. REPRESENTATIVE HERRON objected for discussion. 2:01:50 PM JULIE MORRIS, Staff, Representative David Talerico, Alaska State Legislature, reviewed the changes that would be made to the original bill by the proposed committee substitute (CS). Under Version N: Section 1 is deleted, thereby eliminating the penalty if a taxpayer fails to electronically submit a return; Section 2 is deleted, thereby eliminating the requirement that taxpayer returns be submitted electronically; Section 3 is amended to leave a three year exemption rather than a three and one-half year exemption; Section 4 is amended by changing the 9 to 8 of the excess net income over $100,000; Section 5 is not changed; Section 6 is not changed; Section 7 repeals the deletion to the exemption as related to the bill for the period of exemption in Section 3; Section 8 is amended to reflect the exemption being retained; Section 9 is deleted because the period of exemption from tax is retained; and Sections 10, 11, and 12 are not changed and provide for transition language and effective dates. 2:03:20 PM REPRESENTATIVE SEATON pointed out that his sectional only goes through Section 8. MS. MORRIS offered to read the sectional that she has. REPRESENTATIVE TARR noted that the actual bill of Version N only goes to Section 8. MS. MORRIS explained that she put the actual bill into the sectional analysis, the changes are meant to reflect what happened. The sectional analysis is for Version N. REPRESENTATIVE CHENAULT asked what version the committee is on. MS. MORRIS responded that the committee is on the sectional analysis for Version N. REPRESENTATIVE CHENAULT observed that Version A [the original bill], goes to Section 12 and Version N only goes to Section 8. MS. MORRIS answered correct. REPRESENTATIVE TARR noted Sections 9, 10, and 11 were deleted. MS. MORRIS replied correct. CO-CHAIR TALERICO pointed out that there are only eight sections in Version N. 2:05:37 PM REPRESENTATIVE SEATON referred to Version N, page 2, lines 17- 18, Applicability, and asked whether [AS 43.65.010(a)] only applies to those that begin production on or after that date and therefore if a mining operation was in operation before that it would not ever have to get a mining license. MS. MORRIS responded that the uncodified law in Section 5 would add an applicability to that section that relates to the exemption period under [AS 43.65.101(a)]; [AS 43.65.010(c)] would be applicable to the net income of the taxpayer from the property in the state during the taxable year that begins on or after the effective date in Section 2. REPRESENTATIVE SEATON referred to subsection (b) [page 2, lines 19-21], and agreed that it begins on or after the effective date, which is every taxable year. He asked whether the applicability of "section (a)" applies only to the three and one-half years or does it apply to the mining license requirement, which is "section (a)." CO-CHAIR TALERICO requested Mr. Jerry Burnett to answer the question. JERRY BURNETT, Deputy Commissioner, Office of the Commissioner, Department of Revenue (DOR), stated DOR is reading this as being clear that the intent of Section 5 is to apply to the three and one-half year tax holiday on new production, which is changed to a three year holiday [in Version N], and the license applies to each year thereafter. He advised the department will review this carefully given DOR just saw it this morning. 2:09:13 PM REPRESENTATIVE TARR posited it is an issue because Version N removes the three and one-half year exemption from the original bill and so it makes that section just about having to obtain a mining license. In Version N that section is about both obtaining a license and the three year exemption. She suggested that it be split into two sections to make it clear that every mining operation would have to obtain a license versus how long of an exemption period there would be for taxes. Otherwise, as questioned by Representative Seaton, it sounds like a mining operation would not have to get a mining license unless it was on or after the effective date and therefore there are two separate things in that one section. MR. BURNETT answered that AS 43.65.010(c) is the second applicability, which is the new license fee every year. He reiterated that the department will have its attorneys look at this carefully before the next meeting, but in talking with the sponsor's staff this morning it is clear what the intent is. REPRESENTATIVE JOSEPHSON stated he has concerns about the timing and impact, but surmised that Section 8 would make Section 5 applicable July 1, 2016. The question is whether it is existing mines or the license requirement is for future licensees, but that the effective date appears to be July 1, 2016. MR. BURNETT replied yes, that is what it says. 2:11:24 PM REPRESENTATIVE TARR inquired about any fiscal note changes between the original bill and Version N. She recalled that the fiscal note for the original bill was about $6 million. She asked whether there are any estimates on the change from the 9 in the original bill to the 8 in Version N. MR. BURNETT responded that in fiscal year (FY) 2018, since this would not be collected until a year after it starts, it looks like approximately $3.6 million and then $3.2 million, so it is about one-half of what it was, because it is now a 1 percent change instead of a 2 percent change. It varies based on DOR's current commodity price estimates and production estimates between $2.8 million and $3.6 million per year over the life of the fiscal note. The department will provide a new fiscal note at the next meeting as it was difficult to prepare a new fiscal note given the CS was only received this morning. 2:12:42 PM REPRESENTATIVE JOSEPHSON understood that when the Donlin Gold Mine becomes operational it will become the largest gold mine in the world. He said he is still looking for comfort that when the gold is removed and severed from Alaska that Alaskans are getting their fair share. He asked how he should go about figuring this out. MR. BURNETT recounted that DOR earlier provided the committee with a number of documents about comparative tax rates for Canada and states in the U.S. He agreed it is a dilemma to figure out because each mine is clearly unique, and obviously the governor felt that the 9 percent rate was appropriate. Donlin Gold Mine is the largest gold mine, Red Dog Mine is certainly one of the largest zinc mines anywhere, and Greens Creek Mine is the largest silver producing mine in North America. The discussion here is not about small mines but about large amounts of minerals being taken from the state. 2:14:21 PM REPRESENTATIVE HERRON removed his objection to adopt Version N. There being no further objection, Version N was before the committee as its working document. 2:15:14 PM REPRESENTATIVE TARR observed that Version N would remove the requirement for electronic submission. She posited that this requirement did not seem troublesome for large-sized companies. She recalled that the state previously spent a large amount of money upgrading and implementing DOR's database to get everything in one place and understand it better. She asked what the reasoning was for removing this requirement. She related she does understand possibly delaying a penalty until a new program has been implemented and people given an opportunity to participate, but that [removing the electronic submission requirement] does not seem to be moving in the direction that the department wanted to go. MS. MORRIS explained this provision was taken out of the bill at the recommendation of Legislative Legal and Research Services, because Sections 1 and 2 apply to any tax return or report to be submitted under AS 32, not just returns for mining taxes. However, the bill only amends filing requirements related to mining taxes and there are several other sections of the tax law that should be changed to accommodate the new electronic filing requirements. So, Legislative Legal and Research Services has advised that a separate bill is needed to address that issue. She offered to provide the legal memorandum to the committee. REPRESENTATIVE OLSON asked whether a separate bill is forthcoming. [Response to question unclear on audio.] CO-CHAIR TALERICO advised that all members will receive a copy of the legal memorandum. CO-CHAIR TALERICO held over HB 253.