Legislature(1999 - 2000)
02/17/2000 08:05 AM House STA
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
HB 138-INCOME TAX ON INDIVIDUALS & FIDUCIARIES Number 2232 CHAIR JAMES announced the next order of business is HOUSE BILL NO. 138, "An Act relating to the taxation of income." REPRESENTATIVE MOSES, speaking as sponsor of HB 138, presented the following sponsor statement: House Bill 138 is intended to raise revenue for the State of Alaska. With a steadily growing fiscal gap, the time is long overdue for us, as the policy makers of this great state, to take a long hard look at our future. House Bill 138 implements a state income tax upon the taxable income of every resident, nonresident and part- year resident individual and fiduciary in the state. The tax imposed is determined as a percentage of the taxpayer's entire federal income tax liability. The tax is introduced to the taxpayer on a gradual basis, starting at 5 percent under $20,000; 10 percent over $20,000 for the first year of implementation, 10 percent/15 percent the second year and finally to 15 percent/20 percent thereafter. The tax will be levied only against income earned within the state of Alaska. House Bill 138 allows credits against the tax for: (a) income sources earned in other states or territories, (b) the amount of any real and personal property paid to a municipality within the state. Number 2337 REPRESENTATIVE MOSES said HB 138 brings Alaska into the tax picture where it was 20 years ago when Alaskans paid a percentage of their federal income tax to the state. He informed the committee that a great portion of the Alaskan workforce, 70,000 workers, is nonresident. It is his opinion that they make money but spend as little as possible in the state so that they can take money back to wherever they originally came from. He noted that nonresident workers take $1 billion of non-taxed money out of the state. REPRESENTATIVE MOSES explained that he had drafted into HB 138 a 100 percent credit for personal property tax so that nonresidents would bear the greater impact of HB 138. Nevertheless, a nonresident who purchased property in the state also would receive the property tax credit. By writing in a property tax credit, he proposed to encourage municipalities to institute a property tax where they do not have one in place now. REPRESENTATIVE MOSES emphasized that the legislature has to do something to raise revenue. He suggested that the state cannot continue to function without revenue, and further delay will only make matters worse. He prefers to see both HB 138 and HB 137 move on to the Finance Committee, hoping that that committee will produce a complete tax package to eliminate the deficit facing Alaska. Number 2483 REPRESENTATIVE MOSES mentioned that in 1995 a nonpartisan task force had recommended that the legislature reinstate an income tax. He recognized that many people other than nonresidents come to Alaska with no intention of staying; they want to make a nest egg and return to their original homes; these people do not want to pay taxes because it reduces their nest egg, and neither do they want to spend money in the state, if at all possible. That is his summary as he sees the situation in Alaska. Number 2544 REPRESENTATIVE SMALLEY asked if Representative Moses had income and administrative cost projections for HB 138 to show the committee. BRETT FRIED, Economist, Division of Income & Excise Audit Division, Department of Revenue (DOR), said he did have projections for revenue and costs for HB 138, although it was difficult to figure. The DOR had arrived at a revenue figure by using Internal Revenue Service (IRS) estimates of income, gathered from tax returns submitted by Alaskans to the IRS. However, the IRS statistics of income data are broken out by adjusted gross income categories, not federal tax liability, which makes it difficult to project revenue forecasts. MR. FRIED noted that one reason the DOR experienced difficulty in figuring revenue income for HB 138 is because HB 138 is a graduated income tax based on federal income tax liability. Also, there is no method currently available to match property tax and personal income tax. Therefore, the DOR had used the U.S. Census Bureau figure of 67 percent home ownership in order to adjust revenues for the property tax credit. MR. FRIED told members he envisions the HB 138 tax resulting in $19.6 million of revenue in fiscal year (FY) 2001. For FY 2002, FY 2003, and FY 2004, the DOR estimates an annual revenue of $54.9 million, $86.2 million, and $101.9 million, respectively. These revenue projections are based upon a first-year tax rate of 5 percent, a second-year tax rate of 10-15 percent, and a third- year tax rate of 15-20 percent. He suggested that the cost of administering HB 138 would be about $1.2 million for operating expenses in FY 2001; $2.6 million operating expenses and capital expenses at $2.2 million in FY 2002; and $3.6 million for operating expenses and $1.2 million capital expenses in FY 2003. There would only be operating expenses of $3.5 million each fiscal year after FY 2003. Number 2814 REPRESENTATIVE KERTTULA asked how HB 138 tax percentages compare with other states. She said 20 percent is high, in her opinion. MR. FRIED replied that Rhode Island, North Dakota and Vermont use a percentage of the federal income tax liability to collect state income tax. Vermont charges 25 percent state income tax of the federal income tax liability, and Rhode Island charges 27 percent. Number 2907 CHAIR JAMES mentioned that Alaska's tax percentage was 16 percent at the time the state income tax was abolished. She said she is not willing to move the bill today. [HB 138 was held.] TAPE 00-6, SIDE B
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