Legislature(2001 - 2002)
03/07/2002 08:05 AM House STA
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 303-STATEWIDE SALES TAX Number 1907 CHAIR COGHILL announced the next order of business, HOUSE BILL NO. 303, "An Act relating to the levy and collection of a sales tax; and providing for an effective date." Chair Coghill explained that he'd had Version O, the new proposed committee substitute (CS), drafted following discussion of the constitutionality of [Section 3], the "conditional effect" section. Number 1955 REPRESENTATIVE JAMES moved to adopt version 22-LS1206\O, Kurtz, 3/4/02, as the working document. There being no objection, Version O was before the committee. CHAIR COGHILL referred to page 3 [Section 3] and explained the change in regard to the conditional effect, which he said he feels strongly about: there will be a "no-growth" operating budget, "to show that we have downward pressure on the budget." CHAIR COGHILL called an at-ease at 8:33 a.m. so members could read the new language in Version O. He called the meeting back to order at 8:34 a.m. Number 1994 CHAIR COGHILL referred to the new language in Section 3, which read in part, "This Act takes effect only if the appropriations summarized by the Legislative Finance Division of the Alaska State Legislature in the general fund section of the 'operating' portion...." In response to Representative James, he indicated it goes to the total adjusted operating budget, but not supplemental budgets, because of issues regarding forest fires and emergencies, for example. He remarked, "I am very well aware of what I'm asking here. But it's also true that if we pass a sales tax out, we're asking people to do with that much less of their own operating capital, if you will, and I think that it's only prudent of us ... to have this kind of language in there." CHAIR COGHILL reported that he hadn't changed any other language in Version O. He added, however, that Version O is different from the original version in that the sales tax is 3 percent and year-round, rather than seasonal. He told members, "Throughout the course of the discussion, we've taken the alcohol out as an exemption, and I think that's all the exemptions that we want to entertain as a committee, unless there's further discussion." Number 2148 REPRESENTATIVE CRAWFORD began discussion of what would become proposed conceptual Amendment 1. He reminded members that during discussion of exemptions, he'd voiced concern about a single service that exceeds $2,000; he didn't believe a Mercedes should be exempt, for example, when a used Chevy isn't. He proposed deleting lines 22-23 [page 2, paragraph (7)]. REPRESENTATIVE JAMES agreed. CHAIR COGHILL asked whether Representative Crawford wanted to offer the foregoing as a conceptual amendment, with the following paragraphs to be renumbered accordingly. REPRESENTATIVE CRAWFORD said yes. CHAIR COGHILL noted that any item sold, then, whether for $80,000 or $2,000, would be included. Number 2220 REPRESENTATIVE WILSON expressed concern that it would allow "a dangerous situation" for businesses that sell washers and dryers or cars, for example, because people wouldn't buy those items where there is a high sales tax. She cited Juneau [with its existing 5 percent sales tax] as an example of an area where it might present a problem. CHAIR COGHILL asked whether the concern was about taking the limit totally off. He then asked whether Representative Wilson would adjust the $2,000 limit. REPRESENTATIVE WILSON replied, "It's hard for me to say because I'm against the sales tax, period, anyway." Number 2283 REPRESENTATIVE STEVENS said he didn't believe he was in favor of taking this exemption out. As it reads, a person who buys a new car would pay sales tax on the first $2,000, which would be $60 regardless of the price, but removing the exemption would raise the tax to hundreds of dollars more. He agreed with Representative Wilson that it would be a great disincentive to business and acknowledged Representative Crawford's point that those at the lower end of the economic scale would have to spend more of their disposable income. He said charging $750 [in tax] for an expensive car would be a disincentive to businesses, which doesn't make sense to him. Number 2372 REPRESENTATIVE JAMES clarified that she doesn't like the 3 percent tax, either, and has said she'd support something at 2 percent. Regarding whether to tax people on income or consumption, she offered her opinion that if there are to be taxes, there should be both a small income tax and a small sales tax, "because you're never going to balance things otherwise." She said the argument that lower-income people are more impacted by a tax of any kind is a reality; she added that there are exemptions in an income tax "that take off the bottom part." Representative James explained her philosophical objection to having [an exemption for purchases over $2,000]: If we're going to tax everybody either on their income or on their consumption, and we're assuming that it is more fair if we ... tax them on their consumption, then why limit the consumption? It doesn't make a lot of sense to me to stop it someplace. REPRESENTATIVE JAMES indicated most people would buy a reasonably priced car rather than a Mercedes, as mentioned by Representative Crawford. She emphasized, "If we're going to tax consumption, let's tax consumption"; she indicated, however, that she would be amenable to exempting "food and drugs and all those things that are really not 'choice' decisions." She said she'd like to remove the [$2,000 cap] because she didn't believe it made sense. REPRESENTATIVE JAMES, noting that she likely wouldn't support the bill on the House floor, said she understands Representative Wilson's concern, and that her own reason for not wanting the tax higher than 2 percent is that many municipalities in Alaska have sales tax already and thus adding a large tax burden would be problematic for them. She concluded by saying a 2 percent tax is the amount she'd be "willing to give, just in order to let municipalities piggyback on, so they don't have to set it up [on] their own, and they can say, 'Well, take 2 [percent] for me, too." Number 2520 REPRESENTATIVE CRAWFORD remarked, "I should have said Buick." He referred to 3 percent of the selling price of an 1989 Chevy compared to a $20,000 Buick; he emphasized that $60 is not 3 percent of a $20,000 Buick. He remarked, "If we're going to have a sales tax that's based on ... taxing everybody at the same rate, those people that pay more for more expensive cars should pay more for their tax as well." Number 2559 REPRESENTATIVE FATE noted that the exemption says the tax levy doesn't apply to anything that exceeds $2,000, whether it is a washing machine, a Chevy, or a Mercedes. He agreed that removing the exemption will hurt businesses because people will make large purchases elsewhere. He voiced support for leaving [the exemption] in as a safeguard. REPRESENTATIVE JAMES pointed out that it is a sales-and-use tax, and that she presumes and hopes someone who buys a car Outside and then licenses it to use in Alaska will have to pay the tax. CHAIR COGHILL said that is an excellent point. REPRESENTATIVE STEVENS agreed, but said he'd like to hear from the state regarding enforcement. He then noted that his community has a 6 percent sales tax but a $15 [maximum] on large-ticket items. He asked whether the state can collect taxes for a local community that has standards - such as the $15 maximum on expensive items - that differ from the state standards - in this case, a $60 maximum [if there is a $2,000 cap]. He asked how it would work and what the cost would be to communities that have an additional sales tax. Number 2710 LARRY PERSILY, Deputy Commissioner, Office of the Commissioner, Department of Revenue, came forward to answer members' questions. He noted that Version O talks about sales and use in Section 1, but only referencing Title 29, which refers to municipal sales-and-use tax. Section 2 refers to the state retail sales tax. As drafted now, the bill has no requirement to pay the tax when crossing the border with goods. REPRESENTATIVE JAMES said she didn't like this bill, then. REPRESENTATIVE STEVENS asked what process would be used to collect a sales-and-use tax. Number 2750 MR. PERSILY clarified that although Version O wouldn't require payment of the state sales tax when crossing the border, Section 1 would require the state to collect the sales-and-use tax if the municipality so requested. For example, Mr. Persily explained, if the City & Borough of Juneau said, "We want the state to collect the sales-and-use tax," then [the department would probably ask that this be amended to include, in the motor vehicle statutes, the provision that someone can't register a vehicle in Alaska until that person has paid any appropriate sales-and-use ... tax prior to registration, "because you'd have to have that enforcement tool for the Department of Revenue to enforce the use ... tax aspect of the municipal sales tax." REPRESENTATIVE JAMES suggested that [conceptual Amendment 1 be withdrawn]. REPRESENTATIVE FATE asked what would happen if a person bought a vehicle in another state, registered it there, and then brought it to Alaska to reregister it. He suggested there would be just a straight charge for the registration, with no sales tax. He said it is done commonly; otherwise, people who bring vehicles into Alaska would be charged. MR. PERSILY pointed out that the foregoing is true because Alaska doesn't have a sales-and-use tax. He recalled that he'd sold a car to a friend who took it to Washington State, where he'd had to produce a bill of sale for the vehicle; that person then paid tax in Washington on the sales value of that vehicle. Under current statute, Alaska wouldn't impose a tax, but a law could be written to require payment of the tax before registration. Number 2865 REPRESENTATIVE CRAWFORD suggested Washington State's sales tax is higher than [that proposed in Version O], so a person would prefer to pay 3 percent in Alaska rather than Washington's higher percentage. He also suggested that someone who registered a vehicle in Washington still would have to pay tax in Alaska later, at renewal time [if structured that way]. REPRESENTATIVE FATE remarked that this is why people go to Oregon [where there is no sales tax]. REPRESENTATIVE WILSON recalled buying a truck in North Carolina two weeks before moving to Alaska. Because of already having a residence in Alaska, she wasn't required to pay the North Carolina sales tax, and there was none in Alaska; it saved a lot of money. She pointed out that some states don't require payment of sales tax if a person has an address somewhere else. CHAIR COGHILL asked, "[If] we amend this out, then do we go to the use part of the sales-and-use tax?" He said it is germane to the discussion, and whether to vote the amendment up or down may be contingent on "where we go with this tax." He asked whether there was further discussion on the amendment; none was offered. He asked whether there was any objection. REPRESENTATIVE FATE and REPRESENTATIVE STEVENS objected to the motion. TAPE 02-24, SIDE B Number 2995 CHAIR COGHILL restated conceptual Amendment 1, on page 2, lines 22-23, to delete paragraph (7) and renumber the remaining paragraphs; thus it would delete the following: "(7) that part of the selling price of a single item or the periodic selling price of a single service that exceeds $2,000". A roll call vote was taken. Representatives Crawford, James, and Coghill voted for conceptual Amendment 1. Representatives Fate, Stevens, and Wilson voted against it. Therefore, conceptual Amendment 1 failed by a vote of 3-3. Number 2890 REPRESENTATIVE JAMES again emphasized that if the state is going to tax consumption, it should do so [without a cap]. She told members that because the bill mentions collection of a sales- and-use tax, she'd thought it included a [state] use tax, which is her intention. She recalled that a client in Washington State had sold $30,000 combines and other big equipment; the tax percentage was based on the entire price, and a person who bought a combine in Michigan for use in Washington would have to file a use-tax form with [Washington] State and pay the use tax. She indicated that is the only way it will work in adjacent states: in order to protect the tax base and not lose sales across the border, there must be a use tax. REPRESENTATIVE JAMES stated her preference for having an income tax without a sales tax. She surmised that the state would end up with both, however, which was why she wanted to argue for what she considered fairness, without allowing people to avoid the tax by going elsewhere [for purchases]. She noted that people can pay less elsewhere for the purchase price to begin with. But, she said, allowing people to [avoid taxes by buying] outside the state should be illegal; there should be a state sales-and-use tax. Furthermore, based on Mr. Persily's testimony, she suggested the need to clarify that if the tax is going to be collected [by the state] for a municipality through a municipal ordinance, it must match the state's tax structure; otherwise, there will be large problems with collection, disbursement, and auditing. CHAIR COGHILL suggested such a change could be made on page 1 [lines 12-13] by saying "retail sales and use tax is levied". REPRESENTATIVE JAMES asked whether the state would be able to write regulations regarding how to implement it simply by saying "a use tax" or whether it would need to be more descriptive. Number 2733 MR. PERSILY suggested the committee would want to change the title on line 1 [page 1], to say "Retail Sales and Use Tax", and to change line 12 "and any other place where it says 'sales'" to say "sales and use". He also suggested working with the drafters to see, in comparing other states, whether other provisions need to be in statute in order to promulgate regulations. MR. PERSILY noted that for motor vehicles, there is an enforcement tool because registration can be denied until the tax is paid. On other items, it is up to the legislature to some extent. For example, does the legislature want to put penalties in statute for purchasing items out of state, bringing them to Alaska, and then not paying the tax? "We'd want to have, I think, some provision for the voluntary payment of tax," he added, "but would you want penalties if someone goes out and buys a vanload of furnishings for their new home and doesn't report that under the sales-and-use tax provisions?" He added that enforcement will be tough; most states do a fairly good job regarding motor vehicles, but on other items it depends on people's honesty to a great extent. REPRESENTATIVE JAMES reiterated that she doesn't like sales taxes, but said if they exist, they need to be effective and fair. Number 2655 REPRESENTATIVE STEVENS mentioned the option for communities to choose to collect their own local taxes as before, or to have the state collect them and then remit the portion that belongs to the community. He remarked that he likes the idea of making it contingent upon having the standards be the same. He asked Mr. Persily to comment. MR. PERSILY responded: The Department of Revenue's recommendation would be, if the state has a sales or sales-and-use tax, that we take over not just the collection, but the setting of ... exemptions, limits, collection standards, what have you, for the municipalities. Otherwise, you're putting businesses in the position of maintaining two code books by the register, particularly, as you think about the way this is drafted, if you have a business that operates in more than one city; ... that business could be turning in a state-only return and a Kodiak- only return in this store's location, and a combined state-Cordova return in your other location. ... We all talk about trying to be business-friendly and not making it harder to do business in this state. Requiring businesses to keep track under different exemption rules, different collection procedures, different reporting -- this says "monthly"; a lot of municipalities are quarterly. I don't think you'd really want to put businesses through that, if you could avoid it. On the other hand, municipalities might object to the state's setting what's exempt and what isn't, but to make it an effective tax, that would be the way to do it. Number 2555 REPRESENTATIVE STEVENS said this in no way compels the communities to buy into the state system; they can continue to collect taxes as they do now or enter [the state's] system and, under Mr. Persily's suggestion, comply with the limits and exemptions that the legislature establishes. He suggested it would be a tremendous savings to all communities not to have to have a staff [for this function] and do sales tax. He asked how it would work in regard to charging communities for that collection. MR. PERSILY answered that the bill allows the businesses to retain 1 percent. He added: I would think that would probably be something that would be discussed in the fiscal note. If we said, "This is how much this is going to cost to collect a state-city sales tax," [the House Finance Committee] might say, "Well, gee, how much of your time is being spent on municipal collections? Since the municipalities can lay off their ... sales-tax staff and save money, maybe the legislature would want the state to charge the cities for their collections, which poses another political battle. REPRESENTATIVE STEVENS remarked that nothing in the bill allows the state to recover from municipalities the amount of money it costs to collect those taxes [on their behalf]. MR. PERSILY concurred. REPRESENTATIVE JAMES remarked, "This is good. Everybody's getting the point - why I don't like sales tax." Number 2484 REPRESENTATIVE WILSON offered conceptual Amendment 2, on page 2, after line 28, to add a new exemption, paragraph (13), which says municipalities that already have a sales tax of 3 percent or more are exempt. REPRESENTATIVE WILSON explained that her community [Wrangell] has a 7 percent sales tax in order to fund services, which has been necessary because of the loss of the timber industry, for example. Adding 3 percent [in state tax] will raise the total to 10 percent, making things much worse for residents. She asked that it be thought of as a problem in many areas [besides Wrangell]. She suggested that either there should be no sales tax or the tax should be fair to municipalities that already have a tax. CHAIR COGHILL noted that lines 3-4 say "does not apply to". He suggested that conceptual Amendment 2 therefore would add a new paragraph (13) that reads, "municipalities that have a municipal sales tax of 3 percent or more". REPRESENTATIVE JAMES suggested saying "purchases" because it is talking about what purchases or services are exempt. Number 2340 RYNNIEVA MOSS, Staff to Representative John Coghill, Alaska State Legislature, speaking as the committee aide, clarified that it would read [beginning on line 3 and then jumping to the proposed paragraph (13) after line 28]: "The tax levied under AS 43.44.010 does not apply to ... municipalities that have a municipal sales tax [of 3 percent or more]". REPRESENTATIVE JAMES objected. She said it's a matter of being unfair to communities that have to pay to the state. She pointed out that the money goes to the state rather than the locality. She said she doesn't believe it is [fair] to exempt those people, which is why she doesn't like a sales tax at all. REPRESENTATIVE STEVENS also voiced opposition to conceptual Amendment 2. He related his belief that communities decide how to pay for the services they provide, whether through property tax or sales tax. If the goal were to ensure that every community had a 3 percent sales tax, [conceptual Amendment 2] would do it immediately. Number 2207 REPRESENTATIVE WILSON pointed out that under an income tax, communities with property taxes can deduct the property tax from the income tax. Therefore, she asked whether it could be a deduction. CHAIR COGHILL said the state income tax would have to be implemented in order for it to be a deduction, which he announced he wasn't willing to do. REPRESENTATIVE WILSON questioned why there couldn't be deductions for areas with sales tax, when there are exemptions for areas with property taxes. CHAIR COGHILL specified that the question is whether there will be a consumption tax or a production tax. A roll call vote was taken. Representative Wilson voted for conceptual Amendment 2. Representatives Crawford, Fate, James, Stevens, and Coghill voted against it. Therefore, conceptual Amendment 2 failed by a vote of 1-5. Number 2085 CHAIR COGHILL asked whether 30 days should be specified. He also asked whether the communities could align with that. MR. PERSILY informed the committee that if the legislature imposed a sales tax, the department would favor making that tax code mandatory in municipalities. Mr. Persily surmised that the municipalities' right to have a sales tax code would be taken away, and "we would impose whatever right they tell us and collect it under our rules." Regardless, the department would favor having the same payment requirements of 30 days as in this bill. Administratively, the [30-day requirement] would be easier for businesses because there would be only one return, rather than two separate returns. MR. PERSILY pointed out that a sales tax is not the business's money. The philosophical question is whether the desire is for the business to keep and use the money for 90 days under quarterly reporting or to require 30-day reporting/payment to the state. Mr. Persily agreed with Representative James's assertion that businesses can get into trouble under quarterly reporting when the sales tax money in the bank is viewed as a free loan. CHAIR COGHILL voiced continued concern with regard to the alignment [of the 30-day requirement], saying he didn't want to create another "tier of things to do." MR. PERSILY pointed out that the alcohol and tobacco taxes are paid monthly. He confirmed that the unemployment tax is different from excise taxes on alcohol and tobacco. CHAIR COGHILL remarked that 30-day reporting seems appropriate because it might lessen the temptation [of the business owner] to use [the sales tax money]. Number 1920 REPRESENTATIVE STEVENS began discussion of what would become conceptual Amendment 3. He expressed the need for an amendment to Section 1 specifying that the state's ability to collect the municipality's sales tax is an option for municipalities; that there should be a charge for that collection; and that if the state collects the municipal sales tax, the municipality's limits and exemptions must match the state's. REPRESENTATIVE JAMES responded that she understood Mr. Persily's concerns, and that if this were to be done, it would make sense to take away [the municipality's] right to have a sales tax. She said, however, that she wasn't willing to do that either. Number 1776 CHAIR COGHILL, after conferring with his staff, offered possible language, on page 1, line 6, to insert "(a)" [after "state.]" It would also insert, following line 9, a new subsection (b) to read something like the following: A municipality requesting the Department of Revenue [to collect taxes] would be required to have a municipal sales tax ordinance consistent with AS 43.40. ... The Department of Revenue may retain 1 percent of the amount collected for a municipality. CHAIR COGHILL remarked, "We're also allowing that to the businesses - 1 percent of the amount collected. So it's a diminishing amount as we go up, and I don't know how we'd figure a fiscal note on that." Chair Coghill then restated the new proposed subsection (b), with a few changes: (b) A municipality requesting to collect taxes under (a) of this subsection would ... be required to have a municipal sales tax ordinance consistent with AS 43.40. CHAIR COGHILL added, "So we would be mandating, at that point, an alignment." He suggested an effective date would be required on that. Number 1650 REPRESENTATIVE JAMES suggested having it "come in" at the beginning of each calendar year, on January 1, rather than throughout the year. CHAIR COGHILL surmised that Section 1 would require an effective date just for that, because it would have to be different from the implementation of AS 43.40 in Section 2 of the bill. He continued with the amendment [offering what was later clarified to be subsection (c)]: The Department of Revenue may retain 1 percent of the amount collected for a municipality. REPRESENTATIVE JAMES offered an example from the Fairbanks North Star Borough; she said this would be a total of 2 percent the municipality wouldn't get, including the 1 percent for collection. Number 1581 MR. PERSILY offered his understanding that it would say, therefore, that a municipality that asks the state to collect a sales tax would have to match the sales tax in Sec. 43.44.010 [Section 2 of the bill]. He noted that many municipalities have a bed tax, alcohol tax, tobacco tax, or charitable gaming tax. And Cold Bay, for example, has a fuel transfer tax. He said: Would you want the state to collect those in addition, but yet they don't exactly match [Sec. 43.44].010. So if you wanted the state to collect those, you'd have to include that in here. If you didn't want the state to collect those, that's fine, but ... I know in Juneau, for example, when you turn in your sales tax, the same form, the same reporting mechanism is used for the bed tax, the alcohol tax, and the sales tax. So you could end up with the state collecting the sales tax, but the municipalities still having to maintain their own operations for bed tax, alcohol tax, tobacco tax, fuel transfer tax. CHAIR COGHILL suggested that would be part of the problem with having a mandate at this point. MR. PERSILY, in response to Representative James, affirmed that state statute currently says municipalities cannot impose an alcohol tax unless there is an existing sales tax. Number 1459 REPRESENTATIVE STEVENS said this doesn't mandate anything. On [page 1] line 7, for example, it says "may collect". He said it allows communities to continue doing business exactly as they are now. This is an option if a community wants the state to collect the taxes on its behalf and sees the fee as being reasonable. He asked Mr. Persily whether 1 percent is a reasonable amount for collecting taxes for a municipality. Suggesting it is a lot of money, he specified that instead he wanted to charge communities a "reasonable amount". MR. PERSILY responded that he'd been thinking about that, but wasn't sure he had a good answer. He noted that Wrangell, Representative Wilson's hometown, collected $1.8 million in sales tax last year; 1 percent would be $18,000. He agreed there would be economies of scale if there were a state tax that [the municipal collection] piggybacked on. He said he doesn't know how much staff time Wrangell assesses for its sales tax collection efforts. If [1 percent] seems to be more than the state needs, he suggested the bill could say "an amount not to exceed", for example, "and then trust us not to exceed it." [There was laughter.] Mr. Persily said it would depend on the complexity. If the state collected the straight sales tax but the municipality retained [collection of] the bed tax, alcohol tax, tobacco tax, and rental car tax in Anchorage, for instance, then [the municipality] would still need to maintain a sales tax office. Number 1301 REPRESENTATIVE STEVENS [moved to adopt the foregoing as conceptual Amendment 3]. REPRESENTATIVE JAMES asked whether an amendment is needed such that an application would have to be effective on the first [day] of any given year. CHAIR COGHILL agreed an effective date might be required on that. Referring to earlier discussion, he noted that conceptual Amendment 3 also would have a subsection (c): "The Department of Revenue may retain 1 percent of the amount collected from a municipality." He asked whether it should be "1 percent" or "up to 1 percent" or "not to exceed 1 percent". [Members' responses were indiscernible.] Chair Coghill then announced it would remain "1 percent". Number 1134 REPRESENTATIVE CRAWFORD referred to Mr. Persily's mention that there could be "a reasonable amount up to 1 percent." Representative Crawford indicated his preference for that language, noting that it may not cost the state 1 percent. He said he'd prefer that the money go back to Wrangell, for example, if it doesn't need to go to the state [to cover the state's costs]. REPRESENTATIVE STEVENS offered his understanding that because the language [proposed as subsection (c)] says "may", it gives the option to the state to go up to 1 percent. If the costs are lower than that, he added, "they ... don't have to charge the 1 percent; so I think 'may' gives it that wiggle-room...." Number 1067 REPRESENTATIVE JAMES expressed concern about the department's figuring out how much this is going to cost; it seems arbitrary in some ways. She said a municipality would only want to do this if it would save money. She suggested although municipalities might know how much the collection costs them, she wasn't sure their determinations would be accurate because personnel do more than one thing, for example, and don't necessarily record how much time is spent on particular tasks. She offered that perhaps .5 percent would be reasonable for [municipalities] that collect a lot; that would be the case if Anchorage had a sales tax, for example. She suggested it wouldn't require any more time to do the work for Anchorage than for Wrangell, because the businesses do the actual collection and [the state] would just receive the money and issue back a check, which shouldn't cost much. She mentioned perhaps specifying it in statute or by regulation. She conveyed concern about trying to figure out the precise cost of doing things unless there is one [staff] person who does nothing else. Number 0922 MR. PERSILY responded that to some extent it would depend on how many municipalities opted in, and how difficult it got. If only a small number opt in and the department must assign staff time, it is more expensive than if half of the hundred municipalities opt in. It also depends on how big the tax is: the department would need to charge a higher percentage of a small sales tax. For example, [Version O] has a 3 percent sales tax. If it were amended to 1 percent, it would cost the department as much to collect as it would for even a 5 percent tax. He offered that one method could be to let the "market" decide and just say that [the department] may recover a fee from municipalities. He explained: If this were passed and we said to municipalities, after looking at the bill and seeing how many opt in, "This is how much we want to charge," and they figure it out: "Gee, we can do it for less than that; we don't want to opt in." And if we can do it cheaper, through economies and savings of scale, and they opt in and the municipalities save money, well, that's good. So it sort of lets a private-sector market decide who opts in and who doesn't. Number 0824 REPRESENTATIVE WILSON concurred with the earlier thought that it won't cost any more to collect Anchorage's money than Wrangell's. She said it is too huge to leave it at 1 percent. Number 0742 REPRESENTATIVE JAMES proposed amending the amendment to leave the 1 percent out. CHAIR COGHILL suggested, "The Department of Revenue may retain an amount to be determined." He then said no. REPRESENTATIVE JAMES mentioned "the cost of", which would leave it fairly open. CHAIR COGHILL called upon his staff and then offered, "The department may retain a reasonable fee, as negotiated with the municipality, of the amount ... of tax collected." CHAIR COGHILL asked whether there was any objection to the foregoing amendment to conceptual Amendment 3. There being no objection, the amendment to conceptual Amendment 3 was adopted. CHAIR COGHILL asked whether there was any objection to conceptual Amendment 3 [as amended]. There being no objection, conceptual Amendment 3 was adopted. Chair Coghill indicated he would make a new CS available to the committee for review. Number 0595 REPRESENTATIVE FATE referred to the "conditional effect" section, Section 3. He said although he applauded the effort to hold down costs, holding them flat and indexing them to the previous year doesn't take into consideration the potential for development in the state. He requested confirmation from Mr. Persily that some constitutional language relates to inflation in population as a measure of "increase." MR. PERSILY said he wasn't an expert on that. REPRESENTATIVE FATE brought up the possibility of a conceptual amendment "that allows for inflation in population, not to exceed inflation in population, which keeps control of expenditures and yet provides for those areas where, because of development, there will be a population increase and there could be some impacting." Calling it a "friendly conception," he cautioned that [the language in Section 3 of Version O] may limit development. Number 0470 CHAIR COGHILL clarified that [Section 3] only affects this year's budget. He expanded on the reasons for the language: We're actually cutting into the ... capital dollar that anybody has to spend. We're not taking into account any CPI [consumer price index] numbers. We're not taking into account ... any other thing. We're just saying we're going to take the consumption this much - 3 percent - and we're not going to take into account any other factors. And for us as a government, then, to say "except us" I think is unwise. And so, I wanted ... to leave this language in there for this year: there has to be [demonstrable] evidence ... that we're not going to excuse ourselves, as a state government, while going to them without any consideration for their ability ... to grow. REPRESENTATIVE FATE expressed concern that although the language refers specifically to [fiscal year] 2003 as compared to the 2002 budget, there will be exploration in 2002, there will be an impact on certain areas of the state with regard to population, and there will be an impact because of new business "that could be coming along in the state." He again spoke in favor of indexing it to inflation and to the population increase that may occur in areas of the state where development might occur. CHAIR COGHILL offered his understanding that under the conditional effect [section], "the operating portion then would be allowed to grow by CPI and population growth of this last year." Number 0275 REPRESENTATIVE JAMES said she'd understood this differently and wasn't concerned at this point "because of our efforts that we have that are ongoing, which are not successful 'til the end." She added, "What I understood that you put this on here for is, if this goes through all the way through the process, gets voted on in the House and the Senate, and becomes law, and then the budget that we're doing now for fiscal [year 2003] is larger than the one we've had for 2002, then it fails. ... That's the bar." CHAIR COGHILL responded, "I need to have that bar before I will go along with this. ... And you've characterized it exactly right." Number 0199 REPRESENTATIVE FATE said: I don't really mind that. But if we're going to put bars up like this, we should put those bars up for all kinds of tax. This is a tax discussion, ... basically, on sales tax. And the discussion was, in this committee, not to compare but to have an open discussion on the pros and cons of sales tax, which we've done, thanks partly to [Mr. Persily] here. But I just wanted to point out that ... this could be a killer, for example, for sales tax, for some of those people who want sales tax. And so if we're going to have that bar, I think that bar should also be applied to any other kind of tax. CHAIR COGHILL responded: If this passes out and it gets over that bar - this is enduring - that language goes away. So in my view ... what we're doing is establishing a base year that we're saying, "OK, it had to go over that bar to get there, and ... that intention was there." So I feel very strongly. Number 0102 REPRESENTATIVE CRAWFORD offered his understanding, from a previous statement by Representative Mulder, that $83 million in the budget is constitutionally mandated in new areas, and that there would have to be $83 million in budget cuts just to keep the spending "flat." He asked, "When you said it had to be the same expenditures as 2002, you weren't taking into account that $83 million in constitutionally and federally mandated spending, or were you?" CHAIR COGHILL said yes, he was taking it into consideration, because he wanted "no growth, period." He added, "That means we're going to have to eat some." He spoke about money being taken out of the economy. TAPE 02-25, SIDE A Number 0001 CHAIR COGHILL noted that without consideration of [a municipality's] economic situation, the state would be taking 3 percent of the money spent in that economy, with a few exceptions. He emphasized the desire to have the government demonstrate that "reduction" before asking the communities to pony up. REPRESENTATIVE JAMES replied that she understands and would support leaving [the existing language in Version O, Section 3] as the bill moves from committee, "knowing full well that the next time anybody looks at this bill, it will probably evaporate." She offered support for Chair Coghill's having that language in the bill which was going to move out of his committee. CHAIR COGHILL acknowledged that as a political statement. He added that if the bill were to go to the floor without that language, he would speak heavily against it. REPRESENTATIVE FATE said he had no amendment to make, but had wanted to bring about the discussion. Number 0215 REPRESENTATIVE STEVENS remarked that he was comfortable with Chair Coghill's wording [in Version O] and was willing to support it. He asked about timing. CHAIR COGHILL offered the intention of moving the bill from committee at the next meeting, after members had a chance to review the next proposed CS and make any necessary technical amendments. [HB 303 was held over.]
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