Legislature(2003 - 2004)
05/07/2003 07:10 AM House W&M
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HB 293-STATE SALES AND USE TAX
CO-CHAIR WHITAKER announced that the only order of business
would be HOUSE BILL NO. 293, "An Act levying and collecting a
state sales and use tax; and providing for an effective date."
Number 0114
WALLY JOHNSON testified in opposition to HB 293. He said in
looking at the state's fiscal problems he agrees that the state
does need more funds which can only come from the permanent
fund, a sales tax, or an income tax. He shared his personal
experience of being born in 1929, shortly before the Depression,
and the traumatic situations [that those of his generation
faced]. Mr. Johnson told the members that the Depression and
war lasted until 1945 when World War II ended. He said he will
never forget when his father cried because he was out of work
with no money. Mr. Johnson spoke to the effect this [sales tax]
will have on seniors. The longevity bonus is being taken away
to save $47 million; the tax burden will be raised by 8 percent;
and there is no time or opportunity in a senior's lifetime to
recover, he said. Mr. Johnson pointed out that in Kodiak
individuals who are 65 years old or older do not have to pay
sales tax; however, if this bill passes seniors will have to pay
a sales tax on food, rent, services, and medicine. He told the
committee he presently takes medicine for various conditions,
and his wife was diagnosed with has cancer in 1999. His hearing
and vision are slowly going, and there is not enough time for
him to work to overcome [these proposed changes in the law].
Mr. Johnson summarized his comments by saying that this bill
will be an economic disaster for seniors.
Number 0614
CO-CHAIR WHITAKER told Mr. Johnson that the current proposal
before the committee is 3 percent, not 8 percent.
MR. JOHNSON responded that Kodiak resident now pay a 6 percent
local tax. If the legislature puts a cap on the sales tax at 8
percent, the city will get 5 percent and the state will get 3
percent. Presently, since he is a senior, he does not have to
pay a local sales tax. This proposed sales tax will mean that
small communities will [die] and Alaska will consist of three
large areas where all residents will live. This tax will lead
to the destruction of the economic infrastructure in small
communities. He suggested that the legislature use the
permanent fund [to compensate for the fiscal gap].
Number 0859
REPRESENTATIVE OGG told the members that Mr. Johnson is the
former mayor of the City of Kodiak and owner of a car
dealership. He asked Mr. Johnson to speak to the impact of a
sales tax on car dealers in outlying communities.
MR. JOHNSON replied that if an individual wanted to save money,
he/she could go to Washington State and purchase a vehicle at a
savings of about $8,000. If the new tax were implemented, an
individual buying a car in Kodiak would have to pay 8 percent;
however, the tax in Anchorage would only be 3 percent. He added
that there is a $500 cap in Kodiak.
Number 1121
NELS ANDERSON, JR. testified in opposition to HB 293. He told
the members that he is a former state Representative and
Senator, who has watched Bristol Bay's vibrant economy
deteriorate to an economic disaster. He said he cannot support
a [statewide] sales tax because Bristol Bay and other small
communities across the state cannot absorb new taxes. He
explained that Dillingham already has a 6 percent sales tax
while Anchorage has none. If this tax were to be fair, the new
legislation should mandate all communities that have a
population over 1,500 to adopt a sales tax, so that everybody
pays a sales tax in the state.
MR. ANDERSON told the members that in addition to the 6 percent
sales tax, he pays a personal property tax and boat launch tax.
He related his belief that areas identified as an economic
disaster should be exempt from the [statewide] sales tax. He
said Bristol Bay is doing everything it can to revitalize the
salmon industry; however, it does not look like salmon prices
will be very much higher than last year. Mr. Anderson said he
does not see how it will be possible to diversify the economy
while increasing the tax burden.
MR. ANDERSON suggested that the legislature perform a socio-
economic impact study to see what the high cost of living is
doing to rural Alaska. He said he believes [this sales tax]
would vacate every village into a larger community. Another
issue the legislature needs to look at is whether Anchorage,
Fairbanks, and Juneau can absorb an additional 75,000-80,000
people moving in.
MR. ANDERSON said this particular tax hurts low-income people
more than anyone else. It is especially hard on retirees or
those who live on fixed incomes. He asked that the committee
hold this legislation, conduct more hearings, and look for other
sources of income. He pointed out that there is a great desire
to give the oil and gas industry tax breaks when the state needs
more revenue. He reiterated his hope that this committee holds
this bill in committee because of the negative impact it will
have on rural communities.
Number 1540
TOM HEALY, City Manager, City of Palmer, testified in opposition
to HB 293 because the passage of this legislation will
fundamentally change the ability of many local governments to
control local sales tax revenues and municipal finances. For
more than 90 local governments sales tax revenues are essential
to the local governments' ability to provide basic services that
have been impacted by state budget cuts.
MR. HEALY commented that there are serious concerns about the
potential impacts of HB 293. Although he acknowledged that the
state must look in that direction to bring its budget into
balance, the state's administration of local sales taxes has the
potential to decrease local tax revenue and knock the foundation
out from under many local governments' finances. Mr. Healy
pointed out that HB 293 will essentially repeal everything in
the local sales ordinances except the local tax rate, and shift
the administration of taxes to the state. He explained that
their primary revenue source will be subject to absentee
oversight, to rules on taxable sales or exemptions not of the
community's choosing, and to payment schedules that could
seriously upset the city's cash flow. This will result in the
loss of control that has sustained the community for a long
time, he said. For years, sales tax, as granted by the state,
has been in the local government domain and essentially free
from state interference. Mr. Healy told the committee that
local governments have crafted sales tax programs that work in
their communities. He added that there are probably no two
sales ordinances alike in Alaska. The City of Palmer's sales
tax was established in 1951 and today the sales tax revenues are
55 percent of the general fund revenue. Mr. Healy explained
that these revenues are very important to the city's budget and
these finances could be easily upset by changes in exemptions
under a statewide sales tax such as HB 293. For example, it has
been suggested that grocery sales be exempted to reduce the
burden on paying sales tax on essential items. However, the
City of Palmer presently taxes grocery sales and if HB 293 is
adopted and the legislature decides to exempt grocery sales from
the sales tax, Palmer will loose one-quarter of its sales tax
revenues or 12 percent of its entire general fund revenue. To
replace those lost revenues, the City of Palmer would either
have to raise its sales tax rate or increase its property tax
mils from 3 mils to 7.5 mils. This is one example of the
potential serious effects the sales tax would have on local
finances by a relatively small change in this legislation, Mr.
Healy said.
MR. HEALY agreed that there is no question that the state faces
a serious budget imbalance, and to correct this will require
fundamental changes in state fiscal policy on both the expense
and revenue sides of the budget. However, it appears to be a
questionable policy to adopt measures such as HB 293 that have a
positive revenue result for the state, but a negative result for
local governments. If the state is looking for more revenue, he
suggested the legislature might look at potential revenue
sources not used by local governments before venturing into the
complexities of a sales tax. For example, other revenue sources
might include a gasoline tax, an income tax, use of the
permanent fund, taxes on natural resources, and user fees, he
said. Mr. Healy summarized his comments by saying that if a
statewide sales tax is inevitable, local governments must retain
the ability to set there own rules to define taxable and exempt
sales, and to monitor local tax collection. He told the member
that a sales tax measure must not take away local control or
local sales tax programs.
Number 2023
MAYOR COOPER, Mayor, City of Palmer, testified in opposition to
HB 293. He told the members that nobody likes taxes; however,
it is time that all Alaskans help shoulder this burden. He
commented that there are as many opinions on sales and income
taxes as there are people in the state. He urged the committee
to deal with facts, not emotions; and emphasized that only
communities that deal with sales taxes on a daily basis truly
understand the impact sales taxes have on local municipalities.
The way the bill is written creates more questions than answers.
Mayor Cooper said that he hopes the legislature will work in
partnership with local municipalities to create a solution to
this problem.
Number 2153
REPRESENTATIVE GRUENBERG commented that the committee has
listened to a lot of testimony around the state and will listen
to a lot more. He said he appreciates Mayor Cooper's candor,
honesty, and leadership, and asked him to take that message to
constituents.
CO-CHAIR WHITAKER announced for the record that Representatives
Gruenberg, Wilson, and Cissna had joined the committee.
Number 2229
TIMOTHY JOYCE, Mayor, City of Cordova, testified in opposition
to HB 293. He told the committee that the city council
unanimously passed a resolution opposing a statewide sales tax
in Alaska. One reason for opposition is that a statewide sales
tax would tax Cordova residents at a higher rate for the same
goods and services than larger cities, such as Anchorage.
Because the cost of those goods and services are much higher in
Cordova an item that might cost $2 in Anchorage could cost $3 in
Cordova resulting in one-third higher taxes for the same item.
He added that if freight is taxed that cost will increase even
more. Mayor Joyce told the committee that the proposed matching
grant is not sufficient to cover the loss in revenue from the
proposed 7 percent tax. He explained that every 1 percent of
sales tax in Cordova generates over $400,000 in revenue for the
city. The current sales tax is 6 percent. This legislation
will cost Cordova over $800,000 in [lost] revenue, while only
providing $400,000 in community self-help matching grants. The
self-help matching grant does not have a built-in inflation
adjustment or economic development adjustment. He pointed out
that as costs increase or economic activity increases, the tax
collected will increase. However, the self-help matching grant
will remain fixed. The 7 percent tax limit will require that
any increased revenue needs for the city must be replaced solely
on the property owners in the form of increased property taxes.
Mayor Joyce pointed out that right now the property tax rate is
at 13.5 mils, and if this bill passes it would be necessary to
raise the property tax to over 18 mils. A sales tax rate over 7
percent will stifle economic activity in Cordova as more
residents will look to catalog purchases to avoid this tax or to
lower tax areas such as Anchorage. He commented that the self-
help matching grant will require more accounting staff time to
provide the information required to receive the grant and no
provision has been made to reimburse the city for that staff
time.
MAYOR JOYCE advised the committee that the City of Cordova
currently has a 6 percent sales tax and 6 percent surcharge on
car rentals and temporary lodging. He said it appears that an
amendment to HB 293 will require the repeal of sales tax
surcharges on car rentals and temporary lodging which will again
cause a painful reduction in city revenues. Cordova would lose
the ability to stimulate economic activity to provide tax
exemptions in specific areas of business. For example, Cordova
limits its tax to the first $2,500 of a single sale to avoid
driving business to other areas. In closing, Mayor Joyce,
encouraged the legislature to look for alternate ways to
generate state revenue. He suggested applying the sales tax to
cities with populations of over 15,000 people that have road
access to the Alaska highway and exempt the rest of the state.
He offered other suggestions such as a $50 tax to every cruise
ship passenger, a $3 airport departure tax for every passenger
leaving the state, or a state income tax. Mayor Joyce
summarized his comments by saying that [a statewide] sales taxes
will do more harm in rural areas than any other tax the
legislature could suggest.
Number 2631
MICHAEL RASMUSSEN testified in opposition to HB 293. He said he
agrees that the state has a revenue problem and that all people
should pay; however, the problem with all people paying through
the sales tax is that it is a discriminatory [tax] for
individuals who have a different cost of living [such as those
who live in small or rural communities]. He told the committee
that he has lived in Kodiak for over 40 years and believes it
will cause serious problems with local governments that already
have sales taxes in place.
MR. RASMUSSEN told the members it is time to use the permanent
fund, which was designed to be there for a rainy day. That day
has come, he commented. Mr. Rasmussen said he believes that a
lot of people pay a portion of their dividend to the IRS and if
a portion of that dividend were taken, the IRS would get less
and those funds would remain in Alaska.
MR. RASMUSSEN pointed out that the average Alaskans receives no
benefit from cruise ship passengers. Last year there were over
780,000 individuals coming through the Inside Passage, a $120
[head] tax [on tourists] would raise $100 million annually. An
annual school tax might be another way to raise funds, he
commented. Mr. Rasmussen summarized his comments by saying that
the statewide sales tax is a bad idea and suggested the members
look elsewhere for revenue.
Number 3001
JAKE JACOBSEN testified in support of a sales tax. He commented
that the precepts of equal rights and responsibility should be
shared equally. However, the most popular taxes are those that
are paid by others. He told the committee that he recently read
that 45 percent of the United States' population pays no income
tax. In 2000 only 242,000 Alaskans out of 600,000 paid any
income tax at all. Mr. Jacobsen said he believes that taxes
that fall on everyone equally will have better scrutiny and
investigation by more people and the level of public
participation in government would increase dramatically.
Instead of an income tax, he said he favors a sales tax because
it falls equally on 100 percent of the population. Personal or
real property tax is an unfair tax, he opined. Mr. Jacobsen
told the committee he favors exempting all prescription drugs,
medical and dental care, basic foodstuffs, such as fresh fruits
and vegetables, dairy products, meat and fish, and senior
exemptions.
MR. JACOBSEN commented that the cost of administering a sales
tax program would be minimal. He added that he also supports a
lottery and an entry fee for every nonresident coming to Alaska.
Mr. Jacobsen said that an Anchorage Daily News article said that
[Alaska's] bond rating will go down without a sales tax which
will have a negative impact [on the state's finances]. He
expressed hope that the legislature is successful in
implementing a statewide 3 percent sales tax. Mr. Jacobsen
commented that he supports Mr. Anderson's suggestion that that
communities that do not have a sales tax be mandated to have one
to ensure that a statewide sales tax is equitable.
Number 3422
TOM MERRIMAN testified in opposition to HB 293. He told the
members he has been a small business owner in Kodiak for over 20
years and one of the big concerns he has is the impact an
additional tax will have on sales in struggling times. The
fishing industry propels Kodiak's economy and it has been a
tough situation for some time now, he commented. He opined that
taxes should be on a level playing field; however, that does not
seem to be happening. Because of Kodiak's existing tax, [an
additional 3 percent sales tax is huge]. Mr. Merriman said that
an increase will definitely drive sales off the island. He told
the members that Kodiak is completely inundated with sales
promotions from outside the area. Mr. Merriman asked the
members to look at other sources [of revenue before implementing
a statewide sales tax]. For example, there are a lot of people
who work in Alaska, but do not pay any taxes, especially those
who work on the North Slope. Cruise ships or fishing vessels
that are ported outside of Alaska might be another source of
revenue. Mr. Merriman urged the members to find ways to tighten
up spending and look to other revenue-producing opportunities.
He told the members that he believes the statewide sales tax is
a bad idea.
Number 3731
RON PECK, President, Alaska Travel Industry Association (ATIA),
testified in favor of HB 293. He told the members that the
Alaska Travel Industry Association has a membership of 1,000
tourist and travel-related businesses in the state. Mr. Peck
explained that 50 percent of these businesses are small
businesses with 5 employees or less.
MR. PECK told the committee he would like to address some of the
comments that have been made about the cruise ship industry and
their contribution or lack there of. Presently, the Alaska
Travel Industry Association has a contract with the State of
Alaska and has an annualized budget of $10 million, of which $4
million is a contribution from the state and $6 million is from
private contributions. Of the $6 million [from private
contributions], $2.5 million comes directly from contributions
from the cruise industry and various marketing and advertising
programs. In addition, the cruise industry pays a substantial
amount of money for port and docking fees to various
municipalities throughout the state. Mr. Peck emphasized that
the [cruise ship industry] is a contributor. He recalled an
earlier statement that there were 780,000 visitors who came to
Alaska through the cruise ship industry and said the number is
closer to 720,000 people. He told the members that ATIA has
been opposed to targeted taxes on the visitor industry. Any tax
should be broad based, fair, and equitable for all sectors. Mr.
Peck said the ATIA recognizes the fiscal challenges facing the
state. Most of ATIA's marketing revenues are derived from its
membership, he said, and imposition of any statewide sales tax
should result in increased revenues to support the tourism-
marketing program.
MR. PECK said that ATIA estimates that 30,000 people are
employed in the tourism industry and of those, 78 percent are
local hire. He told the committee that $1.8 billion is
contributed to the state's economy, and under HB 293 $54 million
in revenue will be generated directly from the visitor industry.
He explained that if the legislature were to increase the
funding to ATIA's private match program, then it would be able
to drastically improve the size, scope, and impact of their
marketing efforts. This would increase the number of visitors
to Alaska, contribute to the health of small independent
businesses, and employ more Alaskan residents.
MR. PECK read the following resolution passed by ATIA:
ALASKA TRAVEL INDUSTRY ASSOCIATION, INCORPORATED
BOARD OF DIRECTORS
RESOLUTION 03-6
WHEREAS, the Legislature has introduced HB 293, a
statewide sales and user tax, to generate revenue for
the general fund, and
WHEREAS, the intent of HB 293 appears to be a broad-
based, fair and equitable revenue generating
mechanism, and
WHEREAS, a substantial amount of the monies collected
from this tax will come from visitors whose travel to
Alaska is the result of marketing done by ATIA, and
WHEREAS, tourism is an important contributor to the
overall economic vitality to the state of Alaska,
having an excellent record of employing Alaska state
residents as evidenced by a 78% local hire rate, and
WHEREAS, the Alaska Tourism Industry continues to
decline due to a lack of sustainable funding for
destination marketing, and
WHEREAS, ATIA has identified a long-stated need to
increase its statewide tourism marketing efforts to
reverse the decline in this vital economic engine for
Alaska, and
WHEREAS, ATIA believes the funds generated from
tourism businesses in Alaska should be appropriated
annually to fund a long-term sustainable tourism-
marketing program to reverse the decline and to grow
Alaska's second largest private industry.
THEREFORE BE IT RESOLVED THAT the ATIA Board of
Directors supports the intent of HB 293, provided that
a significant portion of those revenues generated
thereby shall be used to increase the states
contribution to statewide tourism marketing efforts.
[original punctuation provided]
MR. PECK closed his comments by saying that tourists are
accustomed to paying sales taxes, whether it's in Disneyland or
Las Vegas.
Number 4318
KAREN ROGINA, Executive Vice President, Alaska Hotel and Lodging
Association, testified in support of HB 293. She told the
committee that the Alaska Hotel and Lodging Association
represents over 80 percent of lodging rooms in Alaska and
employs over 6,000 individuals. Ms. Rogina said the hospitality
industry recognizes that the state is faced with economic
challenges and that the lodging industry is a major contributor
to state and local economies through taxation and fees. She
pointed out that a big part of the industry includes hotels that
are occupied by cruise ship travelers. The industry has long
supported a broad-based taxation solution and believes that this
solution must be linked to the sustainability of Alaska's
tourism and hospitality industry. In this way the industry will
continue to grow and contribute to the state's economy. In
summary, Ms. Rogina said the industry supports HB 293 as long as
a portion of the revenues generated is accompanied with a
commensurate appropriation to tourism marketing.
Number 4518
JEFF JABUCH, Acting City Manager, City of Wrangell, testified in
opposition to the statewide sales tax, and offered suggested
revisions which would include a sales tax cap of 8 percent,
[vehicle sales cap of $5,000], and changes to the self-help
grants. Mr. Jabuch read the following statement into the
record:
Limiting the overall sales tax rate to 8 percent, with
3 percent going to the state, would cost the City of
Wrangell between $500,000 and $535,000 per year or
approximately 16 percent of our current general fund
budget. The provision that may grant up to $50 per
capita to communities that are currently at 6 percent
or higher would not come close to compensating the
City of Wrangell for the lost revenue. Fifty percent
per capita would generate $107,200. The State of
Alaska's history with that kind of wording does not
give our city a lot of confidence. Senior exemptions
are mandated and at one time the communities were
reimbursed at 100 percent.
TAPE 03-23, SIDE B
[Due to technical difficulties part of Mr. Jabuch's testimony
was not recorded.]
MR. JABUCH continued:
...from the State and the program costs us about
$150,000 per year or 15 percent of total property tax.
This will be no different. Promise of community self-
help matching grants are currently offered to make it
acceptable for passage, but several years down the
road it will not be fully funded and it will take the
same path as the senior exemptions did.
If this amendment remains as it is written, it will
essentially take 2 percent of Wrangell's current sales
tax revenue and transfer it to the state. In
addition, it limits the municipality in its ability to
use sales taxes as a means to support local services.
The self-help grant would put back about 20 percent of
this if it is fully funded, but even with it we are
losing most of the 2 percent. Wrangell has had a 7
percent sales tax since 1990. We have relied on that
revenue and have tried to maintain our services based
on this revenue. This amendment would have a larger
negative impact on Wrangell than any other community.
We do not think this is a fair way to balance the
state budget and strongly urge the state to rethink
this amendment. Our proposal would be to cap it at 8
percent, but grandfather in current local sales tax
levels rather than administering the self-help
program. The state could take the difference between
the existing sales tax and 8 percent. The cap of 8
percent, with 7 percent coming to the city and 1
percent to the state would be more tolerable. Alaska
only has a handful of communities that have a 6 or 7
percent sales tax rate. The state would get 1 percent
from Wrangell, 2 percent from the handful of other
communities, and the full 3 percent from other
communities. This isn't going to cost the state that
much money and it will keep whole those communities
that rely on these tax dollars to support local
services. You may get some inequity or legal
questions, but you are going to get these concerns no
matter what you do.
We respectfully requested you consider either the
above alternative or others that will leave
communities whole and does not force communities to
give portions of current sales tax revenues to the
state. The self-help matching grants is not a
solution to this problem. Making these communities
whole is the only solution.
Number 4401
DOROTHY ANDERSON testified on HB 293. She told the committee
that she represents only herself and pointed out that Dillingham
currently has a 6 percent sales tax. She said with about a $400
grocery cost per month her family pays about $288 a year in
sales tax; however, if [this legislation passes] residents would
be paying a 9 percent sales tax which would bring the tax on
groceries [for her family] to $432 per year. She said she does
not see that capping would be of any help, because Dillingham
cannot afford to lose the 6 percent sales tax that is in place
now. Ms. Anderson explained that the community added a 1 to 2
percent sales tax a couple of years ago to help the school
district compensate for reduced state funding. She said she
would support a sales tax on all communities [with populations]
over 1,500. This tax should be exempted from communities that
already pay a local sales tax.
MS. ANDERSON pointed out that communities that face fishing
disasters, such as Dillingham, need to be exempted from any
sales tax at this point. She urged the committee to look at
reinstating the school tax. Forty years ago it was $10 per
year, she said, and thus she suggested making it $100 per year.
Number 4226
MICHAEL O'LEARY testified in opposition to HB 293. He said he
recognizes the state's fiscal crisis and agrees that all
residents need to pay their fair share; however, the sales tax
falls disproportionately hard on rural Alaska. The goods and
services in rural Alaska cost sometimes 70 percent more than in
Anchorage; therefore, the tax would be 70 percent higher on the
same goods as those that are sold in Anchorage. Mr. O'Leary
said that it is just not fair. The people in rural Alaska are
struggling and they are the backbone of Alaska's economy. He
pointed out that sales taxes do not hit all people equally; for
instance, it does not hit the nonresident visitors or
nonresident commercial fishermen, construction workers, or oil
field workers in the way that it hits year round residents. Mr.
O'Leary told the members that he lives and works in Western
Alaska, and has seen how nonresident visitor and commercial
fishermen come to Alaska and pay almost nothing. The loggers in
Western Alaska bring vanloads of food and commercial fishermen
do the same thing. He told the members that construction
workers live in camps; they come up to Alaska, make a large
income, and spend almost nothing here. He added that the same
goes for oil workers. These large companies bring everything
with them. Sometimes there are barge loads of stuff and [under
this bill] they would not be paying any sales tax; whereas, a
small family will have to pay a huge amount of sales tax. In
closing, Mr. O'Leary said he recognizes that everyone needs to
be paying his or her fair share, but a sales tax is not the fair
way to go.
Number 4001
DEBORAH REFIOR, Owner, Kodiak Motors, Inc., testified in
opposition to HB 293. She told the committee that she owns a
local Ford agency in town and has lived in Kodiak for 24 years.
Ms. Refior noted that the committee is planning on capping
[sales tax on] vehicles at $5,000. [If this bill passes] there
will be a $400 sales tax [which] would increase the cost [of
purchasing a vehicle] such that it would be higher than any
other area in Alaska. Ms. Refior pointed out that as fisheries
decline, the increased [sales tax] on individual families would
be too much. She said she believes the legislature should be
looking at the permanent fund as the first line of defense. Ms.
Refior suggested the state work with the Internal Revenue
Service in reducing the amount of permanent fund money which is
paid to the federal government in taxes.
Number 3822
ANN KALCIC testified in opposition to HB 293. She told the
committee that she has lived in Kodiak for 27 years and is an
end user, which she explained means that she buys items that
have been produced elsewhere. Ms. Kalcic told the members that
she and her husband get income from rentals and a boat yard.
She said that her husband is a Kodiak salmon fisherman.
Currently, the City of Kodiak has a 6 percent sales tax with a
cap of $500, so there is a $30 [tax] on every sale of goods and
services supplied to their customers and on every item that they
buy. The new bill will increase the tax an additional 3
percent. Unless there is a restructuring [of HB 293] there
would not be a cap of $500, the city would get 5 percent and the
state would get 3 percent. With the exception of a $5,000 state
sales tax exemption for the purchase of a vehicle, an 8 percent
sales tax would be charged across the board.
MS. KALCIC pointed out that 95 percent of her sales exceed $500.
She posed an example in which she and her husband sell their
fishing boat for $200,000. Under the current tax scheme they
would pay a $30 sales tax, but under this legislation they would
have to pay $16,000 at 8 percent. If they decided to stay in
the fishery they would need to purchase a comparable boat which
would cost at least $650,000. It would be necessary to purchase
it in Washington State because fiberglass boats are not made in
Alaska. In Washington they would pay a 9 percent sales tax on
$650,000 or $58,500 and because Alaska would have a state sales
tax, they would no longer be exempt from Washington State's
sales taxes. She also pointed out that when they register the
new boat in Alaska they would pay Kodiak 5 percent and the State
of Alaska 3 percent, so they would end up paying another
$52,000. Ms. Kalcic said she sees nothing in the bill that caps
items that were purchased elsewhere. She reiterated that if
there is no exemption in state sales taxes here, Alaskans would
have to pay sales tax in Washington State. Ms. Kalcic gave
other examples of the negative impact the sales tax would have
on Kodiak fishermen. She told the members that a sales tax will
not help her as a fisherman or end user. She asked the members
to please reconsider their revenue sources because a sales tax
in the Bush is not a fair tax.
Number 3244
JOHN BUTLER, Owner, John's Heating Service Company, testified in
opposition to HB 293. He told the committee he believes it is
inevitable some sort of tax will be necessary, but if it is to
be a sales tax he said he would like to see some changes to the
bill. One suggested change would be to protect seniors and let
the city administer or collect the funds. Letting the state
collect the funds would hurt the City of Kodiak immensely, he
said. Mr. Butler also suggested a tax cap, adding that a tax
cap of $5,000 is way too much [for local people to pay]. The
end user is going to slow down for his business, as it will for
many others. Customers will take a second look at [the added
sales tax] and not make the purchases and thus it will hurt
businesses and employees.
Number 3106
SCOTT BRANDT-ERICHSEN, Borough Attorney, Ketchikan Gateway
Borough, testified on HB 293. He told the members that the City
Manager from Palmer, as did the gentleman from Cordova, made
some good points. Most of the municipalities in the state are
generally opposed to a state sales tax, he said. Among the
concerns of this legislation is the centralized collection
[language] that allows for the state to be the entity
responsible for all sales taxes. Mr. Brandt-Erichsen said that
there is a great concern that [this system] will not be
effective or efficient. With the current system there are
complaints of businesses evading sales taxes by not reporting or
hiding sales through evasive interaction with customers. If
there is centralized collection, there is a great concern that
there would be more of that going on. He said a secondary
concern is the exemption. As was mentioned by a previous
speaker, very few, if any, sales tax ordinances around the state
are identical. Most have their own unique exemptions and limits
on their sales tax, limits that are important to avoid sales
leaving the community. Mr. Brandt-Erichsen commented that one
exemption that is missing from HB 293 is medical services. It
can be very complicated when getting into third party payees and
Medicare paid services. He told the members that most
communities find it easier to avoid that area. There is also
concern with regard to the special taxes that some communities
have; for example, hotel/motel taxes are sometimes used to
subsidize the local visitors bureaus.
MR. BRANDT-ERICHSEN pointed out that the sales tax as compared
to other forms of taxes, are not deductible from federal taxes,
so it makes them less desirable. He asked whether there is an
amendment to cap the sales tax at 8 percent. He said that is
important for cities such as Ketchikan where there is currently
a sales tax at 3.5 percent, the borough has a sales tax of 2
percent. A 3 percent state sales tax would make it a total of
8.5 percent. Mr. Brandt-Erichsen said he does not know who
would not get .5 percent sales tax revenue between the city and
borough if the cumulative total between the sales taxes exceed
an 8 percent cap. He said he believes that is an important
issue that should be addressed if a cap is considered. In
summary, he suggested that if a sales tax is going to be done,
one method that might be preferred is passing taxes on to
visitors or third parties.
MR. BRANDT-ERICHSEN suggested that local individuals be allowed
to acquire an exemption card on an annual basis for a fee of
$100 [for an individual] and a different rate for businesses.
Anyone could buy an exemption card and not pay the 3 percent
sales tax, he said. The benefit of this is that the state would
get the revenue from the exemption card sales, and those
entities, visitors, or individuals who do not participate with
an exemption card would pay the sales tax. He opined that while
it may be a little less than the 3 percent across the board
[sales tax], it would still be a substantial contribution to the
state's revenues.
Number 2609
REPRESENTATIVE GRUENBERG noted that Mr. Brandt-Erichsen and one
other testifier suggested annual exemption cards. He asked Mr.
Brandt-Erichsen how the state would prevent other people from
channeling their sales to the person with the exemption card.
Number 2537
MR. BRANDT-ERICHSEN responded that the way the senior citizen
exemption works in Ketchikan is that the merchant records and
reports the exemption at the time of purchase. He said he
believes the Costco concept could work, where an annual
membership fee is paid and then the cardholder gets a discount.
A swipe card could minimize the paperwork portion. He said the
person would have to present a card with his/her picture and
appropriate information to be exempt from the sales tax.
Number 2444
KEVIN RITCHIE, Executive Director, Alaska Municipal League,
testified on HB 293. He thanked the members for their
leadership in helping state [residents] understand that there is
a very significant fiscal problem. He said that his
understanding is that on July 1, 2005, the budget will have to
reflect a serious drop in revenue. Mr. Ritchie told the
committee that the Alaska Municipal League Board of Directors
recognizes that as a very serious problem.
MR. RITCHIE told the members that the Alaska Municipal League
was involved in the tax cap campaign that happened a couple of
years ago. He said that when the campaign started 70 percent of
Alaskans thought it was a good idea to cap property taxes.
Given that there was an event, good information, and a large
number of groups throughout the state that talked to the public
and explained the kinds of impacts that would occur if [the cap
on property taxes] happens, the final impact was that 70 percent
of the people in Alaska thought it would not be a good idea.
MR. RITCHIE suggested that all major civic and business
organizations be marshaled to talk to the public about impacts.
If the administration and legislature were to make that call,
there could be results with broad discussions on economics and
impacts of different options. He said he is convinced that
there will be significant negative impacts if nothing is done,
and he is also convinced that Alaskans are better than anyone in
the world at coming together during an emergency.
MR. RITCHIE called attention to the Alaska Municipal League's
legislative priorities. The top priority for the last eight
years has been to help the state adopt a long-range fiscal plan
that would include, among other things, economic development.
The Alaska Municipal League is working with the governor's
office to setup a regional economic development strategy that
will help communities recover from their current ills.
MR. RITCHIE told the members that when the Alaska Municipal
League Board of Directors was in town, they passed a resolution
supporting all of Governor Murkowski's revenue proposals so far,
with the exception of the sales tax. This resolution recognizes
the problem, and says the Alaska Municipal League will do
anything to help. He pointed out that Mayor Cooper from Palmer
is the new president of the Alaska Municipal League. Mr.
Ritchie added that [Mayor Cooper] is representative of the board
in terms of energy and commitment to carrying-on that
conversation and bringing in other partners to weigh in on the
impacts and consequences [of the fiscal issues facing the
state].
Number 2051
MR. RITCHIE commented that he was recently talking with a member
of the constitutional convention who told him that historically
the income tax, which was in place from 1948 to 1980, [addressed
revenue needs] and even during times with significant state
distress, the sales tax had always been left to municipal
governments. The reason that has been the case is due to the
complexities and significant differences between communities.
Mr. Ritchie provided the members with some research that was
done by the Alaska Municipal League in 1999. He added that it
may not be necessarily accurate today, but it serves to show
different exemptions that existed in different communities. He
pointed out that the survey included 72 cities or two-thirds of
the cities that have sales taxes; 22 out of the 72 cities have
senior sales tax exemptions and 50 do not. If the state did not
allow for a senior exemption in the sales tax program, 22 cities
would have seniors that would go from paying nothing to paying a
very significant sales tax; however, if the state were to allow
senior exemptions, the rest of the cities would have a senior
exemption and be out significant revenues. He told the members
this is an important policy issue as far as having an overall
one size fits all state plan. Furthermore, implementing it
immediately would be a real problem for [local] economies. Mr.
Ritchie told the members that there are a wide range of caps on
sales taxes that were all well-thought out to address
communities' concern for keeping as equal footing as possible
for commerce to continue. He told the members that the Alaska
Municipal League is at the legislature's disposal to assist in
any way possible, and will work to bring facts and issues out,
and offer a variety of options.
Number 1700
CO-CHAIR WHITAKER announced that is the conclusion of public
testimony on HB 293.
[HB 293 was held in committee.]
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