Legislature(2003 - 2004)
03/17/2003 01:37 PM Senate CRA
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SB 136-RESIDENTIAL PROPERTY TAX EXEMPTION
CHAIR THOMAS WAGONER announced this was a preliminary hearing
and more information regarding SB 136 would be available at the
next hearing. He asked Ms. Jackson to introduce the legislation.
MS. MARY JACKSON, staff to Senator Thomas Wagoner, explained the
bill increases the existing property tax exemption from $10,000
to $50,000. The $10,000 exemption has been on the books since
1974. She noted the bill has two fiscal notes. The first one
from the Department of Commerce and Economic Development is
zero. The second is from the Tax Division and is incorrect.
The Tax Division presumes that if up to $50,000 exemption were
provided, the Bristol Bay Borough, the Kenai Peninsula Borough,
the Fairbanks North Star Borough, the North Slope Borough, and
the City of Valdez would take advantage of the provision, which
would reduce revenues to the State of Alaska. The Kenai Borough
is the only one that collects a sales tax and they offset their
property taxes, in part, because of the $14 million they collect
in sales tax. Kenai residents are actually helping the State of
Alaska by paying a sales tax because they aren't reducing the
revenues to the state.
SENATOR LINCOLN allowed that she supported property exemptions,
but she had two concerns. First, whom would this exemption
actually help? Both rich and poor pay sales tax, but just those
with enough money to become property owners qualify for the
property tax exemption. Renters would not have the opportunity
to take advantage of the exemption even though they pay rent and
thereby help the property owner pay for property taxes. "The
poor are the ones that end up suffering for something like
this." Second, she thought increasing the exemption to $50,000
would force the hand of the other four municipalities.
MS. JACKSON agreed everyone pays sales tax, but in this state
there is a rebate program, which provides some offset. With
regard to the second concern, she thought the other boroughs
would utilize the program, but the Kenai Borough wouldn't object
to this being single purpose legislation.
SENATOR ROBIN TAYLOR asked if it was correct that the Kenai
Borough had a 6.5 millage rate.
MS. JACKSON told him that was correct.
SENATOR TAYLOR asked for the sales tax rate.
MS. JACKSON advised they pay a five percent sales tax.
CHAIR WAGONER added the borough charges two percent and some
areas charge five and one half and six percent tax.
SENATOR TAYLOR announced he is currently paying ten or eleven
mills and seven percent sales tax and Wrangell needs every bit
of that to operate. He assumed Kenai needs the $40 million they
generate from property taxes and $14 million from sales taxes to
cover their budget. He observed this would simply shift money
within the tax frame. The income has to stay at the same level
to keep everything running. He asked how the amount of property
tax revenue would be affected if all property owners were to
receive a $50,000 exemption.
MS. JACKSON said if property tax were reduced, there would be an
increase in sales tax or a decrease in a service that was
offered.
SENATOR TAYLOR replied sales tax wouldn't increase because it's
generated by the economy, but there would be a decrease in the
total taxable base. He advised Kenai Borough could accomplish
the same thing by making the local decision to increase the
sales tax rate and to drop the mill rate.
MS. JACKSON agreed and said the Kenai Borough has discussed
this.
SENATOR TAYLOR said he could guarantee the North Slope Borough
would take full advantage of the increased exemption and they
would probably exempt all residential properties and nothing on
an oilrig. He was unclear what impact this would have on the
educational formula that requires a minimum payment of 4 mills.
MS. JACKSON reported that Eddy Jeans from the Department of
Education and Early Development said it would have no affect
because it is optional.
SENATOR TAYLOR remarked that is because for the North Slope
Borough it's an either or situation. It's either 4 mills or 30
percent, whichever is less and for the rest of the state it's a
mandated 4 mills.
MS. JACKSON agreed; the corrected fiscal note will reflect that
if the exemption increased, Fairbanks would see a $625,000
revenue decline Kenai revenue would decline by $700,000, the
North Slope by $133,000 and Valdez by $475,000. The total
projected revenue decline is $1.9 million and this is the
dilemma, but the issue is that the Kenai Peninsula Borough would
like to have another option. They provide the sales tax in
addition to the property tax. She noted there are additions to
the 6.5 mill rate for the service areas.
SENATOR KIM ELTON asked if you could distinguish between
vacation property and primary residence.
CHAIR WAGONER informed him they differentiate now and this
legislation wouldn't change that.
SENATOR TAYLOR added this is currently done under the senior
exemption.
SENATOR ELTON noted the bill says exempt residential property so
a borough could make a distinction between owner occupied or
not.
MS. JACKSON informed him line 8 says, "for any one residence."
CHAIR WAGONER called for teleconferenced testimony.
TAPE 2
3:00 pm
MR. GARY SUPERMAN, Kenai Peninsula Borough Assemblyman, said the
rationale for pursuing the increase is to provide homeowners
some tax relief. The borough finance department projects that
the impact to the borough and the state on AS 43.56 [Oil and Gas
Property] revenues would be minimal. Property assessments have
climbed each year for the last five years and over a two year
period should mitigate the exemption. Also, voters defeated a
ballot proposition to exempt food from sales tax. Property
owners are looking for tax relief and voters want this option to
be available on the local level. Stable tax rates are attractive
to potential new residents.
SENATOR TAYLOR asked him to think about the earlier discussion.
This legislation would just cause a revenue shift because the
borough would need the same amount of money each year. The
borough would have to increase the mill levy after exempting
$50,000 or increase the sales tax rate if those are the two
primary sources of income. If the Legislature allows the
increased exemption it would decrease the amount of valuation
the State of Alaska has. This would be a $1.9 million revenue
impact to the state at a time when the Governor has a series of
revenue enhancers. He calls those taxes and fees.
He asked Mr. Superman to send a note and give his opinion on how
that adjustment would occur.
MR. SUPERMAN agreed he could do so then pointed out the borough
gives seniors a total exemption. They have a list of exemptions
but it doesn't include a property tax exemption for the working
class people. Voters elected to keep the sales tax the way it
is, but that doesn't mean they aren't looking for tax relief. If
the exemption for the sales tax had been approved, it would have
had a $2 million impact to the borough and the increase from
$10,000 to $50,000 is about the same. They see a projected loss
in taxable assessed valuation of $310 million and from FY02 to
FY03 they see an increase of $270 million in their tax
assessment roles.
There were no further questions for Mr. Superman.
SENATOR GARY STEVENS asked Mr. Van Sant a question regarding the
school contribution. He noted it is 4 mills on the valuation of
the property. If there is an exemption to property taxes he
wondered if that would reduce the valuation and change the
amount of money that would go into the foundation formula.
MR. Steve Van Sant, State Assessor, advised moving the exemption
from $10,000 to $50,000 would have no bearing on the school
foundation funding. It would still be 4 mills of full value. If
the Kenai Borough elected to increase the exemption, the State
Assessor would keep the same full value there is now. The
optional exemptions are added back.
There were no further questions.
The bill was held in committee.
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