Legislature(2005 - 2006)BELTZ 211
03/16/2005 01:30 PM Senate COMMUNITY & REGIONAL AFFAIRS
| Audio | Topic |
|---|---|
| Start | |
| SB112 | |
| SB102 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| = | SB 102 | ||
| = | SB 112 | ||
SB 112-TAX ON REAA RESIDENTS
CHAIR GARY STEVENS announced SB 112 to be up for consideration
and asked for a motion to adopt the committee substitute (CS).
SENATOR BERT STEDMAN motioned to adopt the \F version CS for SB
112 as the working document. There being no objection, it was so
ordered.
CHAIR GARY STEVENS asked Mr. Harlamert to come forward.
1:36:56 PM
CHUCK HARLAMERT, Department of Revenue (DOR), explained the
following changes made in the \F version CS:
· Section 1 is new. Page 1, lines 8-9 puts in place
the requirements for a physical address on the permanent
fund dividend. The change is necessary to enforce the
type of tax that is based on where a person resides in
the state.
· Section 2, page 1, line 13 is a technical change to
specify that individuals 21 years of age or older on
January 1 of the tax year would be subject to the tax.
· Page 2, line 7 changes the date by which the tax
must be paid from November 1 of the subsequent calendar
year to January 15 of the subsequent calendar year.
· Page 2, line 13 change comports with more
traditional withholding practices and requires
withholding on employee paychecks and limits the
withholding to the lesser of 10 percent of the taxpayer's
gross earnings or one-half of the tax per pay period.
· Page 2, lines 17-23 add subsection (c)(1)-(3) to
give guidance to employers for withholding. It holds
employers harmless for not withholding if the employee
demonstrates prior withholding, previous payment, or that
the 21-year age threshold isn't met.
· Page 2, line 28 recognizes that an employee might
have more tax withheld than is due and that a refund may
be claimed from the state.
1:43:29 PM
SENATOR STEDMAN said he was curious how work derived from
natural resource extraction might be handled.
MR. HARLAMERT explained the bill doesn't direct non-employee
compensation arrangements and the state would prefer not to
impose a withholding requirement where none previously exists.
For instance, fishing boat owners don't have a federal
withholding requirement for crewmembers and the state wouldn't
want to impose a state tax because it would be more efficient to
deal directly with crewmembers.
CHAIR GARY STEVENS restated that it is the individual's
responsibility rather than the employer's responsibility.
MR. HARLAMERT said that's correct.
1:44:59 PM
SENATOR JOHNNY ELLIS asked for a restatement of the age
requirement.
MR. HARLAMERT explained the bill taxes any individual living in
the specified areas that are 21 years of age or older on the
first of the year.
SENATOR ELLIS questioned why age 21 is used rather than age 18.
MR. HARLAMERT said that's the way the bill is written.
SENATOR ELLIS referenced page 2, line 10 and asked if non-
monetary compensation would be considered.
MR. HARLAMERT replied that section relates to an individual that
has not had the tax withheld by an employer so the individual
would pay the tax directly to the state.
SENATOR ELLIS pressed for an explanation of "other compensation"
and whether it might include monetary and non-monetary
compensation.
MR. HARLAMERT opined it was simply necessary language.
SENATOR ELLIS asked if compensation includes benefit beyond
salary.
MR. HARLAMERT said he interprets that to be taxable compensation
and not benefits.
CHAIR GARY STEVENS asked if employers could ever be held
accountable for an employee's tax obligation.
MR. HARLAMERT replied the normal mechanism in the personal
income tax field and the best practice from DOR's standpoint is
to impose a withholding requirement on the employer. If the
employer doesn't withhold, then the employer should be held
liable. Furthermore, if the employer withholds and then fails to
pay the state then the employer should be held personally
liable. It's not perfectly clear in SB 112, but that appears to
be the intent.
CHAIR GARY STEVENS remarked the employer would have to maintain
an accounting system to show that all employees have had the tax
withheld, have previously paid the tax, or aren't subject to the
tax by virtue of age.
MR. HARLAMERT replied that's essentially true.
1:50:57 PM
SENATOR CON BUNDE, sponsor, reemphasized the psychological and
fiscal issues associated with SB 112. The fiscal issue is that
residents of organized, home rule and first class cities make a
local contribution for the operation of their schools while
residents of the 19 REAAs in the state make no local
contribution for schools. The Department of Revenue indicates
that the unorganized areas of the state have over $500 million
in earned income yet the schools operate on state funding alone.
The proposed contribution amounts to about $35 per month to
support schools. That is not onerous and people of modest means
living in organized areas do pay to fund schools. The other
issue is philosophical; you value and take better care of the
things you help pay for, he asserted.
1:53:35 PM
SENATOR ELLIS asked why he decided to use age 21 rather than 18.
SENATOR BUNDE said he wanted to make sure that individuals were
well out of high school before becoming obligated to pay the
tax.
SENATOR ELLIS noted that the bill makes it clear that it's not
constitutional to dedicate funds so the money coming from the
REAAs wouldn't necessarily go back to the same areas for
education funding. Therefore, he questioned whether the sponsor
intended for the tax to supplant or supplement existing general
fund money that goes for education.
SENATOR BUNDE replied it should not supplant current funds,
rather it should add to current funds. Certainly he agrees with
the prohibition regarding dedicating funds, but it is possible
to indicate legislative intent and put up a moral fence.
Although the money generated with the proposed tax might not go
to the specific district that raised the money, it would add to
the general fund support of the basic per student dollar and
consequentially be of benefit to the population that raised the
money.
SENATOR ELLIS acknowledged that if this were to come to fruition
it would be an overall gain for state education. He mentioned
that when money is raised for schools in Anchorage it goes
directly to Anchorage schools, but money raised in a rural area
wouldn't necessarily improve schools in the particular area.
There's a difference between local effort going to the local
schools and local effort going to the state treasury.
SENATOR BUNDE replied the point is valid, but the REAAs have
been state sustained for a number of years and as a consequence
have been using money that could have gone to organized areas.
He opined it would be a long time before they catch up.
SENATOR ELLIS remarked it should be remembered that most of the
natural resources in the state come from rural areas and all
residents share those common property resources and the value
derived from them.
SENATOR BUNDE replied the resources in the state aren't equally
distributed, but according to the constitution, they are held in
trust for all Alaskans so the argument is moot.
1:58:30 PM
CHAIR GARY STEVENS asked for a comment on the argument that
rural areas shouldn't have to pay a head tax because the federal
government sends PL874 money to pay for education in those
areas.
SENATOR BUNDE replied he doesn't consider that a local
contribution. Furthermore, Anchorage receives PL874 money and
the funds are passed through to the state. Surely rural areas
would object if Anchorage were to keep those substantial funds.
CHAIR GARY STEVENS summarized saying that a head tax doesn't
jeopardize PL874 funds in any way.
SENATOR BUNDE agreed.
SENATOR STEADMAN questioned whether it's legal to impose a tax
according to address.
SENATOR BUNDE replied legislative legal hasn't indicated there
is any constitutional problem. The constitution requires people
living in organized areas to make a local contribution so this
proposal is obviously legal.
SENATOR STEDMAN asked for verification that people living in
unorganized areas that have already volunteered to pay tax to
support schools wouldn't be subjected to this tax.
SENATOR BUNDE said that's correct; no one would be double taxed.
There were no further questions.
2:01:58 PM
CHAIR GARY STEVENS asked Senator Bunde if he had summary
comments.
SENATOR BUNDE said this is a fairness issue and will provide
opportunity for those who would like to make a local
contribution, but don't want another layer of government
imposed.
SENATOR ELLIS asked if passing this tax would stop the push for
mandatory boroughs because that seems to be what Dick Schultz
expects.
SENATOR BUNDE suggested Mr. Schultz is correct that passage
might dampen the arguments in the political arena, but this
Legislature certainly can't bind a future Legislature.
SENATOR ELLIS asked if that means that he would make no
guarantee that the drive for mandatory borough formation would
stop if this were to pass.
SENATOR BUNDE replied there is no way he could make such a
guarantee in good faith.
2:04:47 PM
CHAIR GARY STEVENS noted the bill had a Finance Committee
referral then asked for a motion.
SENATOR STEDMAN motioned to report CSSB 112(CRA) and attached
fiscal notes from committee with individual recommendations.
2:05:20 PM
SENATOR ELLIS objected and said his objection stems from the
fact that he wasn't comfortable that the issue had been
thoroughly vetted.
2:05:54 PM
CHAIR GARY STEVENS stated that he inadvertently overlooked
someone that wanted to provide testimony.
MR. KALENKA said that although he is the President of Alaska for
Efficient Government today he was speaking for himself. It is
his practice to advocate against taxes, but he is very much in
favor or user taxes. If you use a service, then you assume an
obligation to pay for that service. He suggested school children
do get a Permanent Fund Dividend, which could be used to pay for
educational services.
2:09:19 PM
CHAIR GARY STEVENS asked Senator Ellis if he maintained his
objection to moving SB 112.
SENATOR ELLIS said he did.
CHAIR GARY STEVENS asked for a roll call vote. The motion to
move prevailed 3 to 1 with Senators Stedman, Wagoner and Chair
Gary Stevens voting yea and Senator Ellis voting nay.
CSSB 112(CRA), \F version, and attached fiscal notes moved from
committee with individual recommendations.
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