Legislature(2021 - 2022)BUTROVICH 205

05/03/2021 01:30 PM JUDICIARY

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Heard & Held
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**Streamed live on AKL.tv**
           SJR 7-CONST. AM: STATE TAX; VOTER APPROVAL                                                                       
1:33:42 PM                                                                                                                    
CHAIR  HOLLAND  announced  the   consideration  of  SENATE  JOINT                                                               
RESOLUTION  NO. 7,  Proposing amendments  to the  Constitution of                                                               
the State of Alaska relating  to prohibiting the establishment of                                                               
a state tax without the approval  of the voters of the state; and                                                               
relating to the initiative process.                                                                                             
[SJR 7 was previously heard on 4/30/21.]                                                                                        
1:34:12 PM                                                                                                                    
MIKE  BARNHILL,  Deputy   Commissioner,  Department  of  Revenue,                                                               
Juneau,  Alaska, offered  to answer  any questions  the committee                                                               
may have.                                                                                                                       
1:34:56 PM                                                                                                                    
SENATOR  KIEHL asked  for the  vision of  democracy contained  in                                                               
this proposed change to the Alaska Constitution.                                                                                
MR. BARNHILL  answered that SJR  7 would create  a constitutional                                                               
symmetry  between direct  democracy and  representative democracy                                                               
when enacting new taxes.                                                                                                        
SENATOR KIEHL  suggested SJR 7  would tilt the field  against new                                                               
taxes  rather than  providing a  consistent philosophy.  He asked                                                               
what would  constitute a  new tax under  this language  since the                                                               
term is  not defined. For  example, he wondered if  eliminating a                                                               
tax break would be considered a new tax.                                                                                        
1:37:13 PM                                                                                                                    
MR.   BARNHILL   said  he   reviewed   how   the  state   defines                                                               
constitutional terms.  The Alaska  Supreme Court  first considers                                                               
dictionary definitions, then legislative  history and the content                                                               
of legislative hearings.  Therefore, new taxes are  ones that the                                                               
state  does  not currently  impose.  For  example, if  the  state                                                               
imposed a  new sales tax,  a value-added tax,  gross-receipt tax,                                                               
or a personal income tax it would be a new tax.                                                                                 
1:37:59 PM                                                                                                                    
SENATOR KIEHL  said the state  exempts taxes on natural  gas from                                                               
Cook  Inlet for  use  in state.  He characterized  it  as a  $125                                                               
million  investment in  affordable power  for the  Anchorage Bowl                                                               
and Kenai Peninsula.  He asked if this exemption  were removed if                                                               
it would establish a new tax.                                                                                                   
MR. BARNHILL recalled  that question was asked last  year and Mr.                                                               
Milks  responded  by  writing  a  letter  that  is  part  of  the                                                               
legislative history.  He recalled  that deleting  exemptions does                                                               
not constitute a new tax.                                                                                                       
1:39:22 PM                                                                                                                    
WILLIAM MILKS,  Senior Assistant Attorney General,  Legislation &                                                               
Regulations Section,  Civil Division, Department of  Law, Juneau,                                                               
Alaska, acknowledged  that Mr. Barnhill just  explained how terms                                                               
are defined in  the Alaska Constitution. He reviewed  a number of                                                               
recent  Alaska Supreme  Court  cases that  state  what the  court                                                               
considers during its review. First,  the court looks to the plain                                                               
meeting and  purpose of  the provision. It  is what  an ordinary,                                                               
reasonable,  practical  understanding  of what  the  words  mean.                                                               
Ultimately, the  voters approve the Alaska  Constitution. Second,                                                               
the  court considers  the  intent of  the  framers. Further,  the                                                               
court  looks at  the  legislative history,  and  as Mr.  Barnhill                                                               
mentioned,  the court  considers the  dictionary definition.  The                                                               
court may consider other uses of the words, he said.                                                                            
MR. MILKS said  SJR 7 is somewhat different  than the resolutions                                                               
previously proposed.  The specific language "establishes  a state                                                               
tax." He opined that removing  an exemption is not establishing a                                                               
new tax.  However, legislators could  always modify  the language                                                               
in the  resolution. Currently SJR  7 will establish a  state tax,                                                               
which would mean creating a new tax.                                                                                            
1:41:35 PM                                                                                                                    
MR. BARNHILL remarked that the  letter he referenced by Mr. Milks                                                               
was  dated  April  15,  2019, in  response  to  Senator  Hughes's                                                               
question. He read:                                                                                                              
     I  stated  in  hearing testimony  the  administration's                                                                    
     intent  is that  changes  to  deductions, credits,  and                                                                    
     exemptions  from an  existing  state tax  would not  be                                                                    
     considered  an  increase in  the  rate  of an  existing                                                                    
     state tax and thus would not require voter approval.                                                                       
MR. BARNHILL  related that Senator  Kiehl's question  was whether                                                               
that would be construed  as a new tax, not as  an increase in the                                                               
tax rate.  He offered  his view  that the  response would  be the                                                               
1:42:19 PM                                                                                                                    
SENATOR  KIEHL  remarked  that  removing  an  exemption  from  an                                                               
existing  tax  could significantly  change  what  is taxable.  He                                                               
asked  if the  corporate  income  tax that  applies  only to  "C"                                                               
corporations  were extended  to   B" or  "S"  corporations if  it                                                               
would establish a new tax.                                                                                                      
MR. BARNHILL responded that he  believes a Colorado case ruled on                                                               
the  matter.  He  acknowledged that  just  because  the  Colorado                                                               
Supreme Court  decided one  way does not  mean the  Alaska courts                                                               
would decide  in the same  way. He offered to  research precedent                                                               
in other states and report back to the committee.                                                                               
1:43:39 PM                                                                                                                    
MR.  MILKS restated  that tools  the  court would  use include  a                                                               
plain   language   interpretation,   a   dictionary   definition,                                                               
legislative  history,   constitutional  convention   history  and                                                               
discussions in  committee. He  stated that  he does  not disagree                                                               
with  Mr. Barnhill's  responses.  There would  be  a much  fuller                                                               
record if any dispute arose in court, he said.                                                                                  
1:45:07 PM                                                                                                                    
SENATOR  KIEHL  asked  how  user   fees  would  fall  within  the                                                               
framework of establishing a new tax.  He asked if user fees would                                                               
be treated  differently and  if so,  does it  matter if  the fees                                                               
cover more than the program cost.                                                                                               
MR. BARNHILL said the distinction  between user fees and taxes is                                                               
the  subject of  many tax  cases in  the Lower  48. However,  the                                                               
administration  does not  intend user  fees to  apply. He  said a                                                               
user fee  is a charge  assessed by a  state agency to  defray the                                                               
cost of  providing a specific  service to  the public, such  as a                                                               
driver's  license.  A  new  user fee  established  to  provide  a                                                               
service  such  as a  driver's  license  would not  require  voter                                                               
approval, he said.                                                                                                              
He  pointed  out  that  Senator  Kiehl  asked  a  more  difficult                                                               
question, which  is what if the  user fees recover more  than the                                                               
cost  of  providing  the  particular   service.  He  related  his                                                               
understanding  that precedent  from  the  Colorado Supreme  Court                                                               
addresses that  issue. The  same caveat would  apply since  it is                                                               
not an Alaska Supreme Court decision.  He said he was not sure it                                                               
would be helpful  to predict what the court will  do. However, it                                                               
is the  administration's intent not to  characterize or interpret                                                               
user  fees  established  to  defray   the  cost  of  providing  a                                                               
particular service as a tax requiring voter approval.                                                                           
1:47:50 PM                                                                                                                    
SENATOR HUGHES  related that  if the voters  establish a  new tax                                                               
through  an  initiative process,  the  legislature  must meet  in                                                               
joint session to  approve or reject it. If  the legislature chose                                                               
not to meet, the initiative  would be considered rejected. If so,                                                               
it is possible that decision could  be made by a single presiding                                                               
officer  refusing  to meet  in  joint  session. She  referred  to                                                               
subsection (c) on page 2, lines 6 - 13, which read:                                                                             
     (c) A law enacted by  the voters through the initiative                                                                    
     process under  Article XI that establishes  a state tax                                                                    
     shall  not  take  effect  unless  the  legislature,  by                                                                    
     resolution, approves  the initiated  law by  a majority                                                                    
     vote  in joint  session before  the adjournment  of the                                                                    
     next  regular session  occurring  after the  lieutenant                                                                    
     governor  certifies the  election returns.  If approved                                                                    
     by   the  legislature,   the   initiated  law   becomes                                                                    
     effective   ninety   days   after  approval.   If   the                                                                    
     legislature fails  to approve the initiated  law before                                                                    
     the adjournment  of the regular session,  the initiated                                                                    
     law is rejected and does not take effect.                                                                                  
1:49:01 PM                                                                                                                    
SENATOR HUGHES asked if one  leader could cause the initiative to                                                               
fail. She asked if she is reading something into this.                                                                          
MR. BARNHILL  responded that he terms  that as "a pocket  form of                                                               
veto."  This  language  requires  approval by  a  majority  vote,                                                               
failing that  it would not  take effect. However, there  does not                                                               
appear to be any prohibition against a pocket veto.                                                                             
1:49:58 PM                                                                                                                    
MR. MILKS referred to page 2, lines 11-13 of SJR 7, which read:                                                                 
     If the  legislature fails to approve  the initiated law                                                                    
     before  the adjournment  of  the  regular session,  the                                                                    
     initiated law is rejected and does not take effect.                                                                        
He said  this means if the  legislature fails to act,  the law is                                                               
rejected.  In terms  of the  question  about the  authority of  a                                                               
single presiding  officer, the  legislature's rules  of procedure                                                               
are the  Uniform Rules, which  the legislature could  change. The                                                               
language is currently clear on the failure to act, he said.                                                                     
1:51:04 PM                                                                                                                    
SENATOR  MYERS recalled  a recent  Alaska Supreme  Court decision                                                               
related  to  the  legislature  not holding  a  joint  session  to                                                               
confirm  governor  appointees  to   boards  and  commissions.  He                                                               
suggested   the  legislature   should   consider  changing   this                                                               
language. The legislature could  approve appointees by resolution                                                               
in the normal legislative process  for passing legislation rather                                                               
than  in  joint session.  He  acknowledged  that if  a  presiding                                                               
officer   could  theoretically   slow  it   down  or   block  it,                                                               
legislators would not be on record.                                                                                             
MR. MILKS responded that is a  policy call for the legislature to                                                               
SENATOR HUGHES offered  her view that passing  a resolution would                                                               
open it up for multiple chairs to block the resolution.                                                                         
1:54:24 PM                                                                                                                    
SENATOR MYERS recalled Senator Kiehl  raised an issue at the last                                                               
hearing  by asking  what  is  broken that  SJR  7  would fix.  He                                                               
offered his  view that SJR  7 does not  attempt to fix  policy or                                                               
process but rather  it addresses a lack of trust.  He argued that                                                               
the legislature  does not hold the  trust of the people.  For one                                                               
thing,  two-thirds of  the legislature  changed in  the last  few                                                               
elections. The  referendum to repeal  Senate Bill 21 was  used to                                                               
uphold Alaska's taxes on oil  companies. He acknowledged that the                                                               
initiative  or   referendum  process  is  a   lengthy  and  often                                                               
expensive process.  SJR 7 attempts  to address voter  distrust by                                                               
allowing the  voters to have  the last say  on any new  taxes the                                                               
legislature  proposes. Without  this final  say, the  legislature                                                               
would have an incentive to tax  the people least able to protest,                                                               
since  it  takes   time,  effort  and  funding   to  organize  an                                                               
initiative.  He suggested  that placing  it  on the  ballot is  a                                                               
change for the better.                                                                                                          
SENATOR  HUGHES  commented  that the  initiative  and  referendum                                                               
process  is already  available to  those wishing  to initiate  or                                                               
repeal  a  tax.  However,  it  would  constrain  the  legislature                                                               
because voters  could reverse  a tax  passed by  the legislature.                                                               
The legislature  can repeal  a tax passed  by initiative  after a                                                               
two-year  delay.  She  viewed  SJR  7  as  affecting  legislative                                                               
actions more than those done by voter initiatives.                                                                              
1:58:37 PM                                                                                                                    
SENATOR  HUGHES  asked  if the  prior  legislature  narrowed  the                                                               
process to broad-based taxes.                                                                                                   
MR. BARNHILL  recalled that the prior  legislative committee held                                                               
discussions but did not narrow the resolution.                                                                                  
[SJR 7 was held in committee.]                                                                                                  

Document Name Date/Time Subjects
SJR 5 Legal memo.pdf SJUD 5/3/2021 1:30:00 PM