Legislature(2015 - 2016)BELTZ 105 (TSBldg)
02/25/2016 06:00 PM Senate LABOR & COMMERCE
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| Audio | Topic |
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| Start | |
| SB134 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 134 | TELECONFERENCED | |
| + | TELECONFERENCED |
SB 134-INDIV. INCOME TAX: CREDITS; RETURNS
6:04:22 PM
CHAIR COSTELLO announced the committee would hear public
testimony on SB 134. She noted that this is the second hearing.
6:04:40 PM
JANE BROWN, representing herself, testified in opposition to SB
134. She maintained that the bill has more loopholes than a
Jarlesburg cheese. She doubted that taxes would raise $200
million per year and wanted to see documentation to support it.
She voiced concern about how the state will collect taxes on
out-of-state workers and questioned how much it will cost. She
mentioned states that have credits against tax liability.
She questioned the earned income tax, citing exemptions for
monies earned out of state. She suggested the death tax be in a
separate bill. She asked if the U.S. government will pay taxes
it has collected to the state. She didn't know what state this
bill was modeled on.
CHAIR COSTELLO recognized Department of Revenue Commissioner
Hoffbeck.
6:08:11 PM
JOHN KUNIK, representing himself, testified in opposition to SB
134. He maintained that the 6 percent state tax and 3 percent
sales tax will not be guaranteed - they will only increase. He
blamed the state for willful spending with no controls and
requested it stop spending. He described how private industry
manages their budgets.
6:09:00 PM
JOE PRAX, representing himself, testified in opposition to SB
134. He said he owns a business and an income tax is a
disincentive to productive people who can move to other states
that don't have taxes. It would cost a lot to implement an
income tax.
He said that outside people who don't pay taxes use very few
services. He recommended to get serious about cutting spending
before looking at getting more revenue through taxation. Income
tax should be the last option.
6:11:55 PM
RACHEL NEUENDORF, representing herself, testified in opposition
to SB 134. She voiced concern about an income tax which would
subsidize the fiscal irresponsibility of the state. It is
unclear what cuts, if any, have been made to the state budget.
She pointed out that the Alaska Constitution guarantees public
education, and safety and well-being, and all other programs are
optional. She recommended making cuts first.
6:13:34 PM
DANIEL LYNCH, representing himself, testified in support of SB
134. He stated that an income tax is fair because it taxes
everyone. Many people have benefited from the state, but don't
contribute anything back. He gave an example and related how he
used state services when he worked in Alaska. He said he is
willing to contribute and do his part.
6:15:09 PM
FRED STURMAN, representing himself, testified in opposition to
SB 134. He said he cannot support taxes until at least 30
percent is cut from the state budget. People on the North Slope
are taking salary cuts. He suggested to "take your time, make
the cuts," and possibly use money from the CBR, and then next
year start talking about taxes.
JIMMY RICE, representing himself, testified in opposition to SB
134. He thanked the committee for its work. He opined that an
income tax punishes productive individuals and lets unproductive
individuals pay nothing. He said an income tax in Alaska is
particularly cruel and immoral because those who work will have
their PFD taxed away. He said to cut the state budget to $3
billion and repeal oil tax credits and loopholes, and keep
government hands off the PFD.
GEORGE PIERCE, representing himself, testified in opposition to
SB 134. He said if there has to be a tax, it should be an income
tax so everyone has to suffer. He suggested cutting more from
the budget and raising taxes on resources, but don't touch the
PFD.
6:21:14 PM
SHANNON CONNELLY, representing herself, testified in opposition
to SB 134. She suggested cutting the bloated state budget and
not imposing taxes. There has been massive overspending and
there is a top-heavy administration. She said the university
needs to be self-sustaining and changes need to be made to the
disastrous education system.
6:22:51 PM
PAT BRANSON, Mayor, City of Kodiak, testified on SB 134. She
thanked the committee for its hard work. She noted that she is a
board member of the Alaska Municipal League which has put
together a sustainability plan. It suggests the legislature
identify ways to raise revenues. Cuts without restraint will
have a negative impact on the state's credit rating. The choices
the legislature makes will have a huge impact on the viability
of municipalities.
She shared that local governments only have three ways to raise
revenue; sales and property taxes, fees, and federal and state
revenues. While the Governor's bills are an opportunity to re-
think how the state spends money, local governments must still
provide basic services to its citizens.
She spoke of advantages of a state income tax, but said it would
be the last choice of the municipalities. She said Kodiak has a
7 percent sales tax already and taxation should remain a local
government power. She hoped the legislature would first consider
cuts and raising revenues.
6:25:18 PM
TOM LAKOSH, representing himself, testified on SB 134. He said
more information for the public is needed on SB 134 and
information on corporate taxes should be included. He suggested
SB 134 impose a progressive tax instead of using the Permanent
Fund and to preserve the Permanent Fund to allow an economy
based on something other than oil. He also encouraged a seasonal
sales tax.
CINDI SQUIRE, representing herself, testified in favor of SB
134. She suggested fine-tuning the bill. She opined that the
worst thing is to try and focus on any one thing to solve the
problem. She testified in support of an income tax, a local
sales tax, and slightly higher taxes on extracted resources, all
of which will come together to make a big impact.
She agreed that the Permanent Fund is a huge resource and it is
there for a purpose. She said it is a good opportunity to take
little bits and pieces from everywhere and make Alaska's economy
work.
6:31:49 PM
ED MARTIN, representing himself, testified in opposition to SB
134. He said he is against everything in the bill. Taxes aren't
necessary and the Permanent Fund should not be touched. He said
74 percent of small businesses are opposed to an income tax. It
is an easy way out for the legislature and the governor. He
suggested selling a million acres a year to the people and using
half of the Permanent Fund earnings to fund government. He was
opposed to using the PFD.
6:35:00 PM
EMILY BUTLER, representing herself, testified in support of SB
134. She wished to see the individual components of SB 134
broken out and considered on their own and have more time to
comment on them. She stated that Alaskans are lucky to live in
Alaska and to have had a wonderful tax holiday, but it's over.
She said she is ready to pay for all government services and for
the people to "own the house," not the oil companies. It's a
moral issue to talk about being independent, self-reliant people
and yet being beholden to oil. She said it is Alaska's chance to
build a state that will last longer.
She related that last week in Anchorage, she heard four or five
people talking about what it will take for them to leave the
state and it's not an income tax; it's schools failing, mental
and health services falling apart, public media and the arts
going to pieces, and having an unlivable place. She cautioned
that cuts to services will mean losing a class of people and the
state will be much poorer.
6:40:20 PM
MARY NANUWAK, representing herself, testified in opposition to
SB 134. She said she barely has any money and a tax will hurt
her financially. She won't have a house to live in anymore, and
social services and mental health will not be able to help with
rent. She was concerned about what is a fair share and if Social
Security and retirement income will be taxed. She concluded that
life is hard for one person.
CHAIR COSTELLO said that at this moment there isn't anyone
waiting to talk, but the committee will stay until 8 p.m. She
invited the commissioner to answer questions.
6:44:23 PM
At ease
6:45:09 PM
CHAIR COSTELLO reconvened the meeting and welcomed Commissioner
Hoffbeck and Mr. Spanos to answer questions.
6:45:32 PM
RANDY HOFFBECK, Commissioner, Department of Revenue (DOR),
answered questions related to SB 134. He said he appreciates
hearing public testimony and the broad spectrum of opinions. He
noted the difficulty of the decisions to be made.
6:46:01 PM
BRANDON SPANOS, Deputy Director, Tax Division, Department of
Revenue (DOR), answered questions related to SB 134. He
responded to the question about whether Social Security is
taxable. He explained that if adjusted gross income is over
$32,000 half of Social Security is taxed.
CHAIR COSTELLO requested that information in writing.
SENATOR STEVENS asked for a timeline if SB 134 passes this
session.
COMMISSIONER HOFFBECK answered that DOR would need policies in
place by January 1, 2017, to start withholding, and then to
provide staff for collections and audits by January 1, 2018.
Withholding would take place in 2017 with money available in
2018.
SENATOR STEVENS summarized that withholdings would be taken by
employers throughout 2017 and transferred to the state.
COMMISSIONER HOFFBECK said yes.
6:48:25 PM
SENATOR STEVENS asked how outsiders would be taxed.
COMMISSIONER HOFFBECK explained that different states have
different ways of apportioning tax burden. If someone lived in
Oregon and worked in Alaska, Alaska would tax the monies they
made in Alaska and the individual could take that as a credit
against their Oregon state income tax. When there is no tax in
Alaska, they pay the entire tax to Oregon.
If somebody lives in Texas, which doesn't have personal income
tax, and works in Alaska, Alaska might get money from Texas
income.
SENATOR STEVENS asked how federal employee taxes work.
MR. SPANOS answered that federal employers remit withholdings to
the state depending on residency of the employee. If they are an
Alaska resident, their income would be taxed in Alaska.
CHAIR COSTELLO asked him to clarify "remit withholdings."
MR. SPANOS explained that the employer must withhold the tax and
remit it to the state on behalf of the employee.
6:52:06 PM
SENATOR GIESSEL appreciated the consistency of answers regarding
what would be taxed under an income tax. Pensions and retirement
funds would be taxed. She asked whether Native corporation
dividends would be taxed.
MR. SPANOS said dividends are unearned income are generally
taxed, but there is an income threshold involved.
SENATOR GIESSEL said the PFD would also be taxed.
MR. SPANOS agreed.
6:53:31 PM
SENATOR STEVENS asked for information about Section 43, the
death tax.
MR. SPANOS said the death tax is widely misunderstood. The
inheritance tax starts at $10.8 million. If a person receives an
inheritance above that amount, they will pay federal tax and the
proposed 6 percent of the federal tax to the state. The state
currently has an inheritance tax, but very few returns filed.
SENATOR GIESSEL pointed out that 45 percent of Alaskans would
have no tax liability because they fall below minimum income.
She asked what the minimum level of income is.
MR. SPANOS said that number was estimated based on national IRS
data. He offered to provide the earning threshold data in
Alaska.
6:56:03 PM
DAVID MCCABE, representing himself, testified in support of SB
134. He said a state income tax should on types of income taxed
by federal income tax and be based on the ability to pay, and be
deductible from the federal income tax. Much of it could be
collected from out-of-state workers, and it could be phased in
over time and apply to all kinds of income. There should also be
a base level for exemption.
6:57:46 PM
JANET MCCABE, represented herself, testified in support of SB
134. She said the income is fair. People with more income would
pay more. She recalled that Alaska had a state income tax until
1980, because it is a tried and true American way to raise money
for public purposes in a fair way. She opined that the sales tax
should be reserved for municipalities.
6:59:39 PM
FRANK KELTY, representing himself, testified in support of SB
134. He said the state is in a bad situation and needs to raise
revenues now. He believed the state should use all alternatives,
including capping the dividend. He likes both SB 128 and SB 114.
He said the state can't cut its way out of this situation.
He pointed out that rural Alaska felt the cuts a long time ago
and he provided examples.
7:02:27 PM
SENATOR GIESSEL restated her question about the minimum income
level.
MR. SPANOS answered that it depends on family size and age of
dependents. He referred to the tax matrix document titled
"Proposed Alaska Income Tax at 6 Percent of Total Federal Tax."
He related that for married with no children, the threshold is
$30,000; married with four children, the threshold is $70,000;
single with no children, the threshold is $20,000.
He referred to a handout titled "Statistics of Income (SOI)"
from the IRS website. It shows the breakdown by state of the
total federal tax paid. In the lower income levels, very little
or no federal tax is paid. At the $10,000 to $25,000 income
level, the average Alaska tax is $40. It goes up significantly
after the $50,000 level.
SENATOR GIESSEL thanked him for the information so new listeners
could hear it. She asked where the Alaska information can be
found.
MR. SPANOS answered that the information is not broken down by
taxpayer, it is aggregated information. It is available on the
IRS website.
7:06:06 PM
SENATOR GIESSEL asked if the IRS chart is able to refine the
estimate of 45 percent of Alaskans not having tax liability.
MR. SPANOS answered that the chart provides the number of tax
filers - 359,000. The number of taxpayers is 285,000.
SENATOR GIESSEL commented on the number.
MR. SPANOS clarified that they are tax returns received from
households.
7:07:55 PM
SENATOR STEVENS asked if it is unconstitutional to tax outsiders
at a higher tax rate.
MR. SPANOS said a Yale University report indicated the U.S.
Supreme Court determined it is unconstitutional to discriminate
based on residency.
SENATOR STEVENS thanked Ms. Butler for her comments.
7:09:27 PM
TED KRIEG, representing himself, testified in support of SB 134.
He said a state income tax is fair, but he is skeptical about
using the Permanent Fund. He pointed out that rural residents
depend on the PFD.
SENATOR GIESSEL asked whether commercial fishing vessels that
are in federal waters and never come to shore would have to pay
a commercial fishing tax.
MR. SPANOS answered that it depends. If the fish is caught in
federal waters, there is no tax, but if it is landed in Alaska
there is a landing tax. If it is landed in Washington, but
caught in Alaska it is taxed.
SENATOR GIESSEL inquired if employees who fish in federal waters
and fuel up in Alaska fall under Alaska's tax structure.
MR. SPANOS answered if the wages are earned in Alaska, they
would be taxed. If they are being paid in Alaska they would be
taxed. It depends on many things. He noted the throwback rule;
if they are fishing in federal waters, their home state would
tax them.
7:13:42 PM
SENATOR STEVENS asked if Alaskans fishing in federal waters
would be taxed in Alaska.
MR. SPANOS answered yes.
7:14:18 PM
DIANNE MACRAE, representing herself, testified in opposition to
SB 134. She said she is against the income tax, but would
consider a sales tax. She suggested cutting the budget first.
Throwbacks would contribute with a sales tax. Everyone should be
able to hold their head up high and contribute.
7:16:49 PM
JAMES SQUYRES, representing himself, testified in opposition to
SB 134. He said the legislature needs to cut government. He
discussed how enforcement and collection of taxes would be
handled. He maintained that a 6 percent inheritance tax is rude
and it will cause people to leave.
SENATOR GIESSEL thanked Commissioner Hoffbeck and Mr. Spanos.
7:21:36 PM
At ease
7:54:42 PM
CHAIR COSTELLO reconvened the meeting, thanked the participants,
closed public testimony on SB 134, and held the bill in
committee.
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