Legislature(2015 - 2016)BELTZ 105 (TSBldg)

02/25/2016 06:00 PM LABOR & COMMERCE

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Audio Topic
06:04:11 PM Start
06:04:22 PM SB134
07:55:05 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= SB 134 INDIV. INCOME TAX: CREDITS; RETURNS TELECONFERENCED
Heard & Held
Initial Statewide Public Testimony
-- Public Testimony <Limited to 2 Minutes> --
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+ Bills Previously Heard/Scheduled 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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