Legislature(2011 - 2012)BUTROVICH 205
04/10/2012 03:30 PM Senate RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| HCR24 | |
| HB118 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HCR 24 | TELECONFERENCED | |
| = | HB 118 | ||
HB 118-RESEARCH AND DEVELOPMENT TAX CREDIT
3:47:50 PM
CO-CHAIR WAGONER announced the consideration of HB 118 [CSHB
118(FIN) was before the committee]. He asked for a motion to
bring the bill before the committee.
SENATOR WIELECHOWSKI moved to bring HB 118 before the committee.
CO-CHAIR WAGONER objected for discussion purposes. Finding no
public testimony, it was closed. He asked the pleasure of the
committee.
3:49:14 PM
CO-CHAIR PASKVAN joined the committee.
3:49:22 PM
SENATOR WIELECHOWSKI moved Amendment 1, labeled 27-GH1951\I.15.
27-GH1951\I.15
AMENDMENT 1
OFFERED IN THE SENATE BY SENATOR WIELECHOWSKI
TO: CSHB 118(FIN)
Page 1, line 1, following "Act":
Insert "relating to the reporting and analysis of
certain information relating to tax credits,
exclusions, exemptions, waivers, and other tax
expenditures; relating to bills creating tax
expenditures; relating to confidentiality and use of
tax information;"
Page 1, following line 3:
Insert new bill sections to read:
"* Section 1. The uncodified law of the State of
Alaska is amended by adding a new section to read:
SHORT TITLE. Sections 1 - 9 of this Act may be
known as the Alaska Tax Break Transparency Act.
* Sec. 2. AS 24.08 is amended by adding a new
section to read:
Sec. 24.08.038. Tax expenditure bills. The
legislature shall include a statement of the rationale
and purpose of a tax expenditure in a bill creating a
tax expenditure. In this section, "tax expenditure"
has the meaning given in AS 43.05.090.
* Sec. 3. AS 24.20 is amended by adding a new
section to read:
Sec. 24.20.232. Analysis of tax expenditures. If
the sum of tax expenditures of a specific type exceeds
$1,000,000 in fiscal year 2012 or a succeeding fiscal
year, the legislative finance division shall analyze
the use of the tax expenditure on the following
schedule to determine whether the statute authorizing
the tax expenditure has achieved its purpose:
(1) tax expenditures existing on July 1,
2015, shall be analyzed once between July 1, 2015, and
June 30, 2020, and before a delayed repeal of a tax
expenditure;
(2) a tax expenditure created after July 1,
2015, shall be analyzed after it has been in effect
for seven years or, if the statute authorizing the
expenditure has a delayed repeal date, one year before
the effective date of the delayed repeal of the tax
expenditure.
* Sec. 4. AS 37.07.020(a) is amended to read:
(a) After considering the revenue and tax
expenditure report prepared by the Department of
Revenue under AS 43.05.090, the [THE] governor shall
prepare a budget for the succeeding fiscal year that
must cover all estimated receipts, including all
grants, loans, and money received from the federal
government and all proposed expenditures of the state
government. The budget shall be organized so that the
proposed expenditures for each agency are presented
separately. The budget must be accompanied by the
information required under AS 37.07.050 and by the
following separate bills: (1) an appropriation bill
authorizing the operating and capital expenditures of
the state's integrated comprehensive mental health
program under AS 37.14.003(a); (2) an appropriation
bill authorizing state operating expenditures other
than those included in the state's integrated
comprehensive mental health program; (3) an
appropriation bill authorizing capital expenditures
other than those included in the state's integrated
comprehensive mental health program; and (4) a bill or
bills covering recommendations, if any, in the budget
for new or additional revenue. The budget for the
succeeding fiscal year and each of the bills shall
become public information on December 15 at which time
the governor shall submit copies to the legislature
and make copies available to the public. The bills,
identical in content to the copies released on
December 15, shall be delivered to the rules committee
of each house before the fourth legislative day of the
next regular session for introduction.
* Sec. 5. AS 37.07.020(b) is amended to read:
(b) In addition to the budget and bills
submitted under (a) of this section, the governor
shall submit a capital improvements program covering
the succeeding six fiscal years. The governor shall
also submit a fiscal plan with estimates of
significant sources and uses of funds for the
succeeding 10 fiscal years. The fiscal plan
(1) must include sufficient details to
identify
(A) significant sources of funds;
(B) significant uses of funds, including
lump sum projections of
(i) operating expenditures;
(ii) capital expenditures;
(iii) debt service expenditures;
(iv) fund capitalizations;
(v) appropriations of income of the Alaska
permanent fund (art. IX, sec. 15, Constitution of the
State of Alaska), if any;
(2) must balance sources and uses of funds
held while providing for essential state services and
protecting the economic stability of the state;
(3) must include projected balances of
significant funds held in separate accounts, including
the budget reserve fund (art. IX, sec. 17,
Constitution of the State of Alaska), the public
education fund (AS 14.17.300), and the Alaska capital
income fund (AS 37.05.565);
(4) must set out significant assumptions
used in the projections with sufficient detail to
enable the legislature to rely on the fiscal plan in
understanding, evaluating, and resolving issues of
state budgeting, including information that supports
major areas of operating increases, such as population
demographics that affect the need for particular
government services;
(5) must consider issues raised by the
revenue and tax expenditure report prepared by the
Department of Revenue under AS 43.05.090.
* Sec. 6. AS 40.25.100(a) is amended to read:
(a) Information in the possession of the
Department of Revenue that discloses the particulars
of the business or affairs of a taxpayer or other
person is not a matter of public record, except as
provided in AS 43.05.230(i) and 43.05.090(d) or for
purposes of investigation and law enforcement. The
information shall be kept confidential except when its
production is required in an official investigation,
administrative adjudication under AS 43.05.405 -
43.05.499, or court proceeding. These restrictions do
not prohibit the publication of statistics presented
in a manner that prevents the identification of
particular reports and items, prohibit the publication
of tax lists showing the names of taxpayers who are
delinquent and relevant information that may assist in
the collection of delinquent taxes, or prohibit the
publication of records, proceedings, and decisions
under AS 43.05.405 - 43.05.499.
* Sec. 7. AS 43.05.090 is amended to read:
Sec. 43.05.090. Preparation and publication of
reports and statistics. The department shall prepare
and annually publish statistics of the revenues
derived under the tax laws administered by it,
including an analysis of tax revenue losses due to tax
expenditures.
* Sec. 8. AS 43.05.090 is amended by adding new
subsections to read:
(b) The revenue and tax expenditure report must
include
(1) the statutory authority for each type
of tax expenditure;
(2) the annual sum of tax expenditures for
the prior fiscal year, separately calculated for each
type of expenditure, and the total number of taxpayers
who benefitted from each type of expenditure;
(3) an estimate of tax expenditures for the
current fiscal year, separately calculated for each
type of expenditure;
(4) an estimate of the public costs of
administering the tax expenditures.
(c) The department shall annually transmit an
electronic copy of the revenue and tax expenditure
report to each member of the legislature and make the
report available to the public on the department's
Internet website.
(d) The department shall notify the legislative
finance division when the sum of tax expenditures of a
specific type has exceeded $1,000,000 in fiscal year
2012 or a succeeding fiscal year and provide the
legislative finance division with the nonconfidential
or, subject to the division's execution of a
confidentiality agreement, confidential information
necessary to complete the analysis under AS 24.20.232.
(e) In this section, "tax expenditure" means a
tax credit, exclusion, exemption, waiver, or other
loss of state tax revenue due to an express provision
of state tax law; "tax expenditure" does not include
federal tax expenditures under federal law adopted by
reference in AS 43.20.021 or tax deductions incurred
in the ordinary course of trade or business.
* Sec. 9. AS 43.05.230(a) is amended to read:
(a) It is unlawful for a current or former
officer, employee, or agent of the state to divulge
the amount of income or the particulars set out or
disclosed in a report or return made under this title,
except
(1) in connection with official
investigations or proceedings of the department,
whether judicial or administrative, involving taxes
due under this title;
(2) in connection with official
investigations or proceedings of the child support
enforcement agency, whether judicial or
administrative, involving child support obligations
imposed or imposable under AS 25 or AS 47;
(3) as provided in AS 38.05.036 pertaining
to audit functions of the Department of Natural
Resources;
(4) as provided in AS 43.05.090(d);
(5) as provided in AS 43.05.405 -
43.05.499; and
(6) [(5)] as otherwise provided in this
section or AS 43.55.890."
Page 1, line 4:
Delete "Section 1"
Insert "Sec. 10"
Page 2, line 26:
Delete all material and insert:
"* Sec. 11. Sections 3 - 9 of this Act take effect
July 1, 2015.
* Sec. 12. Except as provided in sec. 11 of this
Act, this Act takes effect immediately under
AS 01.10.070(c)."
CO-CHAIR WAGONER objected for discussion purposes.
SENATOR WIELECHOWSKI explained that the amendment attempts to
address how the state's tax credits, exemptions and other
indirect expenditures are being spent. This bill requires the
Department of Revenue (DOR) to publish information about each
tax expenditure in its annual Revenue Sources Book; it would
include the sum of tax expenditures for the prior fiscal year
and an estimate of the current fiscal year. It also requires the
Legislative Finance Division to conduct a one-time analysis of
tax expenditures over $1 million seven years after their passage
to determine whether the tax expenditure is achieving its
intended purpose. He said that 45 other states publish similar
types of information; Alaska is one of only five others that
don't. He said several people testified in strong support of it
in the State Affairs Committee.
3:50:53 PM
MICHELLE SYDEMAN, staff to Senator Wielechowski, explained that
the amendment would provide Alaskans and state policy makers
with summary information about how much Alaska spends each year
on each type of tax credit, tax deferral, tax waiver and other
indirect tax expenditures authorized by statute. These indirect
forms of spending amount to about $1 billion per year, yet they
are not reviewed annually as are other normal budget items; they
just get paid automatically once enacted. She said more money is
spent on them than the Department of Revenue, Department of
Natural Resources, Department of Environmental Conservation,
Department of Law, the Court System and the Legislature combined
and yet there is no regular review of them.
She said that 45 other states publish annual information about
their tax expenditures; Alaska is one of only five states that
doesn't.
MS. SYDEMAN said the amendment does three things. First, it
requires the legislature to adopt intent language when enacting
new tax credits, deferrals and waivers. This would facilitate
later evaluation about their effectiveness. Second, it requires
DOR to publish summary information annually about each tax
credit in the Revenue Source Book. Third, it requires
Legislative Finance to conduct a one-time analysis of tax
expenditures with a price tag over $1 million after they have
been in effect for seven years to determine whether they are
achieving their intended purpose.
She said the Finance Committees have long sought this
information from the Department of Revenue, but because the
department is just in the process of getting its new automated
tax system, it hasn't been possible in the past to easily
provide this information. This amendment has an effective date
of 2015 so part of the information can be provided at a lower
cost to the state.
3:54:15 PM
DAVID TEAL, Director, Legislative Finance Division, Legislative
Affairs Agency, said he could give them his opinion, but the
division didn't take positions on bills. He said they share the
concern about the lack of information and it has been requested
in the past. He is glad to see that it is being asked for in a
more formal way. He is also glad to see that the DOR has the
capital appropriation to put a tax system together that will
allow them to compile this type of information.
MR. TEAL said his role will be to review tax credits and other
waivers and determine whether the statute authorizing the tax
credit achieves the intended purpose. He noted the $50,000
fiscal note for additional staff, but added that it is "strictly
a guess." He didn't know how much this would involve. He opined
that he would do a brief analysis of where things stand today
and what has been achieved to see if they should be investigated
further. It couldn't be done with current staff and he didn't
know how much work it would involve. It depends on what kind of
information the department's system can deliver.
3:57:01 PM
JOHANNA BALES, Deputy Director, Tax Division, Department of
Revenue, introduced herself.
WANETTA AYERS, Director, Division of Economic Development,
Department of Commerce, Community and Economic Development
(DCCED), introduced herself.
CO-CHAIR WAGONER asked them to speak to the amendment.
MS. BALES stated opposition to Amendment 1, particularly the
ambiguous language that does not provide guidance for what type
of analysis would be expected from either the DOR or Legislative
Finance. For example, page 3, line 21, talks about the report
they prepare and what the governor must consider in constructing
his budget each year and it says the governor must consider
issues raised by the Revenue and Tax Expenditure Report, but
nowhere does the amendment talk about what the issues would be.
She knew Legislative Finance mentioned their expectation of
looking at all the different tax credits and tax expenditures
within the tax codes and that it would perform what, she
believed, is a relatively in-depth analysis for a total of
$50,000, which she thought was unrealistic. However, she thought
their estimate was based on the ambiguous language. For example,
she identified 21 different tax credit programs throughout their
22 tax programs and at least 24 other specific types of
exemptions or deferrals, one of those being the 6,600 S
corporations (as of 2011) that are not taxed because they aren't
subject to corporate income tax. Without a tax revenue
management system, the department is unable to easily pull that
information together to tell them what the total tax effect is
of not taxing them. Just even the underlying information at this
point in time is difficult for them to pull together.
4:00:42 PM
CO-CHAIR WAGONER asked for a definition of an S corporation.
MS. BALES explained the Internal Revenue Code and Corporate
Income Tax have basically two types of corporations, one is
called sub-chapter C and the other is sub-chapter S. A sub-
chapter S corporation is for small businesses where the earnings
get flowed through to the shareholders and reported on their
individual income tax returns. These profits are not taxed by
the state because it doesn't have an individual income tax. That
would be identified as one of the tax expenditure items to be
analyzed. She said she was willing to work with the sponsor to
refine the language, maybe put on some sidebars and standards of
review and mentioned that seven auditors were assigned to do a
performance audit on the film credits for at least six months.
4:02:36 PM
CO-CHAIR PASKVAN said he appreciated her comments, but it's
amazing to think of 22 credits and an additional 24 deductions
or deferrals, but nothing comes back to the Legislature
indicating that they are working. The purpose of the amendment
is to get feedback to the people who put the credits and
deferrals out there in the first place. He asked why the
department hadn't affirmatively done this before and remarked
that the Legislature can't do anything else other than impose it
on the department.
MS. BALES responded they are not opposed to the concept of it,
but when the analysis is undertaken there should be some general
standards for it. This language provides that intent needs to be
put on every bill, which is important going forward, but for
existing tax credits it isn't that simple to identify
legislative intent and whether or not an expenditure has met its
intended purposed without having guidelines on what it was.
This doesn't provide sufficient guidance on what would raise an
issue. She asked for additional guidance as to meeting the
intended purpose.
4:04:59 PM
CO-CHAIR PASKVAN said he understood what she was saying, but it
would be better received by him if DOR had been preparing some
type of report for the last five years on whether the credits
appear to be working or not. Also, he would be more receptive to
DOR's argument if they had brought forward a standard today that
she believed would be an appropriate one for the sideboards she
addressed. At this point it is a one-way conversation.
MS. BALES said, for instance, her understanding of why S
corporations aren't taxed is because there is no individual
state income tax. Do they need to analyze that now?
4:06:51 PM
SENATOR WIELECHOWSKI said he appreciated her comments, but added
that Mr. Teal testified that Legislative Finance is capable of
doing the analysis and she is testifying about what Legislative
Finance is going to do and their ability to do it. They said
they could do the analysis and all DOR has to do under this
amendment is tell them how much is being spent. He said the
legislature had worked with the department; they original had
the department doing the analysis and they said they didn't want
to do it. So, they gave it to Legislative Finance and Mr. Teal
said he can do it.
MS. BALES said the last time the issue was addressed Mr. Teal
said he wasn't sure how much it would cost to do this type of
analysis. For DOR, the ambiguity lies in the concept that they
are supposed to identify issues, but they need guidance on what
they would be.
4:09:07 PM
SENATOR WIELECHOWSKI said DOR is supposed to address issues that
are raised by the report they prepared, not identify issues.
Section 7 says the department shall prepare an analysis of tax
revenue losses; Legislative Finance is the one that actually
does the analysis. He said his office has been working with her
for months on this bill and if it needs tweaking he would be
happy to do that. This is something this committee has long
sought.
CO-CHAIR WAGONER asked if this could be done by meeting time
tomorrow.
SENATOR WIELECHOWSKI answered yes.
MS. BALES expressed reservations about fixing the problems in
that time. Most of the information is gathered already but
getting the deferrals is a little more difficult. And everyone
is aware they don't have a revenue management system in place
and the figures would have to be pulled by hand.
CO-CHAIR WAGONER noted that the effective date is three years
from now and expressed hope that there could be resolution in
that time.
MS. BALES responded that an implementation RFP for the revenue
management system hadn't even been put out yet. It is a very
large RFP to draft and they don't expect implementation until
the beginning of next year, January 1, and it's a five-year
implementation schedule.
CO-CHAIR WAGONER commented that it seems if the state wants to
do something in nine months that it always finds a way to do it
and spend hundreds of millions of dollars doing it, but now her
system is taking five years. "I think our state is in real
trouble in some ways," he said. If it took a private business
that long to do a plan, it would be out of business before
getting in.
4:13:39 PM
CO-CHAIR PASKVAN emphasized the need to get real numbers.
CO-CHAIR WAGONER said he agreed in concept, but his problem is
forcing something like this onto DOR if they say they aren't
ready for it.
SENATOR FRENCH described it as encouragement to try to work
together.
4:14:27 PM
CO-CHAIR WAGONER said he would like to hold the amendment until
tomorrow.
SENATOR WIELECHOWSKI said that would be okay and he would
continue to work with the department. This is an important
concept. He agreed that spending billions of dollars on tax
credits and having no idea where they are going or how effective
they are - there isn't a business in the world that would
operate that way.
CO-CHAIR WAGONER said maybe they want to extend it out to five
years, but they need to get it in statute.
CO-CHAIR PASKVAN asked of the 22 credit types and 24 deduction
and deferrals if they were only to look at oil and gas credits
or deferrals, how much would that reduce the load.
MS. BALES replied about 50 percent.
4:15:54 PM
CO-CHAIR WAGONER maintained his objection to Amendment 1 and
announced the discussion would resume tomorrow. HB 118 was held
in committee.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HCR 24 Hearing Request for Senate Resources.pdf |
SRES 4/10/2012 3:30:00 PM |
HCR 24 |
| HCR 24 Sponsor Statement.pdf |
SRES 4/10/2012 3:30:00 PM |
HCR 24 |
| HCR 24 Summary of changes.pdf |
SRES 4/10/2012 3:30:00 PM |
HCR 24 |
| HCR 24 Supporting Letters.pdf |
SRES 4/10/2012 3:30:00 PM |
HCR 24 |
| HCR024A.pdf |
SRES 4/10/2012 3:30:00 PM |
HCR 24 |
| HCR024B.pdf |
SRES 4/10/2012 3:30:00 PM |
HCR 24 |
| HCR24 2 Fiscal Note.pdf |
SRES 4/10/2012 3:30:00 PM |
HCR 24 |
| HB 118 - BW Amendment #1.pdf |
SRES 4/10/2012 3:30:00 PM |
HB 118 |