Legislature(2003 - 2004)
04/03/2003 03:35 PM Senate STA
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SB 137-EMPLOYMENT TAX FOR EDUCATION CHAIR GARY STEVENS asked for a motion to adopt the committee substitute (CS). SENATOR JOHN COWDERY made a motion to adopt the CS \S Kurtz for SB 137 for discussion purposes. There being no objection, it was so ordered. CHAIR GARY STEVENS explained the bill would impose a $100 a year tax on each employed individual age 19 or older. The money would be deducted in $50 increments from an employees first two paychecks after July 1 of each year and after the first $1,000 in wages was earned. The Department of Revenue estimates this bill would generate $39 million this year and in every subsequent year. They project the need for ten full time permanent workers and ten temporary clerks during the tax season for operation. The estimated operating cost is $1.2 million in year one and $820 thousand in subsequent years. It is intended to supplement educational funding and reduce the draw from the Constitutional Budget Reserve. It would apply to workers from out of state and would be part of a long-range fiscal plan. SENATOR COWDERY asked if someone that started work in December and earned $800 would be subject to the tax. CHAIR GARY STEVENS explained the accounting would run through the fiscal year, from July 1 through June 30 and if the worker did not meet the $1,000 threshold, they wouldn't be subject to the tax. SENATOR COWDERY asked who would collect the tax. CHAIR GARY STEVENS informed him the employer would collect the tax and remit it to the Department of Revenue. He then asked Mr. Persily to come forward to speak to the issue. LARRY PERSILY, Deputy Commissioner of the Department of Revenue, explained it would be set up in much the same way as an income tax even though this was not an income tax. The employer would withhold the money and send in monthly reports to the Department of Revenue. For someone who works in two different jobs and had the money withheld both times, the department would process a refund for that person. CHAIR GARY STEVENS asked if there would be a form available for the employee to show subsequent employers that they had already paid the tax. DEPUTY COMMISSIONER PERSILY elaborated saying either the pay stub would show the money had been paid or there would be a form that the employer would fill out for subsequent employers. People holding down two jobs might be charged more than once and require a refund. The department would expect to process several thousand refunds, but they would do everything possible through employer education to keep the number to a minimum because there is a cost to a refund. CHAIR GARY STEVENS asked if employers would be able to check on- line to determine that an employee had already paid. DEPUTY COMMISSIONER PERSILY advised the department would make the process as automated as possible. Prior to 1980, the $10 tax was added to the state income tax due which made collection very easy. Without an income tax, the department would have to set up a procedure. SENATOR COWDERY asked if the employee couldn't carry a card showing they had paid just like those with insured cars. DEPUTY COMMISSIONER PERSILY said they would develop a similar procedure that would save the state the expense of a refund and employers the expense of withholding when they didn't need to withhold. SENATOR GRETCHEN GUESS asked if there was any estimate for the cost to businesses. DEPUTY COMMISSIONER PERSILY said they did not have that information. Businesses are already withholding for state unemployment, federal taxes and FICA so it wouldn't be difficult to add another line to their withholding, but there would be the cost of one more form and one more government entity to send a payment to. He pointed out the original fiscal note addressed the traditional January 1 to December 31 tax year and would take effect in January 1, 2004. This would give the department six or seven months to develop a tax program. Because the CS has a July 1, 2003 effective date, the department would need to amend the fiscal note to reflect increased FY 03 expenses to have the program in place June 30. He warned this is a tight time frame and everyone needs to understand that all the pieces wouldn't be ready on June 30. Increased outsourcing would be necessary to fit the adjusted timeframe but the department would do its best to get the program in place in 60 days if that is the legislative intent so the revenue would be available in FY 04. CHAIR GARY STEVENS asked Mr. Persily to confirm he would amend the fiscal note before the bill was heard in the Finance Committee. DEPUTY COMMISSIONER PERSILY agreed to submit the revised fiscal note to the Chair by the following day. SENATOR GUESS asked if sole proprietors and partnerships were included. CHAIR GARY STEVENS replied they are responsible for paying as well. DEPUTY COMMISSIONER PERSILY said anyone receiving compensation would have to pay. If not through wage withholding the individual would have to issue the department a check for $100. He added, the self-employed people would be the biggest enforcement issue. CHAIR GARY STEVENS followed up and asked if the self-employed paid the $10 head tax the state collected in the 70s. DEPUTY COMMISSIONER PERSILY replied they did pay. At that time there was a state income tax so it was easy for the state to collect when the return was filed. Anyone that receives compensation in the state would be subject to the tax. SENATOR GUESS asked the Chair whether this would include trust fund income. CHAIR GARY STEVENS replied the tax targets compensation for personal services. DEPUTY COMMISSIONER PERSILY agreed. SENATOR GUESS said she asked the question because Mr. Persily said this isn't an income tax. She added this seems to be worse than an income tax since it's collected only if you work and surmised that was why he made the comment. DEPUTY COMMISSIONER PERSILY replied he made the comment because the Administration doesn't favor an income tax. SENATOR GUESS asked why the $1,000 figure was selected. CHAIR GARY STEVENS said it was somewhat arbitrary, but they didn't want someone to lose $100 from his or her first paycheck if that's all they earned. SENATOR GUESS advised she took issue with the education smoke screen because this was about supplanting funds not additional funds. The bill contains no language that these are additional funds. This is a worker tax and not a tax for education, which is confusing to people because they are led to believe there would be more money for schools. However, because of the way the constitution is written, this money can't be used directly that way and it's unfortunate that perception is continued. SENATOR COWDERY asked for further clarification of what revenue would be taxed. DEPUTY COMMISSIONER PERSILY replied he was speaking to work draft Q that defines compensation as wages, salaries, commissions, tips or remuneration paid for personal services. Individuals living on a trust fund or retirement wouldn't pay this tax. SENATOR COWDERY added Social Security would be exempt as would mortgage income. DEPUTY COMMISSIONER PERSILY didn't believe those would apply because they aren't compensation for payment for personal services. SENATOR COWDERY then asked how the department would enforce payment. For instance, what would happen if an employee paid twice and one of the employers withheld the money from the state? DEPUTY COMMISSIONER PERSILY assured him employees seem to track their paychecks closely and the department would take action against any employer that collected the money and didn't remit it to the state. SENATOR COWDERY commented he likes to hire youths for summer odd jobs and he pays them in cash and wondered how those payments would be handled. DEPUTY COMMISSIONER PERSILY admitted those types of compensation would probably slip through. The department wouldn't target youths that wash cars, mow lawn and shovel snow because there are larger issues to go after. SENATOR COWDERY said he agreed but wanted that stated. CHAIR GARY STEVENS stated for the record that the \S version was being discussed. SENATOR GUESS asked why 19 years of age was selected rather than 18. DEPUTY COMMISSIONER PERSILY wasn't sure why that age was selected since 18 is the age of emancipation. It was an arbitrary decision. JIM SYKES from Palmer advised he had version \H and realized this wasn't the latest draft, but wanted to know how the department would know that out of state workers hired by out of state corporations that operate in Alaska would collect and remit the tax. Although he doesn't agree with Senator Guess regarding dedicated funds, he thought perhaps the bill should be given a new title to call it a worker's tax. Second he wondered whether this was contemplated as part of another tax package because education and the elderly appear to be targeted. He doesn't see any kind of legislation to get extra windfall profits from the high price of oil. That would bring in much more than SB 137 could in every year that the price of oil exceeded $18 per barrel. He would like to see a package of taxes so everyone, summer guest workers, residents and businesses that operate in Alaska share the tax burden fairly. CHAIR GARY STEVENS asked Mr. Persily to respond to the first question. DEPUTY COMMISSIONER PERSILY explained out of state corporations already pay a corporate income tax so the state knows who they are. Also they file quarterly returns with the Department of Labor for unemployment insurance. The Department of Revenue would run data checks with the Department of Labor and with corporate taxes, but employer compliance is generally good on this type of tax because it is so easy to catch companies that are non-compliant and the penalties are steep. CHAIR GARY STEVENS added this is not part of a package of taxes. It is one tax requested by the Governor in his speech to the Legislature where he asked for consideration of a sales tax or this head tax for education. There were no further questions and he asked for a motion. SENATOR COWDERY made a motion to move CSSB 137 \S version from committee with unanimous consent and attached fiscal note. SENATOR GUESS objected. Senators Dyson, Cowdery and Chair Stevens voted yea and Senator Guess voted nay. The motion passed and CSSB 137 (STA) moved from committee.
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