Legislature(1995 - 1996)
03/14/1996 01:40 PM House FIN
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* first hearing in first committee of referral
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+ teleconferenced
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HOUSE FINANCE COMMITTEE
March 14, 1996
1:40 P.M.
TAPE HFC 96-76, Side 1, #000 - end.
TAPE HFC 96-76, Side 2, #000 - end.
TAPE HFC 96-77, Side 1, #000 - #406.
CALL TO ORDER
Co-Chair Mark Hanley called the House Finance Committee
meeting to order at 1:40 p.m.
PRESENT
Co-Chair Hanley Representative Martin
Co-Chair Foster Representative Mulder
Representative Brown Representative Navarre
Representative Grussendorf Representative Parnell
Representative Kelly Representative Therriault
Representative Kohring
ALSO PRESENT
Representative Joe Green; Jeff Logan, Staff, Representative
Green; Deborah Vogt, Deputy Commissioner, Department of
Revenue; Bob Briggs, Assistant Attorney General, Department
of Law; Dan Seckers, Alaska Oil and Gas Association; William
Cotton, Executive Director; Judicial Council.
SUMMARY
HB 341 An Act establishing a tax court to consider and
determine certain taxes and penalties due and
collateral matters, and amending provisions
relating to taxpayer challenges to the assessment,
levy, and collection of taxes by the state; and
providing for an effective date.
HB 341 was HELD in Committee for further
discussion.
HB 362 An Act extending the motor fuel tax exemption for
fuel sold for use in jet propulsion aircraft to
fuel used in those aircraft for flights that
continue from a foreign country.
HB 362 was rescheduled to another time.
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HB 373 An Act relating to educational benefits for family
members of deceased members of the armed services.
HB 373 was HELD in Committee for further
discussion.
HOUSE BILL NO. 373
"An Act relating to educational benefits for family
members of deceased members of the armed services."
Representative Martin spoke in support of HB 373. He
stressed that the legislation will help dependents of those
killed in the military during peace time as well as in war.
He noted that the September 22, 1995 crash of the U.S Air
Force AWACS Yukla 27 at the Elmendorf Air Force Base, killed
27 crew members and left 32 children from birth to 18 years
of age. According to the sponsor statement the legislation
is directed toward the surviving dependents of all Alaska
military residents enlisted in branches of the Armed
Services, including the Alaska National Guard and the Alaska
Naval Militia. These surviving dependents will be entitled
to a waiver of room charges through University of Alaska
student housing and a $200 dollar per month stipend for each
month of enrollment.
Representative Martin provided members with Amendment 1
(Attachment 1). He explained that the amendment will make
the legislation retroactive to September 1, 1995 to allow
surviving dependents of the September 22, 1995, AWACS crash
at the Elmendorf Air Force Base to qualify.
Representative Martin MOVED to adopt Amendment 1.
Representative Brown OBJECTED. She questioned the cost of
the amendment. She noted that the $200 dollar a month
stipend would be in addition to benefits already paid.
Representative Martin emphasized that this money would cover
books and associated costs.
Representative Brown referred to the $13.6 thousand dollar
fiscal note by the University of Alaska. Representative
Martin stated that fiscal note would cover the cost of the
legislation.
In response to a question by Representative Grussendorf,
Representative Martin noted that 13 of the surviving
dependents in the AWACS crash would be eligible.
Representative Brown expressed concerns regarding the level
of obligation the State would incur under the amendment.
Co-Chair Hanley summarized that under current statutes
surviving dependents are eligible for tuition and fees. The
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legislation would waive dorm costs and provide a $200 dollar
per month stipend for each month of enrollment.
Representative Martin emphasized that the legislation would
cover other associated costs. He observed that children
will come from all over the State and will need housing.
Co-Chair Hanley pointed out that Alaskans were also killed
in the Gulf War. He observed that surviving dependents of
Alaskans killed during the Gulf War would not qualify under
the amendment. He observed that there is one child that
would fall in to this category. He suggested that it would
be equitable to include this child under the provisions of
the legislation. Discussion ensued regarding the dates of
the Gulf War.
Representative Brown pointed out that the cost of the
amendment will increase over time. She expressed concern
with financial costs associated with the legislation.
Co-Chair Foster noted that Alaska State troopers are
sometimes killed in the line of duty. He questioned if they
should be added.
Representative Brown observed that a war could increase the
number of eligible individuals. She maintained that the
defense of the country is the responsibility of the federal
government, not the state of Alaska.
Representative Navarre noted that the military burial
allowance was eliminated. He stressed that he is
sympathetic to the legislation.
HB 373 was HELD in Committee for further discussion.
HOUSE BILL NO. 341
"An Act establishing a tax court to consider and
determine certain taxes and penalties due and
collateral matters, and amending provisions relating to
taxpayer challenges to the assessment, levy, and
collection of taxes by the state; and providing for an
effective date."
JEFF LOGAN, STAFF, REPRESENTATIVE GREEN testified in support
of HB 341. He gave a brief history of HB 341. He noted
that similar legislation was introduced by the Governor. He
observed that CSHB 341 (JUD) was a joint effort by the
Administration, Representative Green and taxpayers.
Mr. Logan observed that the commissioner of the Department
of Revenue assumes several roles in relationship to
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taxpayers. The commissioner interprets state tax law
through regulations, enforces state tax laws through the
audit process, issues assessments and selects a hearing
officer to sit in judgement during the appeal process.
Mr. Logan noted that CSHB 341 (JUD) would change the current
system. Formal hearings would take place before an
administrative law judge in the Department of
Administration.
Mr. Logan observed that the Administration and taxpayers are
not in agreement regarding the requirement of legislative
confirmation and the authority to bypass the formal review
and go straight to Superior Court de novo. The status of
taxpayer appeals already filed but unresolved is also in
question.
Mr. Logan provided members with a flow chart comparing CSHB
341 (JUD) to the current system (Attachment 1).
DEBORAH VOGT, DEPUTY COMMISSIONER, DEPARTMENT OF REVENUE
acknowledged that the state of Alaska is one of a minority
of states that still resolves state corporate tax disputes
in house. She observed that the Administration consulted
with Paul Frankel, Attorney, New York on the issue of
corporate tax disputes. Mr. Frankel identified three
elements that should be provided for in legislation. He
stated that:
* 1. The taxpayer should be permitted to have a
trial and de novo review before the tax in dispute
is paid;
* 2. The review should be independent from the
Department of Revenue; and
* 3. The review should be before tax professionals.
Ms. Vogt noted that these three points were included in the
Governor's bill, HB 427. House Bill 427 was merged with
CSHB 341 (JUD). She discussed issues that are not in
dispute:
* Review would be independent from the Department of
Revenue by an administrative law judge;
* Administrative law judges are appointed for a
number of years and dismissed for cause only; and
* Administrative law judges must be members of the
bar and have some expertise in the tax area.
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Ms. Vogt referred to the scope of review on page 4, lines 11
- 21. The administrative law judge would resolve the
question of fact by preponderance of the evidence or, if a
different standard of proof has been set by law for a
particular question, by that standard of proof. She noted
that the Administration was concerned that the
administrative law judge not substitute their judgement for
tax policy questions that belong to the commissioner. She
acknowledged that there will never be a clean line between
policy and law.
Ms. Vogt observed that the burden of discovery was adjusted.
The legislation provides that the parties submit a plan for
discovery to the administrative law judge for approval. The
plan has to include stipulations of fact. The parties have
to perform their own legislative history research.
Taxpayers cannot ask the State to produce all the
legislative history of a bill. She noted that there were
items that were not included in the committee substitute.
Ms. Vogt noted that there are two issues on which the
Administration, Sponsor and taxpayers do not agree. She
observed that CSHB 341 (JUD) provides that an administrative
law judge will be appointed by the Governor and confirmed by
the Legislature. She noted that the Constitution does not
allow an employee in the Department of Administration to be
confirmed. To allow Legislative confirmation, an
administrative law judge would have to be a member of a
board. The committee substitute would create the Board of
Tax Appeals. She emphasized that the creation of a board
will significantly increase the cost of the bill. The
Governor envisioned one administrative law judge and a half-
time clerical person in the Department of Administration. A
board would involve at least two administrative law judges,
a full-time clerk, rent and office costs.
Ms. Vogt provided members with Amendment 1 by the
Administration (Attachment 1). She explained that under
Amendment 1, the Judicial Council would be asked to review
candidates and make recommendations to the Governor. The
Governor would appoint and the Legislature would no longer
confirm administrative law judges.
Ms. Vogt stated that the second area of contention revolves
around the fact that a taxpayer can avoid the administrative
law judge proceeding and go straight to the Superior Court
for a de novo review. The Administration opposes this
provision. She emphasized the tax expertise and efficiency
of administrative law judge review. She stressed that
judges will set precedents in regards to the tax law. She
maintained that tax precedents should be set by someone who
studies and likes taxes.
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Ms. Vogt referred to transition provisions. She observed
that some tax payers are not satisfied with these
provisions.
In response to a question by Representative Kelly, Ms. Vogt
stated that there is not enough work for more than one
judge. She pointed out that most of the major tax cases
have been settled.
BOB BRIGGS, OIL GAS AND MINING SECTION, DEPARTMENT OF LAW
echoed concerns expressed by Ms. Vogt.
In response to statements by Representative Therriault, Ms.
Vogt emphasized that the trial should take place in front of
a tax expert. She acknowledged that many cases will still
be taken to the Superior Court. She stressed that the
Superior Court will utilize the administrative record
provided by the administrative law judge hearing.
(Tape Change, HFC 96-76, Side 2)
DAN SECKERS, CHAIRMAN, TAX COMMITTEE, ALASKA OIL AND GAS
ASSOCIATION (AOGA) testified in regards to CSHB 341 (JUD).
He noted that AOGA is a trade association whose 19 member
companies account for the majority of oil and gas
exploration, production, transportation, and refining and
marketing activities in Alaska. He maintained that the
present tax appeal process in Alaska is seriously flawed in
practice and denies taxpayers the opportunity to have their
tax appeals heard and decided by a truly independent and
impartial tribunal. He emphasized that AOGA has worked
with the House Resources and Judiciary Committees and the
Administration to develop a consensus bill which would
improve the process. He observed that consensus was
reached in many areas of the Judiciary Committee Substitute,
including some areas which were heavily debated. However,
two major areas of contention remain. One is legislative
confirmation of the administrative law judges and the other
is the option for taxpayers to proceed directly to Superior
Court.
Mr. Seckers discussed legislative confirmation. He noted
that AOGA supports legislative confirmation of
administrative law judges. He asserted that confirmation is
appropriate to ensure that these people are qualified,
capable, and fair since they may decide cases involving tens
or even hundreds of millions of dollars in tax claims. He
pointed out that confirmation allows for public comment on a
candidate before the decision to appoint him or her becomes
final. He emphasized that this ensures that if anyone is
proposed who has demonstrated bias or similar improper
conduct in the past, there will be an opportunity to make
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people aware of those facts before the appointment becomes
final. He added that confirmation prevents any question of
improper influence by the Executive Branch over the
administrative law judges through the power to appoint and
reappoint them.
Mr. Seckers reviewed Amendment 1. He observed that
Amendment 1 would provide for an open and public process
through the Alaska Judicial Council, which would review
candidates, receive public comments, and present a list of
at least two "finalists" from which the Governor would make
the final selection. He stated that AOGA has not had
sufficient time to review this proposal.
Mr. Seckers discussed the option for taxpayers to appeal the
informal conference decision directly to Superior Court. He
stated that this is an area of disagreement. He maintained
that Superior Court judges are competent professionals who
have responsibility for hearing very complex cases, such as
royalty and commercial litigation. In addition, under
current law, Superior Court judges review the formal hearing
decisions of the Department of Revenue and, under the
proposed bill, would review the decisions of the
administrative law judges.
Mr. Seckers stated AOGA agrees with the Administration that
most taxpayers will prefer having the specific tax expertise
and procedural rules of the new system of administrative law
judges. He stressed that there may be times when it would
be more efficient and expedient to proceed directly to
court. For example, when it is clear that a particular
issue will likely be appealed to the Superior Court and
beyond, the taxpayer may prefer to proceed directly to court
to avoid the time and expense of going first to an
administrative law judge and then to court. He stressed
that if a dispute includes issues that an administrative law
judge cannot rule on, such as constitutional issues, it
would make more sense to allow a direct appeal of the
taxpayer's case to the forum where those issues can be dealt
with.
Mr. Seckers disagreed with the Department of Revenue's
suggestion that the option to go to court be restricted
solely to constitutional issues. Tax cases generally
involve factual determinations and legal determinations. A
legal position is often supported by a statutory argument
and a constitutional argument. He maintained that under the
Department's proposal, for a disputed tax position, the
taxpayer and the Department of Revenue would have to present
the disputed facts and the statutory argument to the
administrative law judge and present the same disputed facts
and the constitutional argument to the Superior Court.
Thus, under the Department's suggestion, for a given tax
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dispute, it is possible that the administrative law judge
could decide the facts in favor of the taxpayer but rule
against the taxpayer on the statutory argument. The
Superior Court could decide the same facts against the
taxpayer but rule in favor of the taxpayer on the
constitutional argument. He asserted that it is unclear
what would happen next under the Department's suggestion.
He maintained that at best, the Administration's
constitutional limitation is inefficient and costly.
Mr. Seckers noted that Mr. Paul Frankel mentioned in his
testimony before the joint hearing of the House Judiciary
and Finance Committees on February 29th, that the federal
tax system offers taxpayers a choice of forums. He stated
that he is not aware of any states that limit the taxpayer's
option to go to court on specific issues.
Mr. Seckers alleged that the option to go to court would not
cost the State additional money and may result in reduced
expenditures. He stated that in some instances an election
to go directly to Superior Court would eliminate review of
an administrative law judge's decision by the Superior
Court. The Judiciary Committee Substitute also clarifies
that the standards of review to be used by Superior Court
judges under this option would be the same as under the
administrative law judge system. He stressed that this
check and balance safeguards the fairness and independence
of the process.
Mr. Seckers discussed the transition provisions of the bill.
Both AOGA and the Department of Revenue agree on the
principle that taxpayers who are still in the preliminary
proceedings of the old formal hearing process should be
allowed to use the new procedures provided if doing so would
not entail an undue amount of wasted or duplicate time and
effort.
Mr. Seckers concluded that AOGA strongly supports the
Judiciary Committee Substitute for HB 341. The reform of
Alaska's present tax appeals system remains a priority of
AOGA members. He maintained that the legislation will
provide real reform to tax appeals.
Representative Navarre asked if issues can be divided
between
administrative law judges and the Superior Court. Mr.
Seckers responded that the legislation does not provide for
division of a case. He expressed concern that there would
be duplication of arguments.
Representative Navarre asked if the full argument would have
to be presented to the administrative law judge if there
were issues that were clearly constitutional. Mr. Seckers
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stressed that issues are not just clear cut. He stated that
issues are factually determined.
Representative Navarre expressed concern that the
administrative law judge would be preempted after one
adverse decision. He questioned if the legislation, absent
direct appeal to the Superior Court, would be better than
the status quo. Mr. Seckers did not believe the
administrative law judge would be preempted. He added that
"if the administrative law judge system is going to be as
fair and impartial as it is claimed it will be and if the
decision is as well reasoned, then there is no evidence to
suggest, or reason for a taxpayer to suggest that any answer
would be different in any other court." He noted that there
are disincentives for a taxpayer to go directly to Superior
Court. A bond must be posted to go to court. Under the
current system and the proposed bill the taxpayer can go to
informal conference, have a trial de novo in front of the
administrative law judge, appeal to Superior Court and then
appeal to the Supreme Court. This provides the taxpayer
with four opportunities to present their case. If they went
straight to Superior Court they would only have three
chances to present their case. He maintained that the
option to go directly to the Superior Court makes certain
that the administrative law judge system stays fair and
impartial. He maintained that the current system is not a
level playing field.
WILLIAM COTTON, DIRECTOR, ALASKA JUDICIAL COUNCIL testified
via the teleconference network. He stated that the Council
is neutral regarding the legislation. He expressed a desire
to work on the language requiring the Council to make
recommendations. He noted that there would be some
additional cost involved. He estimated that a temporary
secretary would have to be hired for a week or two.
In response to a question by Representative Brown, Ms. Vogt
explained that the informal conference is optional under
existing law. The informal conference would be mandatory
under the legislation. The bill includes provisions which
allow the taxpayer or the Administration to ask for a
schedule for the informal conference to be concluded in
section 11, page 15. The informal conference decision would
be written by the informal conferee through the Department
of Revenue. They would be separate from the assessment.
Representative Parnell questioned if recommendations should
come from the Judicial Council. Ms. Vogt envisioned that
the Judicial Council would publish the list of applicants
and solicit comments from the public.
Representative Parnell asked the policy behind not providing
a choice of form. Ms. Vogt responded that the
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Administration feels strongly that an administrative body
through which all claims must go is the best way to ensure
integrity in the tax system. Ms. Vogt expressed concern
that taxpayers that do not have a good case would try to
avoid the expertise of an administrative law judge.
Ms. Vogt pointed out that a Superior Court appeal from an
administrative decision is a narrower scope than a second
appeal. She emphasized that Superior Court review would be
cheaper because it is more informal. She noted that under
the legislation the administrative law judge would take
control of discovery.
Mr. Seckers asserted that it is more expensive to go through
four levels of review than through three levels. He
maintained that, although trial costs would be less for an
administrative law judge, a trial would still be before the
Superior Court on review.
Ms. Vogt recounted a case in which she was involved. In
this case, the Superior Court costs were less than $60.0
thousand dollars while administrative review took seven
weeks and cost more than $1.5 million dollars. She
emphasized that the Superior Court hearing is a brief. She
stressed that if the trial had been held in Superior Court
the total cost would have been much greater.
In response to a question by Representative Brown, Ms. Vogt
explained that the Superior Court judge is going to
substitute judgment for that of the hearing officer or
administrative law judge. The hearing officer will find and
organize facts, make determinations of facts and the law of
the case. The Superior Court would only set questions of
fact if they are not supported by substantial evidence.
Mr. Briggs pointed out that under As 43.05.475 on page 8,
that a final administrative decision has the force of legal
precedent unless reversed or overruled. He noted that a
Superior Court decision could over turn the administrative
law judge's decision without being published. Other
taxpayers would not know that the precedent by the
administrative law judge had been overturned. He suggested
that this problem can be resolved by deleting the direct
appeal to Superior Court. He added that the Superior Court
decision could be published under 43.05.470. Mr. Seckers
did not think the legislation would create confusion.
Ms. Vogt pointed to the magnitude of Alaskan tax cases. Mr.
Seckers reiterated OAGA's position is support of the ability
to take cases directly to Superior Court.
In response to a question by Representative Parnell, Ms.
Vogt compared procedures under the Workers' Compensation
Board. Employees must take cases to the Workers'
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Compensation Board.
Representative Parnell questioned what would be gained by
requiring taxpayers to come before an administrative law
judge. Ms. Vogt responded that tax expertise would be
provided by the administrative law judge.
Mr. Briggs pointed out that administrative remedies have
relaxed rules of procedure. He maintained that it would be
more efficient to pursue remedies administratively. Co-
Chair Hanley asked the advantage of going directly to court.
Ms. Vogt responded that the concern is that a randomly
picked Superior Court judge would not have tax expertise.
She asserted that taxes are the most important attribute of
sovereignty.
Mr. Seckers stressed that Superior Court judges are
competent professionals. He maintained that a complex
royalty case is no more or less complicated than a tax case.
Representative Brown asked if the Alaska Court System's
fiscal note would apply to CSHB 341 (JUD). She noted that
the fiscal note states that it does not reflect jury costs.
The fiscal note assumed that the bill would be amended to
clarify that the de novo trial is before a judge, not a
jury. Ms. Vogt explained that the bill was amended to
clarify that the Superior Court judge would sit without a
jury.
Representative Brown noted that the fiscal note concludes
that many taxpayers would prefer to go directly to court
rather than utilize the Department of Revenue's formal
procedure followed by an on the record appeal.
Mr. Seckers stated that he did not anticipate many taxpayers
taking their cases directly to de novo hearings. He pointed
out that there are no cases currently before the Superior
Court. He maintained that these cases would be exceptional
and could be funded through supplemental requests.
In response to a question by Representative Therriault, Mr.
Seckers explained that bonds are posted on the amount in
dispute. Mr. Briggs observed that the bill requires that
the taxpayer pay the entire undisputed amount. Only the
part in dispute is bonded.
In response to a question by Representative Therriault, Ms.
Vogt acknowledged that if all taxpayers went straight to
court, an administrative law judge would not remain busy.
She clarified that the Administration anticipates that the
number of tax cases going to trial would be the workload for
one judge.
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Ms. Vogt referred to the bonding requirement, page 16, line
32 through page 17, lines 1 - 12. She observed that this
applies to administrative and judicial cases. She
recommended that bonding requirements be changed to
eliminate the bond for the administrative law judge
proceeding.
Mr. Seckers pointed out that there are provisions in the
bill that allow administrative law judges to be assigned to
other administrative appeals.
CHRIS CHRISTENSEN, STAFF COUNSEL, ALASKA COURT SYSTEM
testified that the Alaska Court System fiscal note submitted
to CSHB 341 (RES) would be applicable. He estimated that
the bill would apply to approximately 24 cases. He
emphasized that a Superior Court appeal is much cheaper than
an administrative appeal. He noted that the fiscal note is
based on the assumption that a sizable percentage of the 24
cases would go directly to court. Hearing time could be 6
to 8 weeks. The note reflects the cost of bringing a judge
out of retirement to cover other cases as needed. The pro
tem judge would be paid the difference between his
retirement and salary.
In response to a question by Representative Therriault, Mr.
Christensen observed that the Court System anticipates that
since persons are fighting for the right to go straight to a
de novo hearing that they would utilize the right.
Ms. Vogt noted that AS 44.62.560 permits the judge to hear
all or part of the matter de novo. She asserted that judges
almost always choose to hear cases on the record. Mr.
Seckers pointed out that taxpayers receive a de novo hearing
below. He emphasized that the legislation will provide for
only one de novo hearing. He stressed that the majority of
states provide for at least one de novo hearing in the
judicial branch.
Representative Brown tried to determine the cost of posting
a bond. Ms. Vogt noted that the taxpayer could pay a bond
or provide other evidence of their ability to pay the
disputed amount. She stated that the more solvent the
taxpayer the easier it is to accommodate the requirements to
the Department. She observed that the same provision
applies to administrative and judicial proceedings. The
actual cost of the bond was not ascertained.
Co-Chair Hanley summarized that the Department has the
responsibility to assure that bond is met. Discussion
ensued regarding the bonding requirements of the
legislation. Ms. Vogt summarized that bonding provisions
are not onerous.
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Co-Chair Hanley noted that the State gets paid if the
taxpayer defaults. He maintained that the provision is not
intended to be punitive.
HB 341 was HELD in Committee for further discussion.
ADJOURNMENT
The meeting adjourned at 3:35 p.m.
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