Legislature(2001 - 2002)
03/22/2002 09:20 AM House FIN
| Audio | Topic |
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE FINANCE COMMITTEE
March 22, 2002
9:20 AM
TAPE HFC 02 - 62, Side A
TAPE HFC 02 - 62, Side B
TAPE HFC 02 - 63, Side A
TAPE HFC 02 - 63, Side B
CALL TO ORDER
Co-Chair Williams called the House Finance Committee meeting
to order at 9:20 AM.
MEMBERS PRESENT
Representative Eldon Mulder, Co-Chair
Representative Bill Williams, Co-Chair
Representative Con Bunde, Vice-Chair
Representative Eric Croft
Representative John Davies
Representative Richard Foster
Representative John Harris
Representative Bill Hudson
Representative Ken Lancaster
Representative Carl Moses
Representative Jim Whitaker
MEMBERS ABSENT
None
ALSO PRESENT
Representative Gary Stevens; Representative Peggy Wilson;
Representative Ethan Berkowitz; David Teal, Director,
Legislative Finance Division; Kevin Ritchie, Alaska
Municipal League, Juneau; Peter Ecklund, Staff, Co-Chair
Williams; Denny Dewitt, Staff, Representative Eldon Mulder;
Lori Backes, Staff, Representative Whitaker; Larry Persily,
Deputy Commissioner, Department of Revenue;
PRESENT VIA TELECONFERENCE
There were no teleconference testifiers.
SUMMARY
HB 20 "An Act relating to state aid to municipalities
and certain other recipients, and for the village
public safety officer program; relating to
municipal dividends; relating to the public safety
foundation program; and providing for an effective
date."
CSHB 20 (FIN) was REPORTED out of Committee with a
"do pass" recommendation and with four new fiscal
impact notes: (3) CED and COR.
HB 229 "An Act imposing a tax on employment; and
providing for an effective date."
HB 303 "An Act relating to the levy and collection of a
sales tax; and providing for an effective date."
HB 304 "An Act relating to disposition of income of the
permanent fund; and providing for an effective
date."
CSHB 304 (FIN) was REPORTED out of Committee with
a "do pass" recommendation and with previously
published fiscal note: REV #1.
HOUSE BILL NO. 20
"An Act relating to state aid to municipalities and
certain other recipients, and for the village public
safety officer program; relating to municipal
dividends; relating to the public safety foundation
program; and providing for an effective date."
Representative Carl Moses MOVED to Rescind the Committee's
action in failing to adopt Amendment 6 (Lancaster and
Moses). Representative Moses WITHDREW his motion.
Representative Carl Moses MOVED to ADOPT Amendment 8: state
aid to unincorporated communities:
Sec. 29.60.140. State aid to unincorporated
communities. (a) Subject to (c) of this section, the
[THE] department shall pay to each unincorporated
community an entitlement each fiscal year to be used
for a public purpose. The department with advice from
the Department of Law shall determine whether there is
in each unincorporated community an incorporated
nonprofit entity or a Native village council that will
agree to receive and spend the entitlement. If the
community is located in a borough or a unified
municipality, the department may pay the entitlement
only to the entity that has been approved by the
assembly, and the department must have written evidence
of that approval. If there is more than one qualified
entity in an unincorporated community in the
unorganized borough, the department shall pay the money
under the entitlement to the entity that the department
finds most qualified to receive and spend the money.
The department may not pay money under an entitlement
to a Native village council unless the council waives
immunity from suit for claims arising out of activities
of the council related to the entitlement. A waiver of
immunity from suit under this subsection must be on a
form provided by the Department of Law. If there is no
qualified incorporated nonprofit entity or Native
village council in an unincorporated community that is
willing to receive money under an entitlement, the
entitlement for that unincorporated community may not
be paid. Neither this subsection nor any action taken
under it enlarges or diminishes the governmental
authority or jurisdiction of a Native village council.
If at least $41,472,000 is appropriated for all
entitlements under as 29.60.010 - 29.60.310 for a
fiscal year, the entitlement for each unincorporated
community under this subsection for that year equals
$40,000. Otherwise, the entitlement equals $25,000.
(b) In this section "unincorporated community"
means a place [IN THE UNORGANIZED BOROUGH] that is not
incorporated as a city and in which 25 or more persons
reside as a social unit.
* Sec. 4. AS 29.60.140 is amended by adding a new
subsection to read:
(c) The department may pay an entitlement under
(a) of this section for an unincorporated community in
a borough only to a qualified entity that provides at
least three of the following services within the
community:
(1) fire protection;
(2) emergency medical;
(3) water and sewer;
(4) solid waste management;
(5) public road or ice road maintenance;
(6) public health;
(7) search and rescue.
Co-Chair Williams OBJECTED for the purpose of discussion.
Representative Lancaster explained that the amendment would
allow the funds to go to the borough or organized area
outside of the small community that is organizing; otherwise
it is identical to Amendment 6.
KEVIN RITCHIE, ALASKA MUNICIPAL LEAGUE, JUNEAU provided
information on the amendment. He noted that the Alaska
Municipal League did not request the amendment but has
assisted in its drafting. He explained that only unorganized
communities in the unorganized borough receive capital-
matching grants. If a borough were formed to incorporated
surrounding small [unorganized] communities they would give
up their capital matching grants. The borough would receive
a small grant, but it would not be as much as they currently
receive as small communities. The amendment would remove a
disincentive for communities to organized. The same capital
matching money would be provided to small communities
whether or not they are in a borough. The amendment would be
an incentive to incorporation. Currently, if there were 10
small villages that wanted to form a borough they would have
to give up their capital-matching grants of $25 thousand
dollars each when they became part of a borough. The borough
would receive a grant but it would be much smaller than the
combined amount of the separate grants.
Representative Croft concluded that the amendment would
compliment Amendment 2 (adopted by the committee on 3/20/02)
and would encourage incorporation.
Vice-Chair Bunde agreed that the amendment would provide
encouragement for incorporation. He observed that he would
support the amendment with the expectation that it would
lead to the creation of local revenue stream that would
allow communities to remain incorporated. He suggested that
future legislatures would need to address the issue if it
does not lead local communities toward self-sustaining
revenues.
Mr. Ritchie explained that each unorganized community
receives between $3 - $4 thousand dollars in revenue
sharing. There would be between 20 - 30 communities affected
by the legislation. They would have to provide three or more
of the following services:
(1) fire protection;
(2) emergency medical;
(3) water and sewer;
(4) solid waste management;
(5) public road or ice road maintenance;
(6) public health;
(7) search and rescue.
If there were 20 or 30 communities the total cost of revenue
sharing would be approximately $100 thousand dollars. Mr.
Ritchie observed that each of these 20 - 30 communities
would receive $25 thousand dollars from the capital matching
grant program. The capital-matching grant combines the
municipal and unincorporated portions. The amendment would
add 20 -30 communities to the unincorporated portion, which
would prorate the amount down.
There being NO OBJECTION, Amendment 8 was adopted.
Representative Foster MOVED to report CSHB 20 (FIN) out of
Committee with the accompanying fiscal note. There being NO
OBJECTION, it was so ordered.
CSHB 20 (FIN) was REPORTED out of Committee with a "do pass"
recommendation and with four new fiscal impact notes: (3)
CED and COR.
HOUSE BILL NO. 304
"An Act relating to disposition of income of the
permanent fund; and providing for an effective date."
Co-Chair Williams observed that a proposed committee
substitute, work draft 22-LS1207\L, 3/21/02 changed the
split ratio to 40/40/20.
PETER ECKLUND, STAFF, CO-CHAIR WILLIAMS explained that the
proposed committee substitute uses the endowment principle
and percent of market value payment method for the Permanent
Fund. He explained that 7 percent of the value of the
Permanent Fund would be taken in FY03, 6 percent in FY04,
and 5 percent thereafter. An education fund of 40 percent
would be created in the General Fund. An infrastructure
account would be created and receive 20 percent of the
funds. Dividends would be paid from the remaining 40
percent. He emphasized that deferred maintenance needs of
the state of Alaska are over one billion dollars.
Representative Hudson acknowledged the work of the chairman.
He agreed with most aspects of the proposed committee
substitute, with one exception. The 5 percent of market
value principal originated with the Alaska Permanent Fund
Corporation. The five percent payout would automatically
inflation proof the fund. He observed that Governor Hammond
referred to a 30/30/30 payout: inflation proofing/
dividend/general government. If you take 5 percent after
inflation proofing and divide it on a 50/50 basis, the
result would be 35 percent to general government and 35
percent to the dividend. He explained that the five-year
average shows a reducing dividend. He spoke in support of a
50/50 dividend/state split, which would keep dividends at
approximately the same level. The FY04 dividend amount would
only be $35 dollars less than the current amount under
Representative Hudson's proposal. He asked the Committee to
consider changing the dividend amount to 50 percent on page
2, line 17. The infrastructure percentage on page 3, line 3
could be 10 to 15 percent and the education account could be
40 - 35 percent. He pointed out that the 50/50 provision has
been well addressed. A 40 percent division would reduce
dividends by $300 per person.
Representative Whitaker observed that the proposed committee
substitute no longer resembles the original legislation, but
indicated that he would support the proposed committee
substitute. He noted that the legislation has become a
reformulation of the Permanent Fund. He recognized the
challenges before the legislation, but stressed that action
must be taken.
Representative John Davies spoke in support of the
legislation. He pointed out that the provisions of the bill
have been well discussed. There was discussion by the Alaska
Permanent Fund Corporation and the fiscal policy group. He
felt that the changes recommended by Representative Hudson
would assist passage of the bill.
Representative Croft spoke in support of a 50/50 split. He
noted that Alaska is the only state that has a common
ownership of its resources. The public might not accept
anything less than 50/50. He maintained that a 50/50 split
would be fair.
Representative Lancaster stressed that the plan would
protect the dividend into the future and expressed support
for the 50/50 provision.
Vice-Chair Bunde summarized that "100 percent of nothing is
still nothing" and pointed out that the dividend is in
danger if no action is taken.
Co-Chair Mulder MOVED to ADOPT proposed committee
substitute, work draft, 22-LS1207\L, Cook 3/21/02.
RECESSED:
The Committee recessed at 10:05 a.m.
RECONVENED:
The Committee reconvened at 2:40 p.m.
Representative Hudson provided members with Amendment 1
(copy on file). He explained that the amendment would pay 45
percent to dividends, 35 percent to education and 20 percent
to the infrastructure or economic development account. The
FY03 dividend would not change. He observed that, under the
amendment, dividends would be $100 dollars less in FY04.
Dividends would still grow, at approximately $100 less than
under the status quo. In FY03, $965 million dollars would be
available for to the General Fund. Approximately $839
million dollars would be available in FY04. By FY10 there
would be approximately $948 million dollars to offset the
deficit. Inflation proofing would continue at 7 percent in
FY03,6 percent in FY04, and 5 percent in FY05 and out.
Representative Hudson MOVED to ADOPT Amendment 1: 45 percent
to dividends, 35 percent to an education fund and 20 percent
to the infrastructure/economic development account.
Representative John Davies questioned why 5 percent was
taken out of education instead of infrastructure.
Representative Hudson responded that the amendment would be
a statutory allocation and pointed out that the legislature
could chose to change the ratio. He stated that he was
responding to the need for deferred maintenance. He observed
that there is a one billion dollar need and reiterated that
it could be changed in the future. He explained that by FY10
the education fund would be more than $600 million dollars.
The intent is to find a middle ground while protecting the
Permanent Fund and dividends.
Representative Croft observed that the spreadsheet's
projected rate of return is 8.25 percent. He thought that
the Alaska Permanent Fund Corporation's projected rate of
return was 7.95 percent. He expressed support for a 50
percent payout to dividends. He stated that he would not
object to the amendment because it moved the legislation
closer to the 50 percent target.
There being NO OBJECTION, Amendment 1 was adopted.
Representative Croft MOVED to ADOPT Amendment 2: 35 percent
to education, 50 percent to dividends, and 15 percent to
infrastructure. Co-Chair Williams OBJECTED.
TAPE HFC 02 - 62, Side B
Representative Whitaker referred to the Constitution of the
state of Alaska, Article 9, section 16. He maintained that
the amendment has been ignored since it was put in place.
The constitutional amendment would dedicate one-third of the
expenditures of the state of Alaska to be spent on capital
projects. He noted that the issues are whether an additional
$100 dollars would go to dividends or be used to build the
state.
Representative John Davies interpreted Article 9, section 16
to mean not more than one-third of the state's budget would
go to infrastructure. He observed that the 1999 ballot
initiative indicated that the public wants to protect
dividends. He emphasized that it is easy for the public to
understand a 50/50 split.
Representative Whitaker spoke against the amendment.
A roll call vote was taken on the motion.
IN FAVOR: Croft, Davies, Foster, Moses
OPPOSED: Bunde, Harris, Hudson, Lancaster, Whitaker,
Williams, Mulder
The MOTION FAILED (4-7).
Representative Foster MOVED to report CSHB 304 (FIN) out of
Committee with the accompanying fiscal note. Representative
John Davies OBJECTED for the purpose of discussion. He noted
that he still supports a 50/50 split.
Representative Foster WITHDREW his motion to move CSHB 304
(FIN)
Co-Chair Mulder MOVED to ADOPT Amendment 3: "The legislation
may appropriate to the dividend fund the additional amount
needed so that the total amount of the 2002 dividend is
$1,540. He explained that the intention is to keep the FY02
dividend at it's current level. There being NO OBJECTION, it
was so ordered.
Co-Chair Mulder MOVED to report CSHB 304 (FIN) out of
Committee with the accompanying fiscal note. Representative
John Davies and Representative Croft OBJECTED.
Representative Croft stressed that there are structural
problems with the manner that the dividend and earnings are
calculated. He maintained that dividend creep has to stop.
He did not think that the proposal would be successful
without substantial sideboards, new revenues and a more
clear and fair distribution.
Representative Hudson spoke in support of the amended
legislation. He maintained that the Permanent Fund was
intended to meet the demand for state support when oil
revenues declined. He stressed that the plan was balanced.
Representative Whitaker spoke in support of the legislation,
but emphasized that it cannot stand-alone. He pointed out
that [the 1999 ballot initiative to use a portion of the
Permanent Fund] was not supported.
Representative John Davies pointed out that the amount
available for the education fund would be diminished in FY
05, but would start to grow again. He stressed that there
would need to be an $80 million dollar increase in general
funds to maintain full funding for education when the fund
dips.
Co-Chair Williams stressed that the legislation is a tool
and that the intent is to fully fund education.
Vice-Chair Bunde maintained that education has never been
reduced, although he acknowledged that it had not been
increased.
A roll call vote was taken on the motion to move the bill
from Committee.
IN FAVOR: Bunde, Foster, Harris, Hudson, Lancaster,
Whitaker, Williams, Mulder
OPPOSED: Croft, Davies, Moses
The MOTION PASSED (8-3).
CSHB 304 (FIN) was REPORTED out of Committee with a "do
pass" recommendation and with previously published fiscal
note: REV #1.
HOUSE BILL NO. 229
"An Act imposing a tax on employment; and providing for
an effective date."
Co-Chair Mulder stated that it would be appropriate for
Representative Croft to add his name to the legislation and
allow Representative Stevens to withdraw his name.
Representative Croft agreed.
Representative Croft provided members with proposed
committee substitute, work draft 22-LS0842\L, 2/22/02 (copy
on file). He explained that the committee substitute would
provide the income tax recommended by the fiscal policy
caucus, an alcohol tax at 10-cents a drink, a cruise ship
head tax and a motor fuel tax.
Representative Croft MOVED to AMENDED the proposed committee
substitute by removing the cruise head tax portion of the
bill. There being NO OBJECTION, it was so ordered.
Co-Chair Mulder indicated that the original sponsor would
like to remove their name from the legislation as amended.
Representative Croft stated that he would takeover the
sponsorship of the legislation in whatever manner was deemed
appropriate.
Representative Croft spoke in support of the legislation. He
explained that the legislation as amended would provide a 4
percent of taxable income tax. The proposal is a compromise
between a flat tax and a more progressive tax based on a
portion of tax liability. A taxable income tax would allow
deductions. The motor fuel tax portion of the bill would
allow a mechanism to fund deferred maintenance.
Representative Hudson requested that a spreadsheet be
created to show the approximate amounts to be earned by the
different elements. Representative Whitaker pointed out that
a new fiscal note would be appropriate.
Co-Chair Mulder explained that the intent would be to take
action on the legislation on Monday after review.
Representative Harris MOVED to AMEND on page 12, line 11:
increase existing taxes on alcohol by 50 percent.
Representative Croft OBJECTED. He observed that under the
committee substitute the alcohol tax increase would be
approximately .10 cents a drink. A fifty percent increase
would only increase the tax by about a cent and a half per
drink. He noted that the tax has not been increased for a
long time and would not come close to addressing the needs
of the state.
Co-Chair Mulder clarified that there would be 50 percent
increase over the current taxation in all three categories.
Representative John Davies reiterated that the increase
would be less than .02 cents a drink.
Representative Croft stressed that most items have increased
beyond 50 percent since 1960. The increase beginning in 2002
would not come near to the pre inflation cost.
Representative Harris WITHDREW his motion to amend the
alcohol tax to 50 percent.
HB 229 was heard and HELD in Committee for further
consideration.
HOUSE BILL NO. 303
"An Act relating to the levy and collection of a sales
tax; and providing for an effective date."
Co-Chair Mulder MOVED to ADOPT proposed committee substitute
work draft, 22LS1206\T, Kurtz, 3/22/02 (copy on file). There
being NO OBJECTION, it was so ordered.
DENNY DEWITT, STAFF, REPRESENTATIVE ELDON MULDER reviewed
the committee substitute. He noted that the legislation
would bring a sales tax before the Committee. He reviewed
the primary issues discussed by the subcommittee. The first
issue was preemption. The legislation would preempt local
government from charging a different sales tax from the
state. Local governments could add a local tax using the
guidelines of the bill, which would be collected by the
state at no charge to the municipality. There would one type
of sales tax, one set of exemptions, and local governments
could decide if they wanted to add a percentage to the state
tax. Businesses that collect the tax and remit it to the
state appropriately, within the appropriate timeframe, would
keep one percent of the amount collected as a fee for the
collection process.
Representative Davies summarized that the legislation would
require any local entity to use the exemption structure
contained in the bill.
Mr. DeWitt noted that local options for special taxes in
Title 29 would not be affected: including bed taxes.
Mr. DeWitt reviewed the legislation by section. Section 1
assists boroughs with their taxes. Establishes the initial
sales tax and eliminates the collection portion, which would
shift to the state. Sections 2 and 3 confirm privacy at the
state level. Section 4 is the assessment and collection of
taxation. Section 5 allows a borough to levy a general sales
tax on goods and services consistent with the state. Section
6 allows cities the same opportunity. Section 7 begins the
collection of the sales tax and authorizes the state to
collect on behalf of the municipality. Section 8 begins the
sales and use tax. This provision is needed in order to
access the use tax through Internet sales. The use tax
follows the sales tax and is consistent. There are several
areas that would need technical amendments to be recommended
by the Department of Revenue.
Mr. DeWitt reviewed technical amendments. On page 3, line 3:
delete "in the state." He noted the state already has the
ability to levy the tax. Subsections (b) and (c) are
rewritten to replace "tangible personal property" with
"goods or use of real property". He explained that language
would provide consistency.
Mr. DeWitt noted that subsection (2) on page 3, line 26 - 27
would be amended: "real property" and "and transportation"
would be removed. "Property" on line 27 would be changed to
"goods".
LORI BACKES, STAFF, REPRESENTATIVE WHITAKER, explained that
the intent is to allow an exemption for services that are
performed in the act of creating a component of a product
for resale.
TAPE HFC 02 - 63, Side A
Representative Lancaster clarified that plumbing installed
in a house being built would not be taxed because the house
would be taxed when sold. Representative Hudson questioned
if house components would be subject to the sales tax. Co-
Chair Mulder explained that only the finished product would
be taxed. Mr. DeWitt noted that there is a specific section
regarding construction.
Mr. DeWitt reviewed exemptions under section 43.44.020 and
observed that they attempted to include all educational
institutions were included.
(1) goods sold, real property sold, rents, or services
performed that are
(A) explicitly exempted from taxation under
another provision of state law; or
(B) exempt from taxation under federal law,
including sales to the federal government, and
purchases made with
(i) food coupons, food stamps, or other
types of certificates issued under 7 U.S.C.
2011 - 2036 (Food Stamp Act); and
(ii) food instruments, food vouchers, or
other types of certificates issued under 42
U.S.C. 1786 (special supplemental nutrition
program for women, infants, and children);
(2) sales of goods, real property, or services for
resale, including the sale and transportation of
property that are used in connection with or will
become an ingredient or component part of goods
manufactured, processed, or fabricated for resale;
(3) electricity, natural gas, water and sewer utility
services, and fuel for heating or electrical
generation;
(4) funeral, cemetery, and crematory goods and
services;
(5) health care services provided by a person licensed
or certified to provide those services under AS 08, by
a public home care provider as that term is defined in
AS 47.05.017(c), by a health care facility operating
under a certificate of need issued under AS 18.07, by a
hospital licensed under AS 18.20, or by an assisted
living home licensed under AS 47.33;
(6) prescription drugs, devices, and supplies
prescribed by a person licensed to prescribe those
goods under AS 08;
(7) interest earned or paid by banks. savings and loan
associations, credit unions, and investment banks, and
the following sales and services provided by banks,
brokerage firms, savings and loan associations, credit
unions, and investment banks:
(A) services associated with any deposit
accounts, including service fees, insufficient
funds fees, and attachment fees;
(B) fees for the purchase of bank checks, money
orders, traveler's checks, and similar products
for payment;
(C) loan fees and points associated with loan
transactions;
(D) pass-through charges on loan transactions
that include sales tax;
(E) services associated with the sale, exchange,
or transfer of currency, stocks, bonds, and other
securities;
(8) sales by federal, state, or local government
entities;
(9) wages, salaries, commissions, and any other form of
remuneration paid to employees for personal services;
(10) educational services provided by a non-exempt or
exempt religious or other private school reporting to
the commissioner of education and early development
under AS 14.45.030 or 14.45.110(b) or by a
postsecondary educational institution authorized to
operate under AS 14.48;
(11) refined petroleum products taxed under AS 43.40;
(12) real estate rentals of 30 consecutive days or
more;
(13) construction services;
(14) admission to museums and historic sites;
(15) sales made to an entity described in 26 U.S.C.
501(c)(3) (Internal Revenue Code) and exempt from
federal income tax under 26 U.S.C. 501(a);
(16) sales made by an entity described in 26 U.S.C.
501(c)(3) (Internal Revenue Code) and exempt from
federal income tax under 26 U.S.C. 501(a) if the income
from the sale is exempt from federal income taxation;
(17) casual and isolated sales or rentals by a seller
who does not regularly engage in the business of
selling goods or services, or making rentals, but only
if (A) the total sales do not exceed $1,000 a year and
the sales of goods do not occur for more than 14 days
in a calendar year; or (B) the sales of goods are made
by a licensed business to sell business equipment used
in the business and not held as inventory;
(18) sales of insurance and bonds of guaranty and
fidelity, and commissions on those sales.
Mr. Dewitt recommended that brokerage firms be added to the
subsection 7 exemptions. He also recommended that
subsections (A) - (E) include a subsection (F): interest
earned and paid. It was the intent of the subcommittee that
subsection (8) refer to sales and purchases. In subsection
(10) definitions were used to recognize all schools that
could generally be brought under the rubric, in terms of K-
12. Postsecondary schools operate under AS 14.48. Refined
petroleum products that are currently taxed would not be
subject to the sales tax, such as aviation and marine fuel
taxes. Short-term hotel rentals would be exempted. They
would be available to be taxed on a bed tax basis with local
governments.
Representative John Davies questioned how the provision
would affect contracts with tour groups, which block off
hotel rooms for a season. Mr. Dewitt thought that they would
be under the less than 30-day provision, since they are
eventually rented to individuals. Co-Chair Mulder
acknowledged that it is the intent of the subcommittee to
include blocks of rooms under the 30-day provision.
Mr. Dewitt observed that subsection (15) applies to sales
made to a non-profit entity. Subsection (16) applies to
sales made by the non-profit entity, which would apply to
the sale of Girl Scout cookies and other fund raising
activities. The purchase and sale of Girl Scout cookies and
other fund raising items by churches and other non-profits
would be exempted.
Mr. Dewitt noted that garage sales would be exempted under
subsection (17), unless the gross would exceed $1,000
dollars a year. Representative Hudson questioned if arts and
craft shows at malls would be included in the exemption. Co-
Chair Mulder responded that if they are a weekly event it
would not be a causal sale and they would be subject to the
sales tax. The provision is for causal sales: the occasional
sale. Non-profits would be excluded.
Representative Lancaster questioned if a certificate would
be needed to collect the tax. Ms. Backes stated that a
certificate would not be required to collect the tax, but a
certificate would be required for exempt groups.
Mr. Dewitt noted that Sec. 43.44.030 (a) limits the sales
and use taxes levied under AS 43.44.010 to the first $2,000
dollars of each separate sale, rent, or service transaction,
or a maximum tax of $60 dollars.
Mr. Dewitt continued his review of the legislation.
Subsection (b) discusses taxation of long-term personal
property leases. Subsection (c) deals with transactions
involving payment of services rendered or delivered over
time, such as an accountant billed on a monthly basis.
Subsection (d) addresses services on account or billed on a
monthly purchase. The most recently billed or monthly
process would be used. Subsection (e) provides that each
night's rental would be a separate transaction. Subsection
(f) addresses long-term property leases, such as automobile
leases.
Mr. Dewitt explained that the seller would collect the tax
and remit it to the department. The seller would be allowed
to keep one percent of the collections as long as they remit
in a timely fashion with completed forms. Exemptions are
given for coin operated devises, food and beverage at
concession stands, bars, movable vendor carts, metered
sales. He observed that the intent is to add taxis that use
a metering devise to the list. Taxis that charge by zone
could include the tax.
Vice-Chair Bunde questioned why the total price could not
include the tax. Mr. Dewitt agreed that the ticket price
would include the tax.
In response to a question by Vice-Chair Bunde, Ms. Backes
explained that people want to see how much the tax is and if
it is included in the sales price it wouldn't show up as a
separate item on the invoice or receipts.
LARRY PERSILY, DEPUTY COMMISSIONER, DEPARTMENT OF REVENUE
explained that the department thinks that consumers should
know how the price breaks down. Most states require that the
sales tax be shown, so that businesses cannot use it as an
unfair advantage.
Mr. Dewitt reviewed the use tax provision. The use tax for
items brought into the state would be the same as if the
item was purchased in the state.
Proceeds would be deposited into the General Fund and a
certificate of exemption would be issued to those that are
exempt from the sales tax. Nexus language allows the state
to tax companies using Internet or mail order sales that
have a presence in the state.
Mr. Dewitt noted that "or use" needed to be added to page 7,
line 12. He added that language in subsection (b) would be
amended in order to tighten it up. The effective date is
January 1, 2003.
Representative Lancaster questioned how Sec. 43.44.070 would
be implemented. Mr. Persily explained that a contractor
would have to show a resale certificate to the building
supply store when buying lumber. Representative Lancaster
questioned how persons would know that the seller has the
authority to collect the tax. Representative Whitaker
clarified that the business license would give them the
authority to collect the tax.
Representative Hudson asked if the state of Alaska has an
agreement with Seattle regarding collection of tax from
Alaskan residents. Mr. Persily explained that Seattle put
the exemption in their tax code to promote business. There
is no nexus. Someone from Seattle would have to pay the tax
if it were implemented in Alaska.
Representative Hudson observed that there are a variety of
municipal sales tax exemptions such as for senior citizens.
He questioned if local exemptions would be permitted on the
city sales tax assessments. Mr. Dewitt responded that they
would not. The senior citizen property tax would not be
covered in the statute. The city of Juneau could issue
checks to seniors that would cover the cost of their
property tax. Other communities such as Wrangle utilize this
provision. Representative Hudson observed that there is
concern with the uniformity of state law.
Representative Whitaker spoke in support of state primacy
manifested through preemption. It would allow continuity of
business throughout the state of Alaska and nation. Ms.
Backes added that the legislation requires the state to
collect the sales tax for the municipalities, so there may
be savings to the municipalities on the collection. Co-Chair
Mulder clarified that business would retain 1% of the tax
collected.
Representative Hudson discussed the local taxation process
and questioned if the municipal tax amount would be limited.
Mr. Persily clarified that the state would collect the
amount indicated by the municipality. There is no
restriction on seasonal amounts. He assumed that municipal
payments would be made monthly.
Co-Chair Mulder observed that it does not make sense for
small vendors to send their checks in every month. Mr.
Persily observed that taxpayers that make a certain amount
could be required to pay quarterly and those making more
than the threshold could pay monthly. He recommended that
the legislature set a threshold at $500 - $1,000 dollars. He
cautioned that businesses in trouble might be tempted to
utilize the tax sales. Penalties are already included in the
tax code.
Representative Lancaster questioned how exemptions or
special collections would be negotiated within the
municipality or borough. Mr. Persily replied that it is the
intent that municipalities with bed, fuel, alcohol, fish or
other taxes, would collect, enforce and deal with those
taxes on their own. The legislation applies only to general
retail sales and use tax.
In response to a question by Representative Lancaster,
Representative Whitaker discussed the amount of tax that
would be collected. He explained that there are different
models. The Department of Revenue uses a 1997 model, which
is not as sophisticated as desired. The Department of
Revenue model estimates between $250 and $400 million
dollars. The Legislative Finance Division's model estimates
$198 million (consumer) dollars. He concluded that the tax
would derive between $250 and $400 million dollars. Mr.
Persily amended the Department of Revenue's estimate to $240
- $300 million dollars.
Representative Lancaster asked about the set-up costs. Mr.
Persily estimated operating costs, after the initial set up,
at $4.9 million dollars. He stated that a fiscal note would
be provided.
Representative John Davies asked the capital costs. Mr.
Persily explained that the capital cost would be $1.75 - $2
million dollars. Much of the cost would be for computer
programming. The goal would be to set something up for
electronic filing.
Representative Hudson asked for product values of 1-2-3% tax
ranges. Co-Chair Mulder thought that a 1% tax would generate
between $70 and $125 million dollars. Each additional
percent would generate about $100 million dollars.
Representative Lancaster asked about bed and rent tax. Mr.
Persily replied that no community would be able to collect
sales tax on rent.
Representative Lancaster questioned if a special tax could
be applied on a local level. Ms. Backes agreed that the
intent of the legislation is to allow local taxation.
Representative Hudson observed that rent is anything over 30
days.
Representative Lancaster asked if the point of service
delivery was addressed. Ms. Backes clarified that tour
operators would not be tax-exempt.
Representative Carl Moses voiced concern with not including
the sales tax in the price structure. Co-Chair Mulder
observed that the "unfair competition clause" could apply if
some businesses included the sales tax and others did not.
Representative Carl Moses responded that if the tax were
included, the person would be at a disadvantage.
Representative Lancaster stressed that disclosure would be
the issue.
Discussion ensued regarding inclusion of the tax [in the
price structure]. Representative Whitaker reiterated that
the limitation would be up to $2,000 dollars. He emphasized
that the legislation needs to be consistent. Co-Chair Mulder
agreed. Mr. Persily added that a problem would occur if the
separation of tax were not disclosed. The sales tax needs to
be disclosed, which may not be practical. Representative
Lancaster recommended issuing a certification with the rules
and regulations. Vice-Chair Bunde asked the enforcement
mechanism. Mr. Persily commented that the department would
be using business licenses. He emphasized the need for
sufficient budget support for audit work. Representative
Lancaster noted that the fiscal note could be increased if
the Committee wants more enforcement. Representative Carl
Moses observed that if the tax and sales price is included,
it could be backed into the worksheet.
Representative John Davies asked if there were any reason
that a price, which included the sales tax could not be
reported separately in the receipt. Mr. Persily pointed out
that the tax would have to be backed out for tax-exempt
purchases.
TAPE HFC 02 - 63, Side B
Representative Carl Moses maintained that merchants need to
have records of tax-exempt products sold. Vice-Chair Bunde
spoke in support of allowing inclusion of the tax within a
sales price.
Representative John Davies requested a spreadsheet to
indicate the expected revenue by the Division of Legislative
Finance. Co-Chair Mulder responded that there would be a
fiscal note.
HB 303 was heard and HELD in Committee for further
consideration.
ADJOURNMENT
The meeting was adjourned at 4:58 PM
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