Legislature(1995 - 1996)

03/14/1996 01:40 PM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
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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.                            
                                                                               
                                                                               
                                1                                              
                                                                               
                                                                               
  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                 
                                                                               
                                2                                              
                                                                               
                                                                               
  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                 
                                                                               
                                3                                              
                                                                               
                                                                               
  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.                       
                                                                               
                                                                               
                                4                                              
                                                                               
                                                                               
  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.                                                     
                                                                               
                                5                                              
                                                                               
                                                                               
  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                 
                                6                                              
                                                                               
                                                                               
  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                 
                                                                               
                                7                                              
                                                                               
                                                                               
  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                 
                                                                               
                                8                                              
                                                                               
                                                                               
  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                 
                                                                               
                                9                                              
                                                                               
                                                                               
  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'                 
                                                                               
                               10                                              
                                                                               
                                                                               
  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.                                                                   
                                                                               
                               11                                              
                                                                               
                                                                               
  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.                                                             
                                                                               
                               12                                              
                                                                               
                                                                               
  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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