Legislature(2015 - 2016)HOUSE FINANCE 519

04/05/2016 05:00 PM FINANCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Please Note Time --
+ HB 319 SNOWMOBILE REGISTRATION FEES TELECONFERENCED
Moved CSHB 319(FIN) Out of Committee
*+ HB 250 INDIV. INCOME TAX: CREDITS; RETURNS TELECONFERENCED
Heard & Held
+ HB 249 ELECTRONIC TAX RETURNS & MOTOR FUEL TAX TELECONFERENCED
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
                  HOUSE FINANCE COMMITTEE                                                                                       
                       April 5, 2016                                                                                            
                         5:02 p.m.                                                                                              
                                                                                                                                
5:02:46 PM                                                                                                                    
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Co-Chair  Thompson   called  the  House   Finance  Committee                                                                    
meeting to order at 5:02 p.m.                                                                                                   
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Mark Neuman, Co-Chair                                                                                            
Representative Steve Thompson, Co-Chair                                                                                         
Representative Dan Saddler, Vice-Chair                                                                                          
Representative Bryce Edgmon                                                                                                     
Representative Les Gara                                                                                                         
Representative Lynn Gattis                                                                                                      
Representative David Guttenberg                                                                                                 
Representative Scott Kawasaki                                                                                                   
Representative Cathy Munoz                                                                                                      
Representative Lance Pruitt                                                                                                     
Representative Tammie Wilson                                                                                                    
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
None                                                                                                                            
                                                                                                                                
ALSO PRESENT                                                                                                                  
                                                                                                                                
Jane   Pierson,   Staff,  Representative   Steve   Thompson;                                                                    
Representative  Cathy Tilton,  Sponsor,  House District  12;                                                                    
Ben  Ellis, Director,  Alaska Division  of  State Parks  and                                                                    
Outdoor Recreation, Department  of Natural Resources; Steven                                                                    
Samuelson,     Self,    Petersberg;     Randall    Hoffbeck,                                                                    
Commissioner,  Department  of  Revenue; Brandon  S.  Spanos,                                                                    
Deputy Director, Tax Division,  Department of Revenue; Jerry                                                                    
Burnett, Deputy Commissioner,  Treasury Division, Department                                                                    
of  Revenue;   Mark  Luiken,  Commissioner,   Department  of                                                                    
Transportation and Public Facilities.                                                                                           
                                                                                                                                
PRESENT VIA TELECONFERENCE                                                                                                    
                                                                                                                                
Al  Barrette,  Self,  Fairbanks; Rod  Arno,  Alaska  Outdoor                                                                    
Council, Palmer.                                                                                                                
                                                                                                                                
SUMMARY                                                                                                                       
                                                                                                                                
HB 249    ELECTRONIC TAX RETURNS & MOTOR FUEL TAX                                                                               
                                                                                                                                
          HB 249 was HEARD and HELD in committee for                                                                            
          further consideration.                                                                                                
                                                                                                                                
HB 250    INDIV. INCOME TAX: CREDITS; RETURNS                                                                                   
                                                                                                                                
          HB 250 was HEARD and HELD in committee for                                                                            
          further consideration.                                                                                                
                                                                                                                                
HB 319    SNOWMOBILE REGISTRATION FEES                                                                                          
                                                                                                                                
          CSHB 319 (FIN) was  REPORTED out of committee with                                                                    
          a  "do  pass"  recommendation  and  with  one  new                                                                    
          fiscal   impact  note   from  the   Department  of                                                                    
          Administration.                                                                                                       
                                                                                                                                
Co-Chair Thompson reviewed the schedule for the meeting.                                                                        
                                                                                                                                
5:03:36 PM                                                                                                                    
                                                                                                                                
HOUSE BILL NO. 319                                                                                                            
                                                                                                                                
     "An Act relating to registration fees for snowmobiles                                                                      
     and off-highway vehicles."                                                                                                 
                                                                                                                                
5:03:36 PM                                                                                                                    
                                                                                                                                
Co-Chair   Neuman   MOVED   to  ADOPT   proposed   committee                                                                    
substitute    for   HB    319,   Work    Draft   29-LS1444\H                                                                    
(Wallace/Martin, 4/1/16).  There being NO OBJECTION,  it was                                                                    
so ordered.                                                                                                                     
                                                                                                                                
JANE PIERSON, STAFF, REPRESENTATIVE STEVE THOMPSON,                                                                             
explained that the only difference in the new version was a                                                                     
repealer added for July 1, 2019.                                                                                                
                                                                                                                                
5:04:54 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE CATHY TILTON, SPONSOR, HOUSE DISTRICT 12,                                                                        
explained HB 319:                                                                                                               
                                                                                                                                
     Passage  of  House  Bill 319  would  increase  two-year                                                                    
     snowmobile registration fees from  $10 to $20 and allow                                                                    
     a six-year registration fee of $50.                                                                                        
     The measure  has support from  snow machine users  as a                                                                    
     way to  help the  state during cash-strapped  times and                                                                    
     back funding to develop  and maintain snowmobile trails                                                                    
     and provide safety and educational programs.                                                                               
     Current  snowmobile registration  fees  generate up  to                                                                    
     $250,000 a  year for  the Snowmobile  Trail Development                                                                    
     Program which  is managed by the  Department of Natural                                                                    
     Resources'  Division of  Parks  and Outdoor  Recreation                                                                    
     and the nine-member  Snowmobile Trails Advisory Council                                                                    
     (SnowTRAC).                                                                                                                
     SnowTRAC approved  a resolution last August  in support                                                                    
     of   the  provisions   of  HB   319,  saying   Alaska's                                                                    
     snowmobile  trails  program is  revenue-neutral,  self-                                                                    
     funded,  and  user-based.  The council  also  said  the                                                                    
     demands for trail  maintenance, development, and safety                                                                    
     continue  to grow  and that  support for  winter trails                                                                    
     brings    increased     business    and    recreational                                                                    
     opportunities to communities across the state.                                                                             
     HB 319 helps promote  snowmobile user safety and enjoys                                                                    
     support from  those who are  willing to pay more  for a                                                                    
     service they need and enjoy.                                                                                               
                                                                                                                                
5:08:52 PM                                                                                                                    
                                                                                                                                
Co-Chair Neuman wanted to clarify that no state money would                                                                     
be funding the bill.                                                                                                            
                                                                                                                                
Representative Tilton responded correct.                                                                                        
                                                                                                                                
Co-Chair Neuman asked when the rates were last adjusted.                                                                        
                                                                                                                                
Representative Tilton responded that the rates were                                                                             
adjusted in 2008, at the program's inception.                                                                                   
                                                                                                                                
Co-Chair Neuman asked whether the groups were supportive of                                                                     
the bill, because of the high cost of fuel.                                                                                     
                                                                                                                                
Representative Tilton replied in the affirmative.                                                                               
                                                                                                                                
Representative Gattis wondered whether the stickers were                                                                        
the same as the state park stickers.                                                                                            
                                                                                                                                
Representative Tilton  replied that  the stickers  for state                                                                    
parks  were  a  separate  program. She  explained  that  the                                                                    
registration  fees on  a snow  mobile  was at  the point  of                                                                    
purchase.                                                                                                                       
                                                                                                                                
Representative  Gattis  wondered   whether  an  unregistered                                                                    
snowmobile would be against the law.                                                                                            
                                                                                                                                
Co-Chair   Thompson  explained   that  it   was  just   like                                                                    
registering the car.                                                                                                            
                                                                                                                                
Representative  Gattis felt  confused  about the  difference                                                                    
between the separate registration stickers.                                                                                     
                                                                                                                                
Co-Chair  Neuman  stressed  that  a  snow  machine  must  be                                                                    
registered in  order to use  it on state land.  He explained                                                                    
that the  Department of Motor  Vehicles (DMV) would  use the                                                                    
money for that sticker for trail grooming.                                                                                      
                                                                                                                                
Representative Gattis surmised that a  one must have a state                                                                    
park sticker and a registration sticker.                                                                                        
                                                                                                                                
Co-Chair Neuman  shared that  a state  park sticker  was not                                                                    
required, but  a snow machine  must be registered to  use on                                                                    
state land.                                                                                                                     
                                                                                                                                
Representative  Gattis placed  on record  that she  had been                                                                    
registered the entire time.                                                                                                     
                                                                                                                                
5:13:27 PM                                                                                                                    
                                                                                                                                
Representative Guttenberg  wondered if  there was a  list of                                                                    
grantees.                                                                                                                       
                                                                                                                                
Representative   Tilton  replied   that   the  monies   were                                                                    
delivered   through  the   capital   projects  through   the                                                                    
Snowmobile  Trail Development  Program.  She explained  that                                                                    
SnowTRAC administered the funds.  She announced that, in the                                                                    
last year's cycle, the funds  were administered to seventeen                                                                    
different  organizations  such  as   Big  Lake,  the  Denali                                                                    
Highways  Trails Club,  Hatcher's  Pass,  Juneau, the  Chena                                                                    
River  State  Recreational  Area, Petersville,  Willow  Area                                                                    
Trails, and the Yukon Quest Trail.                                                                                              
                                                                                                                                
Representative  Guttenberg  wondered   if  the  grants  were                                                                    
allocated proportionately by community or in another way.                                                                       
                                                                                                                                
Representative Tilton deferred to Ben Ellis.                                                                                    
                                                                                                                                
                                                                                                                                
5:16:09 PM                                                                                                                    
                                                                                                                                
BEN  ELLIS, DIRECTOR,  ALASKA DIVISION  OF  STATE PARKS  AND                                                                    
OUTDOOR RECREATION, DEPARTMENT  OF NATURAL RESOURCES, stated                                                                    
that the percentage of distribution  depended on the type of                                                                    
request. He shared that SnowTRAC  was an advisory board, and                                                                    
ranked  the  grant  requests.  He  stated  that  there  were                                                                    
approximately   50   percent   more  requests   than   funds                                                                    
available.  He stated  that the  recipients would  receive a                                                                    
portion of the request,  and either reduce grooming activity                                                                    
or seek  alternative funding. He stressed  that the requests                                                                    
were granted  at the beginning  of the season, so  there was                                                                    
no  way  of  knowing  the exact  grooming  requirements.  He                                                                    
stated that  leftover money  was rolled  over year  to year,                                                                    
and became  part of the entire  pool that could be  used for                                                                    
safety and education the following year.                                                                                        
                                                                                                                                
Representative  Wilson   wondered  whether  there   was  any                                                                    
attempt to  allocate funds  based on  areas in  which people                                                                    
were registered.                                                                                                                
                                                                                                                                
Mr. Ellis replied in the negative.                                                                                              
                                                                                                                                
Representative  Wilson wondered  whether  a scoring  process                                                                    
was used.                                                                                                                       
                                                                                                                                
Mr.  Ellis  responded  that  there  was  a  scoring  process                                                                    
established by the  SnowTRAC Board. He stressed  that it was                                                                    
an  advisory board,  so there  were  times when  he may  not                                                                    
adhere to the recommendations.                                                                                                  
                                                                                                                                
Representative Gattis  relayed that  there were  many people                                                                    
that purchased registrations in  Anchorage who would use the                                                                    
machines in the Mat-Su                                                                                                          
                                                                                                                                
5:22:51 PM                                                                                                                    
                                                                                                                                
AL BARRETTE, SELF,  FAIRBANKS (via teleconference), strongly                                                                    
opposed  HB  319.  He  talked about  people  who  never  re-                                                                    
registered their machines  in the Interior. He  did not feel                                                                    
that  he  should  have  to  support  a  dog  race  with  his                                                                    
registration  fee.  He referred  to  Page  1, Line  4  which                                                                    
defined an "Off-road vehicle." He thanked the committee.                                                                        
                                                                                                                                
5:25:38 PM                                                                                                                    
                                                                                                                                
ROD    ARNO,   ALASKA    OUTDOOR   COUNCIL,    PALMER   (via                                                                    
teleconference),  supported  the   legislation.  Users  were                                                                    
willing  to pay  their own  way.  He thought  that with  the                                                                    
additional in the committee substitute  would give the users                                                                    
the opportunity to  observe the use of the funds  to see the                                                                    
benefits of the program. He  thanked the sponsor for putting                                                                    
the bill forward and urged support for the bill.                                                                                
                                                                                                                                
5:27:37 PM                                                                                                                    
                                                                                                                                
STEVEN  SAMUELSON, SELF,  PETERSBERG,  did  not support  the                                                                    
bill. He had paid registration  for his snow machine. He had                                                                    
never seen grooming  done on the trails he had  used. He did                                                                    
not  support  paying  fees  that would  cover  the  cost  of                                                                    
grooming elsewhere.                                                                                                             
                                                                                                                                
Co-Chair Thompson CLOSED public testimony.                                                                                      
                                                                                                                                
Co-Chair Thompson discussed the fiscal note.                                                                                    
                                                                                                                                
Co-Chair  Neuman  was  a  high use  snow  machine  user.  He                                                                    
remarked that  much of  the money would  be used  for safety                                                                    
instruction classes.                                                                                                            
                                                                                                                                
5:33:00 PM                                                                                                                    
                                                                                                                                
Vice-Chair Saddler  relayed that  in his  experience thought                                                                    
it was  appropriate that a  self-funded program  benefit the                                                                    
recreation zones.                                                                                                               
                                                                                                                                
Representative Edgmon was going to  support the bill but did                                                                    
not  think much  of  the  funding would  reach  the area  he                                                                    
represents.                                                                                                                     
                                                                                                                                
Co-Chair Thompson addressed the sunset date.                                                                                    
                                                                                                                                
Representative Wilson mentioned that  in Section 6 there was                                                                    
a  repealer but  another  part took  effect.  She could  not                                                                    
support the bill.                                                                                                               
                                                                                                                                
5:35:44 PM                                                                                                                    
                                                                                                                                
Ms. Pierson explained that the way  it was written if it did                                                                    
not be re-implemented. The repealer  returns to the previous                                                                    
registration fee.                                                                                                               
                                                                                                                                
Representative Wilson stressed that  the tags were required,                                                                    
but would require no action by the legislature in 2019.                                                                         
                                                                                                                                
Ms.  Pierson   responded  that  Representative   Wilson  was                                                                    
correct.                                                                                                                        
                                                                                                                                
Representative  Wilson  had  a  problem with  the  bill  was                                                                    
because she did not think  that all users would benefit. Her                                                                    
larger issue was because it was  not a user fee. She was not                                                                    
willing to place additional taxes on people.                                                                                    
                                                                                                                                
5:38:16 PM                                                                                                                    
                                                                                                                                
Co-Chair  Neuman  MOVED to  REPORT  CSHB  319 (FIN)  out  of                                                                    
committee   with   individual    recommendations   and   the                                                                    
accompanying fiscal  note. There being NO  OBJECTION, it was                                                                    
so ordered.                                                                                                                     
                                                                                                                                
CSHB  319 (FIN)  was REPORTED  out of  committee with  a "do                                                                    
pass"  recommendation and  with one  new fiscal  impact note                                                                    
from the Department of Administration.                                                                                          
                                                                                                                                
5:38:16 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
5:41:22 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
5:41:38 PM                                                                                                                    
                                                                                                                                
HOUSE BILL NO. 250                                                                                                            
                                                                                                                                
     "An  Act   relating  to  the  taxation   of  income  of                                                                    
     individuals; repealing tax  credits applied against the                                                                    
     tax  on individuals  under the  Alaska  Net Income  Tax                                                                    
     Act; and providing for an effective date."                                                                                 
                                                                                                                                
5:41:59 PM                                                                                                                    
                                                                                                                                
RANDALL  HOFFBECK,  COMMISSIONER,   DEPARTMENT  OF  REVENUE,                                                                    
introduced himself.  He recognized the  bill was one  of the                                                                    
most controversial  piece of legislation. He  explained that                                                                    
why  an income  tax was  chosen over  other taxes.  The bill                                                                    
would establish a  personal income tax equal  to six percent                                                                    
of  taxpayers   total  federal  tax  liability   for  Alaska                                                                    
residents and nonresidents with income  from a source in the                                                                    
state.  Because the  tax that  would be  established by  the                                                                    
bill is  calculated based on  federal tax liability  and not                                                                    
on  income,   the  bill  effectively   incorporates  federal                                                                    
brackets and  exemptions and so  permits this bill,  and the                                                                    
personal income tax  system it would create to  be as simple                                                                    
and transparent as possible.                                                                                                    
                                                                                                                                
5:46:31 PM                                                                                                                    
                                                                                                                                
BRANDON   S.   SPANOS,   DEPUTY  DIRECTOR,   TAX   DIVISION,                                                                    
DEPARTMENT   OF    REVENUE,   introduced    the   PowerPoint                                                                    
Presentation: "Individual Income Tax: HB 250."                                                                                  
                                                                                                                                
Mr. Spanos addressed slide 2: "Individual Income Tax."                                                                          
                                                                                                                                
     "An  Act   relating  to  the  taxation   of  income  of                                                                    
     individuals; repealing tax  credits applied against the                                                                    
     tax  on individuals  under the  Alaska  Net Income  Tax                                                                    
     Act; and providing for an effective date."                                                                                 
                                                                                                                                
Mr. Spanos reviewed slide 3: "Income Tax History."                                                                              
                                                                                                                                
     Began in 1949 at 10 percent of federal tax liability                                                                       
                                                                                                                                
     By  1961,  the  tax  was  16  percent  of  federal  tax                                                                    
     liability                                                                                                                  
                                                                                                                                
     In 1975, Alaska switched  from federal tax liability to                                                                    
     its own tax brackets                                                                                                       
                                                                                                                                
          Ranged from 3 percent to 14.5 percent on taxable                                                                      
          income                                                                                                                
                                                                                                                                
     Alaska repealed  personal income tax in  1980 after oil                                                                    
     revenue boom                                                                                                               
                                                                                                                                
Mr. Spanos turned to slide 4: "Tax Proposal."                                                                                   
                                                                                                                                
     Creates a  tax on an individual's  income. The proposed                                                                    
     rate  is 6  percent of  a person's  federal income  tax                                                                    
     liability                                                                                                                  
                                                                                                                                
Mr.  Spanos   explained  slide   5:  "Income   Tax  Proposal                                                                    
(Continued)."  He  stated  that   the  slide  addressed  the                                                                    
current federal tax brackets.                                                                                                   
                                                                                                                                
Vice-Chair Saddler  looked at the third  column and wondered                                                                    
whether that was taxable income, or gross income.                                                                               
                                                                                                                                
Mr. Spanos responded that it was taxable income.                                                                                
                                                                                                                                
                                                                                                                                
Mr. Spanos slide 6: "Income Tax Proposal (Continued)."                                                                          
                                                                                                                                
     Tax applies to nonresidents' income from a source in                                                                       
     Alaska                                                                                                                     
                                                                                                                                
     Residents receive credit for taxes paid in other                                                                           
     states                                                                                                                     
                                                                                                                                
     Provides for employers to withhold taxes and remit                                                                         
     them to the state                                                                                                          
                                                                                                                                
5:50:11 PM                                                                                                                    
                                                                                                                                
Representative Guttenberg asked how he defined resident.                                                                        
                                                                                                                                
Mr. Spanos  responded that in  the bill the  term "resident"                                                                    
was defined several times.                                                                                                      
                                                                                                                                
Representative Wilson wondered if the  $3 billion of "out of                                                                    
state" workers were defined as residents or nonresidents.                                                                       
                                                                                                                                
Mr. Spanos  stated that the  $3 billion was wages  earned in                                                                    
Alaska  by nonresidents.  He understood  that  there may  be                                                                    
other  nonresidents  who  may  receive  the  Permanent  Fund                                                                    
Dividend (PFD). He  shared that there were  other sources of                                                                    
income,  other  than  wages,  that   would  be  taxable  for                                                                    
residents.                                                                                                                      
                                                                                                                                
Representative  Wilson  did  not feel  that  the  definition                                                                    
would work.                                                                                                                     
                                                                                                                                
Vice-Chair  Saddler queried  the amount  of money  earned in                                                                    
wages  by Alaska  residents  in Alaska,  if  $3 billion  was                                                                    
earned by non-residents.                                                                                                        
                                                                                                                                
Commissioner Hoffbeck would have  to provide the information                                                                    
at a later time.                                                                                                                
                                                                                                                                
Representative  Pruitt wondered  whether military  personnel                                                                    
would  be taxed,  or was  it all  the other  individuals who                                                                    
could receive the PFD but not live the state.                                                                                   
                                                                                                                                
Mr. Spanos  responded to  the extent  that the  pay resident                                                                    
tax, if they were to pay federal income tax.                                                                                    
                                                                                                                                
Commissioner Hoffbeck  stated that  the income tax  would be                                                                    
based on their income in Alaska or from an Alaska source.                                                                       
                                                                                                                                
Representative Pruitt  thought it  was cumbersome  to manage                                                                    
the  income tax,  to  require those  living  outside of  the                                                                    
state to pay the income tax on the PFD.                                                                                         
                                                                                                                                
Commissioner Hoffbeck  replied that their  residency allowed                                                                    
for  a credit  in other  states against  the Alaska  tax. He                                                                    
explained  that some  of the  money earned  in other  states                                                                    
could be transferred if the  Alaska tax rate was higher than                                                                    
the other  state. He stated  that the individual  would need                                                                    
to fill out a state income tax return.                                                                                          
                                                                                                                                
Representative Pruitt asked about the  cost to the state. He                                                                    
was skeptical about really collecting any money.                                                                                
                                                                                                                                
Commissioner Hoffbeck  agreed that  all taxes would  have to                                                                    
be processed.                                                                                                                   
                                                                                                                                
5:56:44 PM                                                                                                                    
                                                                                                                                
Vice-Chair Saddler  mentioned military members.  He wondered                                                                    
if those living outside  the state, retaining residency, who                                                                    
received a  PFD would  be required to  pay the  state income                                                                    
tax.                                                                                                                            
                                                                                                                                
Mr. Spanos  replied that  other states  dealt with  the same                                                                    
issue.  He stated  that they  would be  required to  pay the                                                                    
taxes in their home state.                                                                                                      
                                                                                                                                
Vice-Chair Saddler  surmised that  they would be  subject to                                                                    
Alaska income tax.                                                                                                              
                                                                                                                                
Mr. Spanos agreed.                                                                                                              
                                                                                                                                
Representative Gara  surmised that the tax  was a percentage                                                                    
of  federal  tax. He  stressed  that  the state  taxes  were                                                                    
deducted from  the federal  tax. He  wondered how  that loop                                                                    
would be solved.                                                                                                                
                                                                                                                                
Mr. Spanos  stated the  IRS made it  fairly simple  with the                                                                    
use of W-2's.                                                                                                                   
                                                                                                                                
Mr. Spanos continued to discuss slide 6.                                                                                        
                                                                                                                                
                                                                                                                                
Mr.  Spanos  moved  to  slide   7:  "Income  Tax  Estimates:                                                                    
Estimated  tax  for married  couple  filing  jointly with  2                                                                    
children." He  reported that he  slide showed an  example of                                                                    
what an individual or family might pay in taxes.                                                                                
                                                                                                                                
Mr. Spanos provided another example  on slide 8: "Income Tax                                                                    
Estimates:  Estimated  tax  for  head of  household  with  2                                                                    
children." He pointed  out that the head of  household had a                                                                    
slightly different deduction allowance.                                                                                         
                                                                                                                                
6:01:10 PM                                                                                                                    
                                                                                                                                
Mr. Spanos advanced to slide 9: "Relative Tax Rate":                                                                            
                                                                                                                                
     43 states currently have an income tax                                                                                     
                                                                                                                                
     Among states with an income tax, Alaska's rate would                                                                       
     be lowest                                                                                                                  
                                                                                                                                
          North Dakota would be second-lowest                                                                                   
                                                                                                                                
          Average state income tax is about 30 percent of                                                                       
          federal liability, five times Alaska's proposed                                                                       
          rate                                                                                                                  
                                                                                                                                
    Six states would still have zero state income tax1                                                                          
                                                                                                                                
     Two states tax only dividends and interest2                                                                                
                                                                                                                                
Mr. Spanos discussed slide 10: "Impacts of Tax Proposal":                                                                       
                                                                                                                                
     Income from subchapter S corporations and partnerships                                                                     
     will be taxed                                                                                                              
                                                                                                                                
          Taxed on income with a source in Alaska                                                                               
                                                                                                                                
          Not currently subject to state Corporate Income                                                                       
          Tax                                                                                                                   
                                                                                                                                
     Income earned in Alaska by both non-residents and                                                                          
     residents will be taxed                                                                                                    
                                                                                                                                
     Rough estimate: 20 percent - 30 percent of Alaskans                                                                        
     would pay zero tax                                                                                                         
                                                                                                                                
Mr. Spanos scrolled to slide 11: "Revenue Impact":                                                                              
                                                                                                                                
   · DOR estimates $100 million in FY17 due to the tax                                                                          
     taking effect in January 2017                                                                                              
        o This amount is from withholding                                                                                       
        o No tax returns filed until April 2018                                                                                 
   · DOR estimates $200 million in FY18 based on modeling                                                                       
     using aggregated federal income data for Alaska                                                                            
     residents                                                                                                                  
                                                                                                                                
Mr. Spanos moved to slide 12: "Implementation Cost."                                                                            
                                                                                                                                
   · Implementing an individual income tax in 18 months                                                                         
     will be a significant challenge                                                                                            
        o Need to draft regulations                                                                                             
        o Need to design, develop, and test technology to                                                                       
          administer tax that would have estimated 450,000                                                                      
          tax returns filed annually.                                                                                           
   · Estimated $250,000 supplemental appropriation for a                                                                        
     contractor to work with DOR on an implementation plan                                                                      
   · Estimated $14,000,000 one-time capital appropriation                                                                       
     to build income tax into our current tax revenue                                                                           
     system                                                                                                                     
        o Includes withholding and online filing                                                                                
   · Annual staffing cost of about $6,000,000 for 52 FTE                                                                        
     employees                                                                                                                  
                                                                                                                                
6:04:43 PM                                                                                                                    
                                                                                                                                
Commissioner  Hoffbeck  addressed  slide  13:  "Closing  the                                                                    
Budget  Gap"   and  slide  14:   "Closing  the   Budget  Gap                                                                    
(Continued)." The  components used  to close the  budget gap                                                                    
included  the   FY  17  baseline  revenue   (after  proposed                                                                    
legislation;  FY 17  spending  reductions;  and new  revenue                                                                    
components.                                                                                                                     
                                                                                                                                
Mr.  Spanos  asked  if  he   should  address  the  sectional                                                                    
analysis.                                                                                                                       
                                                                                                                                
Co-Chair  Thompson replied  in the  negative and  relayed it                                                                    
could be  taken up  at a  later date.  He recalled  that the                                                                    
income  tax  in the  1960s  was  a  one-page form  and  very                                                                    
simple.   He  felt   that  the   current   system  was   too                                                                    
complicated. He wondered if there was a simpler method.                                                                         
                                                                                                                                
Mr. Spanos replied that the  form would still be simple, but                                                                    
it  was based  on  the complicated  federal  income tax.  He                                                                    
stated  that   the  cost   projection  was   based  one-half                                                                    
Montana's structure.  He stated  that Vermont had  a similar                                                                    
population as Alaska,  so they had relayed  that they belied                                                                    
Alaska's  proposal  was  reasonable.   He  stated  that  the                                                                    
auditors and  computer system  were essential  to processing                                                                    
the system.                                                                                                                     
                                                                                                                                
Co-Chair Thompson wondered whether  the federal system would                                                                    
be connected to the state's system.                                                                                             
                                                                                                                                
6:07:46 PM                                                                                                                    
                                                                                                                                
Mr. Spanos replied in the affirmative.                                                                                          
                                                                                                                                
Representative Wilson pointed to  slide 8, and surmised that                                                                    
one would pay  $7 dollars for a $40,000 income;  and $97 for                                                                    
$50,000.                                                                                                                        
                                                                                                                                
Mr. Spanos replied in the affirmative.                                                                                          
                                                                                                                                
Representative  Wilson surmised  that the  state would  have                                                                    
someone do all of the paperwork for $7.00.                                                                                      
                                                                                                                                
Representative Gattis referred  to nonresident pilots flying                                                                    
Alaskan routes and  sports teams. She wondered  if the state                                                                    
would recoup any of those dollars.                                                                                              
                                                                                                                                
Mr. Spanos replied  that most states had some  kind of daily                                                                    
limit income earned in the state.                                                                                               
                                                                                                                                
Representative   Gattis  hoped   the  state   did  not   use                                                                    
California as a role model.                                                                                                     
                                                                                                                                
6:10:09 PM                                                                                                                    
                                                                                                                                
Vice-Chair Saddler  queried the rates for  those individuals                                                                    
who earned higher than $100,000.                                                                                                
                                                                                                                                
Co-Chair Thompson asked if he was referring to slide 5.                                                                         
                                                                                                                                
Commissioner  Hoffbeck replied  that  the  highest rate  was                                                                    
2.38 percent, and agreed to provide more information.                                                                           
                                                                                                                                
Representative Guttenberg  referred to  the state  form that                                                                    
specified how much state and federal taxes were paid.                                                                           
                                                                                                                                
Commissioner  Hoffbeck  replied  that  a  person  would  pay                                                                    
whatever their  federal tax bracket  and 20 percent  of that                                                                    
for state income tax.                                                                                                           
                                                                                                                                
Representative Munoz asked about auditors.                                                                                      
                                                                                                                                
Mr. Spanos  answered replied with  a rough estimate  and the                                                                    
department relied on  a contractor to see  if they estimated                                                                    
too high or low.                                                                                                                
                                                                                                                                
Representative Munoz wondered if  the audits would be random                                                                    
and meaningful.                                                                                                                 
                                                                                                                                
Mr. Spanos replied in the affirmative.                                                                                          
                                                                                                                                
6:13:39 PM                                                                                                                    
                                                                                                                                
Representative  Gara wondered  if the  state income  tax was                                                                    
deducted from the federal income tax.                                                                                           
                                                                                                                                
Co-Chair Thompson replied in the affirmative.                                                                                   
                                                                                                                                
Representative  Gara  requested  a   chart  related  to  the                                                                    
percentages related  to what would  actually be paid  by the                                                                    
individual.                                                                                                                     
                                                                                                                                
Commissioner  Hoffbeck  agreed  that  the  department  could                                                                    
provide the information.                                                                                                        
                                                                                                                                
Representative  Gara  wondered   whether  everyone  had  the                                                                    
opportunity  to take  tax  reductions  or were  itemizations                                                                    
required.                                                                                                                       
                                                                                                                                
Mr.  Spanos responded  that only  those  who itemized  would                                                                    
qualify for the reductions.                                                                                                     
                                                                                                                                
Representative Gara queried families and single people.                                                                         
                                                                                                                                
Commissioner  Hoffbeck  thought  the  information  had  been                                                                    
provided previously.                                                                                                            
                                                                                                                                
Representative  Munoz wondered  why  the fiscal  note had  a                                                                    
smaller number of employees in the fiscal note.                                                                                 
                                                                                                                                
Commissioner Hoffbeck replied that  he limited the number of                                                                    
employees.                                                                                                                      
                                                                                                                                
6:16:39 PM                                                                                                                    
                                                                                                                                
Vice-Chair Saddler  asked whether someone under  16 would be                                                                    
subject the taxes.                                                                                                              
                                                                                                                                
Mr.  Spanos responded  that it  depended on  their level  of                                                                    
income. He stressed  that if they filed  federally they also                                                                    
must  file for  the state.  He shared  that the  parents may                                                                    
need to  pay taxes if the  minor earned at a  certain level.                                                                    
He agreed to provide more information.                                                                                          
                                                                                                                                
Vice-Chair  Saddler  wondered  whether  the  20  percent  of                                                                    
Alaskans who would not pay were citizens or wage earners.                                                                       
                                                                                                                                
Mr. Spanos  referenced the ISER  report. He believed  it was                                                                    
wage earners.                                                                                                                   
                                                                                                                                
Vice-Chair Saddler queried the standard deduction.                                                                              
                                                                                                                                
Mr.  Spanos responded  that  it was  $12,600  for a  married                                                                    
couple; and $6,300 for a single individual.                                                                                     
                                                                                                                                
HB  250  was  HEARD  and   HELD  in  committee  for  further                                                                    
consideration.                                                                                                                  
                                                                                                                                
6:19:00 PM                                                                                                                    
                                                                                                                                
HOUSE BILL NO. 249                                                                                                            
                                                                                                                                
     "An Act  requiring the electronic  submission of  a tax                                                                    
     return  or  report  with  the  Department  of  Revenue;                                                                    
     relating to  the motor fuel  tax; and providing  for an                                                                    
     effective date."                                                                                                           
                                                                                                                                
6:19:32 PM                                                                                                                    
                                                                                                                                
JERRY  BURNETT,  DEPUTY   COMMISSIONER,  TREASURY  DIVISION,                                                                    
DEPARTMENT OF  REVENUE, would run through  the presentation.                                                                    
It  was  a  simple  presentation  which  he  introduced  the                                                                    
PowerPoint Presentation: "Motor Fuel Tax: HB 249."                                                                              
                                                                                                                                
Mr. Burnett looked at slide 2: "Motor Fuel Tax Increase."                                                                       
                                                                                                                                
     "An Act  relating to  the motor  fuel tax;  relating to                                                                    
     the duties of the  commissioner of revenue; relating to                                                                    
     the  disposition of  revenue from  the motor  fuel tax;                                                                    
     and providing for an effective date."                                                                                      
                                                                                                                                
Mr. Burnett slide 3: "Motor Fuel Tax History."                                                                                  
                                                                                                                                
     Began in 1945                                                                                                              
                                                                                                                                
     Tax rates have increased over time, but structure                                                                          
     unchanged                                                                                                                  
                                                                                                                                
          Last increase: highway 1970, marine 1977,                                                                             
          aviation fuel 1994                                                                                                    
                                                                                                                                
Mr. Burnett  advanced to  slide 4:  "Motor Fuel  Tax History                                                                    
(Continued)."                                                                                                                   
                                                                                                                                
     Tax was suspended from Sept. 1, 2008, to Aug. 31, 2009                                                                     
                                                                                                                                
     In 2015, HB 158 added $0.0095 surcharge on motor fuels                                                                     
     and some other refined fuels                                                                                               
                                                                                                                                
          Intended for spill prevention and response fund                                                                       
                                                                                                                                
Mr. Burnett  turned to slide  5: "Motor Fuel  Tax Proposal."                                                                    
He explained  that the proposal  was to increase  the taxes,                                                                    
but to  change the off-road use  credit of 6 cents  of the 8                                                                    
cents.  He stressed that  it required electronic filing; and                                                                    
provided an exemption process.                                                                                                  
                                                                                                                                
Representative  Guttenberg  referred  to the  jet  fuel.  He                                                                    
wondered if an analysis of the international travel.                                                                            
                                                                                                                                
Mr. Burnett  responded that  most of the  jet fuel  used for                                                                    
international  travel was  exempt  from  state taxation.  He                                                                    
stated that the  genesis of the large increase  was from the                                                                    
Aviation  Advisory Committee.  There were  proposals in  the                                                                    
previous  year   to  add  landing  fees   at  certain  state                                                                    
certificated airports.  The committee  advised the  state to                                                                    
raise the  jet fuel  tax, rather  than increase  the landing                                                                    
fees.                                                                                                                           
                                                                                                                                
Co-Chair Thompson  assumed the  federal government  would be                                                                    
exempt.                                                                                                                         
                                                                                                                                
Representative Guttenberg asked who would be paying for jet                                                                     
fuel.                                                                                                                           
                                                                                                                                
Mr. Burnett responded that it would be regional and                                                                             
domestic carriers.                                                                                                              
                                                                                                                                
6:24:58 PM                                                                                                                    
                                                                                                                                
Mr. Burnett discussed slide 6: "Relative Motor Fuel Tax                                                                         
Rate."                                                                                                                          
                                                                                                                                
     Alaska's fuel taxes are among lowest in U.S.1                                                                              
          Highway fuel: lowest                                                                                                  
          Jet fuel: 35th out of 50                                                                                              
          Aviation gas: 24th out of 50                                                                                          
     Under this bill, Alaska taxes would be:                                                                                    
          Below national average (20.17 cents)                                                                                  
          for highway fuel                                                                                                      
          Above national average for jet/aviation fuel                                                                          
                                                                                                                                
Mr. Burnett moved to slide 7: "Impacts of Tax Proposal."                                                                        
                                                                                                                                
     Gas prices at the pump would rise                                                                                          
                                                                                                                                
     More aviation taxes to fund certificated urban and                                                                         
     rural airports                                                                                                             
                                                                                                                                
          Requested by aviation advisory committee as                                                                           
          preferable to landing fee increases                                                                                   
                                                                                                                                
Mr. Burnett advanced to slide 8: "Revenue Impact."                                                                              
                                                                                                                                
     Dept. of Revenue estimates increasing the tax rate                                                                         
     will more than double tax collections                                                                                      
                                                                                                                                
     Additional revenue about $49 million per year                                                                              
                                                                                                                                
          $0.2 million will be shared with municipal-owned                                                                      
          airports                                                                                                              
                                                                                                                                
          Remainder: general fund and special accounts for                                                                      
          road, water transport, and aviation facilities                                                                        
                                                                                                                                
Mr.   Burnett   turned   to   slide   9:   "Revenue   Impact                                                                    
(Continued)":                                                                                                                   
                                                                                                                                
     Estimates based on fall 2015 revenue forecast                                                                              
                                                                                                                                
     Does  not  account  for  changes   in  fuel  demand  or                                                                    
     stockpiling                                                                                                                
                                                                                                                                
                                                                                                                                
Mr. Burnett talked about slide 10: "Implementation Cost."                                                                       
                                                                                                                                
     Dept. of Revenue must update:                                                                                              
                                                                                                                                
          Tax Revenue Management System (TRMS)                                                                                  
          Revenue Online (ROL) which allows a taxpayer to                                                                       
          file a return and apply for a dealer license                                                                          
          online                                                                                                                
          Tax return forms                                                                                                      
                                                                                                                                
     One-time  implementation cost  of  $50,000 to  recreate                                                                    
     tax  forms and  reprogram and  test the  tax system  to                                                                    
     accommodate the rate changes                                                                                               
                                                                                                                                
     No additional costs to administer the tax program                                                                          
                                                                                                                                
Mr. Burnett moved to slide 11: "Motor Fuel Tax-Changes made                                                                     
in Committee Substitute":                                                                                                       
                                                                                                                                
     If average price of ANS crude  oil is more than $85 per                                                                    
     barrel during  the previous  year-no change  to current                                                                    
     tax rates                                                                                                                  
                                                                                                                                
     If average price of ANS crude  oil is less than $85 per                                                                    
    barrel during the previous year-tax rates increase                                                                          
     Motor  fuel used  for commercial  fishing remains  at 5                                                                    
     cents a gallon                                                                                                             
                                                                                                                                
     Tax increase sunsets after 2 years (July 1, 2018)                                                                          
                                                                                                                                
6:31:45 PM                                                                                                                    
                                                                                                                                
Vice-Chair Saddler asked what the commercial fishing                                                                            
exemption.                                                                                                                      
                                                                                                                                
Mr. Burnett responded that it was $4.2 million.                                                                                 
                                                                                                                                
Vice-Chair Saddler wondered whether the state could take                                                                        
advantage of more federal transportation funding with the                                                                       
increase in fuel taxes.                                                                                                         
                                                                                                                                
Mr. Burnett responded that the  highway taxes go towards the                                                                    
general  fund,  and the  general  fund  paid the  match  for                                                                    
federal  dollars.  He  stated   that  there  was  no  direct                                                                    
linkage,  but  the state  tax  and  number of  gallons  were                                                                    
reported.  He  assumed that  the  U.S.  Congress may  wee  a                                                                    
linkage  when  examining  the authorization  bills  for  the                                                                    
state.                                                                                                                          
                                                                                                                                
Co-Chair  Thompson   did  not   believe  that   the  federal                                                                    
government  turned away  any  money  collected from  highway                                                                    
dollars.                                                                                                                        
                                                                                                                                
Mr. Burnett  explained slide 12:  "Closing the  Budget Gap."                                                                    
He explained  that the motor  fuel tax was after  changes to                                                                    
oil and gas; and income tax.                                                                                                    
                                                                                                                                
Co-Chair  Thompson thought  the  state  had been  collecting                                                                    
about $80 million in fuel tax                                                                                                   
                                                                                                                                
Mr. Burnett  thought the number  was closer to  $40 million.                                                                    
He stated  that the proposal  would bring the  number closer                                                                    
to $90 million.                                                                                                                 
                                                                                                                                
6:34:53 PM                                                                                                                    
                                                                                                                                
Representative  Wilson   wondered  if  the   adjustment  had                                                                    
already occurred  with the change  from collected  land fees                                                                    
to collecting the fuel tax.                                                                                                     
                                                                                                                                
Mr.  Burnett  replied that  there  was  a recommendation  to                                                                    
increase the tax, but it had not yet been increased.                                                                            
                                                                                                                                
Representative  Wilson  wondered  if   the  taxes  would  be                                                                    
increased, should the bill fail to pass.                                                                                        
                                                                                                                                
Mr.  Burnett  replied  that it  would  probably  require  an                                                                    
increase in landing fees.                                                                                                       
                                                                                                                                
Representative Wilson  stressed that  there would not  be an                                                                    
increase to landing fees.                                                                                                       
                                                                                                                                
Mr. Burnett indicated she was  correct, and that it would be                                                                    
new landing fees.                                                                                                               
                                                                                                                                
Representative  Wilson queried  a way  to balance  to ensure                                                                    
that airports were not paying  more than what they were able                                                                    
to  utilize, and  not pay  for someone  else's airport.  She                                                                    
wondered  whether  Anchorage  and Fairbanks  should  have  a                                                                    
separate rate than other airports.                                                                                              
                                                                                                                                
Mr. Burnett deferred to Commissioner Luiken.                                                                                    
                                                                                                                                
MARK LUIKEN, COMMISSIONER,  DEPARTMENT OF TRANSPORTATION AND                                                                    
PUBLIC FACILITIES,  answered that the airports  were already                                                                    
covered by  the carriers through landing  fees, rates, fees,                                                                    
etc.  He  stated that  the  tax  would impact  the  carriers                                                                    
across  the  state.  He  stated  that  the  board  made  the                                                                    
recommendation, because they felt it  was the fairest way to                                                                    
impact all  of the  users of the  system and  distribute the                                                                    
cost  the most  fairly. He  stated  that the  board did  not                                                                    
believe the landing fees was  fair, because it would only be                                                                    
levied at certificated airports.                                                                                                
                                                                                                                                
Co-Chair Thompson asked how many  airports the Department of                                                                    
Transportation and Public Facilities (DOT/PF) maintained.                                                                       
                                                                                                                                
Commissioner  Luiken  replied  that  DOT/PF  maintained  249                                                                    
airports in the state.                                                                                                          
                                                                                                                                
Representative  Wilson felt  that  the  legislation was  not                                                                    
fair to the Fairbanks airport.                                                                                                  
                                                                                                                                
Commissioner   Luiken  stated   that  the   larger  airports                                                                    
supported the broader system in the state.                                                                                      
                                                                                                                                
Representative Wilson  mentioned that the air  carriers were                                                                    
not very happy with the legislation.                                                                                            
                                                                                                                                
Co-Chair  Thompson  remarked  that  he  had  hard  form  air                                                                    
carriers also.                                                                                                                  
                                                                                                                                
6:40:51 PM                                                                                                                    
                                                                                                                                
Representative Pruitt  wondered whether FedEx and  UPS would                                                                    
pay the tax.                                                                                                                    
                                                                                                                                
Commissioner   Luiken  understood   that  for   those  cargo                                                                    
carriers  flying a  domestic route  the jet  fuel tax  would                                                                    
apply.                                                                                                                          
                                                                                                                                
Representative Pruitt  thought Alaska was putting  itself in                                                                    
a  sticky position  by tripling  their  taxes, because  jobs                                                                    
were at stake.                                                                                                                  
                                                                                                                                
Co-Chair Thompson asked about a comparison.                                                                                     
                                                                                                                                
Commissioner  Luiken  would  be   happy  to  supply  a  cost                                                                    
comparison   between  Anchorage,   Seattle,  Portland,   and                                                                    
Anchorage. The fact was that  Alaska's jet fuel tax was only                                                                    
a portion of fees charged.                                                                                                      
                                                                                                                                
Mr.  Burnett added  that  he sat  on  the Alaska  Industrial                                                                    
Development and Export Authority (AIDEA) board.                                                                                 
                                                                                                                                
6:47:34 PM                                                                                                                    
                                                                                                                                
Representative Kawasaki wondered  how the commercial fishing                                                                    
tax would be remitted.                                                                                                          
                                                                                                                                
Mr.  Burnett responded  that  as  a person  pulled  up to  a                                                                    
station,  the  state  would administer  the  tax  through  a                                                                    
rebate.                                                                                                                         
                                                                                                                                
Vice-Chair  Saddler supported  moving towards  a motor  fuel                                                                    
tax rather than an airport landing tax.                                                                                         
                                                                                                                                
HB  249  was  HEARD  and   HELD  in  committee  for  further                                                                    
consideration.                                                                                                                  
                                                                                                                                
Co-Chair   Thompson  thanked   the   presenters  for   being                                                                    
available. He reviewed the agenda for the following day.                                                                        
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
6:50:58 PM                                                                                                                    
                                                                                                                                
The meeting was adjourned at 6:50 p.m.