Legislature(2017 - 2018)HOUSE FINANCE 519
02/21/2017 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB115 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 115 | TELECONFERENCED | |
| += | HB 57 | TELECONFERENCED | |
| += | HB 59 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| + | TELECONFERENCED |
HOUSE FINANCE COMMITTEE
February 21, 2017
1:33 p.m.
1:33:44 PM
CALL TO ORDER
Co-Chair Foster called the House Finance Committee meeting
to order at 1:33 p.m.
MEMBERS PRESENT
Representative Neal Foster, Co-Chair
Representative Paul Seaton, Co-Chair
Representative Les Gara, Vice-Chair
Representative Jason Grenn
Representative David Guttenberg
Representative Scott Kawasaki
Representative Dan Ortiz
Representative Lance Pruitt
Representative Steve Thompson
Representative Cathy Tilton
Representative Tammie Wilson
MEMBERS ABSENT
None
ALSO PRESENT
Jerry Burnett, Deputy Commissioner, Treasury Division,
Department of Revenue; Taneeka Hansen, Staff,
Representative Paul Seaton.
PRESENT VIA TELECONFERENCE
Ken Alper, Director, Tax Division, Department of Revenue;
Brandon S. Spanos, Deputy Director, Tax Division,
Department of Revenue.
SUMMARY
HB 115 INCOME TAX; PFD CREDIT; PERM FUND INCOME
HB 115 was HEARD and HELD in committee for
further consideration.
Co-Chair Foster reviewed the agenda for the day. He first
wanted to address the fiscal note from the Tax Division of
the Department of Revenue (DOR). The component number
associated with the fiscal note was 2476. He invited Deputy
Commissioner Burnett to the table. Mr. Alper and Mr. Spanos
from the Tax Division were available online.
HOUSE BILL NO. 115
"An Act relating to the permanent fund dividend;
relating to the appropriation of certain amounts of
the earnings reserve account; relating to the taxation
of income of individuals; relating to a payment
against the individual income tax from the permanent
fund dividend disbursement; repealing tax credits
applied against the tax on individuals under the
Alaska Net Income Tax Act; and providing for an
effective date."
1:35:11 PM
Co-Chair Foster invited Mr. Alper to introduce himself.
[There was no response].
1:35:33 PM
AT EASE
1:36:30 PM
RECONVENED
Co-Chair Foster invited Ms. Hansen from Representative
Seaton's office to the table.
Representative Wilson referred to page 4, lines 16-17,
which indicated that 15 percent of an individual's total
federal income tax would be due or $25, which ever was
greater. There would be a $25 charge for individuals who
did not have a tax liability so that everyone in the state
was contributing. However, she thought the fiscal note
implied the tax had only to do with a person's federal
income tax liability.
TANEEKA HANSEN, STAFF, REPRESENTATIVE PAUL SEATON, drew
attention to Page 5, subsection C. She read from the bill:
An individual who, under federal law, is not required
to file a federal individual income tax return is
exempt from the tax due under this chapter.
Ms. Hansen clarified that if an individual was not required
to file, they would not be required to pay the $25 minimum
tax.
Vice-Chair Gara mentioned that there was a class of people
required to file who did not end up paying anything. He
asked about the cutoff for a single person. Ms. Hansen
believed members had a one-page document in their files
that contained the information. She recalled that if a
person's income was below $10,300 they would not have to
file. For an individual making above that amount but who
did not have a federal tax liability, their tax liability
would depend on the number of their dependents and other
exemptions. They would likely pay a minimum tax.
JERRY BURNETT, DEPUTY COMMISSIONER, TREASURY DIVISION,
DEPARTMENT OF REVENUE, addressed the fiscal note for DOR,
Taxation and Treasury Tax Division, Office of Management
and Budget component number 2476. He started out with the
supplemental request on Page 1. It was a capital
supplemental request for $14 million to extend and add a
new module to the tax revenue management system. It was
funding that was needed as soon as possible. The
supplemental amount of $250,000 was needed for writing
regulations. The FY 18 appropriation was for 10 full-time
and 8 part-time positions. The division would not be fully
staffed in FY 18 because of not receiving tax returns until
later in the year. However, set up was needed. In FY 19,
the division would have 35 full-time and 15 part-time
positions. At full implementation by FY 20 the division
would employ 45 full-time and 15 part-time positions. The
part-time staff would handle all of the paper applications.
The department was assuming that the online and paper
applications would match the percentages associated with
the Permanent Fund Dividend (PFD) program (83 percent
online, and 17 percent on paper). He relayed that in 1979
or 1980, the last time the state had an income tax, the
state actually employed more staff than what was being
suggested. It was very difficult to go back in the records
to determine an exact amount, but he thought it was over
100 staff due to the structure. At the time, the state did
not have a Tax Division or the Permanent Fund Division.
There was an enforcement division and an audit division. He
reported there were 62 people within the Administrative
Services Division that handled accounting and collections.
The structure was different at the time and difficult to
compare with today's.
Mr. Burnett highlighted the revenue assumption and the
increase in undesignated general fund (UGF) revenue from
the Permanent Fund portion of the bill and the income tax.
In FY 19 and FY 20, with full implementation, he
anticipated revenues of about $2.3 billion. For example, in
FY 20, he anticipated $1.697 billion of non-UGF (converted
to UGF) and $648 million from the income tax portion of the
bill.
1:42:59 PM
KEN ALPER, DIRECTOR, TAX DIVISION, DEPARTMENT OF REVENUE
(via teleconference) introduced himself. He relayed that a
portion of the money from the PF, called new money, showed
up and was subtracted from non-UGF. The bottom line total
was the incremental revenue from the income tax. There was
a detail on the income tax on page 2 of the handout. It
showed that about $3 million would come from the $25
minimum tax. [Mr. Alper's testimony became inaudible].
Co-Chair Seaton interrupted Mr. Alper because he was too
difficult to hear due to a poor connection. Mr. Burnett
relayed the comments from Mr. Alper. Approximately $3
million of the total income tax revenue would come from the
$25 amount. The charts that showed the totals were on the
second page of the fiscal note. It showed the income tax
revenue and other.
Representative Wilson mentioned a hypothetical scenario
with a single parent. She wondered if the parent would be
assessed a $25 tax. Mr. Burnett thought Representative
Wilson was correct. He would double check.
1:46:08 PM
BRANDON S. SPANOS, DEPUTY DIRECTOR, TAX DIVISION,
DEPARTMENT OF REVENUE (via teleconference), stated the
Representative Wilson was correct. He added that if a
single mother made under the threshold in gross income
before any deductions (last year the threshold was $10,300
gross income), she would not be required to file a federal
return. Therefore, under the draft language, she would not
be required to file an Alaska income tax return or pay the
$25 minimum tax.
Representative Wilson asked if the same applied to a
college student. She wondered if it all depended on income.
Mr. Spanos responded, "As long as there was no filing
requirement." He clarified that for a student it depended
on whether they met other requirements such as age and
other things. If they were filing as a single person and
have a gross income of $10,300 or less, they would have no
filing requirement. The state would know what the person
filed with the IRS assuming they were honest in their
reporting. Representative Wilson hoped they were honest.
Representative Kawasaki referred to page 4 of the fiscal
note which talked about 400,000 tax returns. He asked if
the 400,000 returns included the total number of returns
from residents and non-residents. Mr. Burnett responded
affirmatively. Representative Kawasaki thought the
department's figure for manually processed applications,
based on the PFD Division online filings, was low. He
thought there would be several applicants that were not
part of the online system. Mr. Burnett commented that it
was difficult to tell because the program would be
different. In his person experience, he filed out-of-state
tax returns online.
Mr. Spanos told of receiving the information from the State
of Vermont because it had a similar population base as
Alaska. The estimate of 400,000 included residents and non-
residents. Regarding the online filing requirement, there
was a simple methodology through the IRS called modernized
electronic filing. Anyone that filed their return with the
IRS could piggyback that and the state would accept it in
the modernized electronic filling format. Anyone using the
standard TurboTax, or a similar program could select to
file electronically with the state. They could also login
to the state's revenue online system.
1:50:30 PM
Representative Pruitt wondered about a person being able to
write off their state income tax on their federal income
tax. He thought the challenge would be for the individual
to determine their state income tax based on their federal
income tax since it could not be completed without knowing
the amount of their state income tax amount. He asked how
they would make the write-off calculation. Mr. Spanos
pointed out the circular logic. He suggested that a person
would report to the IRS on a cash basis. They would include
what was withheld from their W-2 as their state tax
liability. If a person received a refund or ended up paying
more tax they would receive another form from the state
which would be reported on the following year's tax return.
Representative Pruitt asked if he would be able to write
off the state income tax he paid for 2015 on his 2016
taxes. Mr. Spanos responded in the negative. He explained
that the write-off would equal what a person paid from
their withholding in calendar year 2016. For example, if a
person made quarterly estimated payments and had written
checks to the state, those amounts would get reported on
their federal return. If a person had withholdings from
their paycheck, they would report that amount to the IRS as
their state tax. He noted that the majority of folks end up
getting a refund and paying less that what they reported to
the IRS. The following year they would report what was
withheld less the refund that they received for the
previous year. The timing difference would be made up in
the following year.
Representative Pruitt returned to the discussion about
staffing. In the previous year, the department reported
needing an additional 60 positions. He thought the number
of additional positions remained the same with the current
legislation. He asked for the department's justification.
Mr. Burnett was familiar with both of the fiscal notes. He
responded that the need had more to do with the number of
filings rather than their complexity. The audit staff would
be concerned with the complexity of the filings. The
department might require putting more emphasis at the audit
staff level. In terms of actually doing the day-to-day
work, much of it was automated. The sole function for many
of the positions would be scanning and documenting the
filings. The system would match things up. Over time, the
department might need more or less in terms of the number
of positions but currently provided its best estimate.
1:55:52 PM
Co-Chair Seaton clarified that the previous years' bill, HB
365 [Legislation introduced in 2016 - Short Title: INCOME
TAX; PERMANENT FUND TAX CREDIT}, had a 15 percent and 10
percent capital gains component to the bill. He indicated
that the current bill had the same components.
Representative Pruitt continued that there was an effort to
move people towards online filing in conjunction with the
PFD filling. Since the state was establishing a system
presently, he wondered if there was anything prohibiting
the state from starting off with the expectation of
e-filing or online filing to streamline and save costs. Mr.
Burnett noted that in the previous year the legislature had
passed a bill that required all of the state's taxes to be
presumptively filed electronically. The difference in the
current bill was that it would affect many individuals. He
thought the question should be directed to the sponsor of
the bill rather than DOR. The Department of Revenue would
prefer to have PFD applications and any taxes presumptively
done online, as it saved time, effort, and money. It was
not possible or practical for everyone to do that.
Administratively speaking, electronic filing made sense.
Representative Thompson referred to page 2 of the fiscal
note. He noted there was a FY 17 Permanent Fund earnings
Percent of Market Value (POMV) of $1.446 billion. He
wondered if it was a retroactive FY 17 Permanent Fund draw.
If so, he asked if the money would be deposited into the
Constitutional Budget Reserve (CBR) or elsewhere. Mr.
Burnett deferred to Mr. Alper. [Mr. Alper tried to respond
but was inaudible]. Mr. Burnett answered that the
governor's budget for the current year assumed a draw in FY
17. The bill was consistent with the budget under
consideration.
2:00:01 PM
Representative Thompson was still confused with FY 17. Mr.
Burnett responded that the budget, as introduced, had a
draw from the Permanent Fund in FY 17 with the presumption
that it would reconstitute a portion of the CBR. It would
reduce the draw from the CBR fund for FY 17. Representative
Thompson remained perplexed. He wondered if both the FY 17
draw of $1.446 billion and the FY 18 draw of $1.527 billion
would be drawn from the Permanent Fund in FY 18. Mr.
Burnett responded that the effective date would allow a
portion to be drawn in FY 17 and another portion to be
drawn in FY 18.
Representative Thompson asked if the retroactive draw would
reduce the amount taken out of the CBR in FY 17. Mr.
Burnett responded that Representative Thompson would be
correct, assuming there were not expenditures made by the
legislature in FY 17.
Co-Chair Seaton asked if there were further questions. He
asked Mr. Burnett if he was going to present the other DOR
fiscal notes. Mr. Burnett was happy to do so. He referred
to the fiscal note, OMB component 2310, by the Alaska
Permanent Fund Corporation (APFC). The fiscal note was zero
assuming there were no changes in the management of the
Permanent Fund as a result of the bill. The analysis spoke
to the annual draw which was shown in the Tax Division's
fiscal note, rather than APFC's fiscal note. It showed that
the corporation did not expect any managerial changes in
their operations budget as a result of the bill.
Representative Wilson indicated that when APFC came before
the committee, they informed members there would be an
impact depending on the size of the draw. There were other
things that could impact it including market performance.
Since government was turning to use the Permanent Fund, the
corporation would potentially invest differently. She
referred to page 2 of the note which contained language
that relayed the difficulty of being able to forecast
whether the asset allocation for the earnings reserve
account (ERA) would be impacted to a degree that would
affect investment manager fees. It was clear to her, based
on the comments made by Angela Rodell of APFC, that if the
legislature started using the reserves for government,
investment practices would be impacted. She thought the
information should be part of the fiscal note. Mr. Burnett
stated that Ms. Rodell approved the fiscal note completed
by her staff. She noted that if there was a change, it
would be a reduction in management fees as opposed to an
increase. The fiscal note showed a zero fiscal impact and
assumed that there would be a positive budgetary impact
rather than a negative one.
2:04:53 PM
Representative Wilson wondered where the legislature would
see the potential negative impact if APFC was not investing
at its current levels. She compared a change in investment
practices to a person's retirement stage. The Alaska
Permanent Fund Corporation would scale back on high-risk
investments and not yield as high of investment returns.
She wondered where such a change was reflected in the
fiscal note. Mr. Burnett answered that it would not be
reflected in a fiscal note. Ms. Rodell spoke to the
committee and discussed the possibility, depending on the
POMV structure and how future markets behaved, of an impact
on returns. It was not clear what the impact would be. The
bill did not define a certain amount of money that would be
put aside and kept liquid, it was simply a draw, unlike the
CBR. The Constitution Budget Reserve had to be kept liquid
because it had to be readily available. It would not
necessarily change the overall investment performance of
the fund. It had the potential to change if there was a
series of bad markets and the ERA was drawn down. It was
not something anyone would expect or predict.
Representative Wilson remarked that was not she had heard.
She reported Ms. Rodell had emphasized that if the state
were to start taking out money and changing the reason for
the Permanent Fund, it would have an impact. It was unclear
of the negative impact. She was concerned because APFC
reported that it would definitely begin to invest
differently. She wanted additional clarity. Co-Chair Seaton
responded that the committee could bring Ms. Rodell back to
answer members' questions. His interpretation was that if
the state drew down too much of a POMV, which was the
reason for keeping 4 times the annual draw, there would not
be a change in structure. There would be plenty of
liquidity. If the state took too large of a percentage, the
corporation would be forced to change its investment
strategy to maintain liquidity. As long as the ERA was kept
at healthy level, there would not be a problem. He agreed
with bringing Ms. Rodell back to answer questions, as the
committee was not in a rush. He wanted to avoid
speculation.
Representative Wilson agreed. She reemphasized hearing Ms.
Rodell talking about looking to invest in the same fashion
in a fund that would keep growing as a savings no one would
rely on except for the dividend. If the state was going to
be using it for government, the investors would invest
differently. She hoped her question could be answered.
2:10:32 PM
Representative Guttenberg was under the impression that,
whatever the management style, one group managing the
Permanent Fund would be told to do "X" instead of "Y."
However, the particular component only dealt with outside
management fees rather than the result of an investment
style. He thought it could impact how the state managed the
fund and the investment manager fees. He argued that it was
not possible to tell what affect it would have. It was
outside of the Permanent Fund to pay for management fees.
He wondered if he was correct. Mr. Burnett responded that
the fiscal note was for management fees paid for by APFC to
money managers for the Permanent Fund. The changes in the
bill were minimal compared to other changes that were in
the budget such as adding investment officers, or changes
in market value of the fund due to market experience. The
bill was not what would cause a change in their budget.
Mr. Burnett reviewed the fiscal note by DOR, Taxation and
Treasury, Permanent Fund Dividend Division, with OMB
component number 981. The fiscal impact for ongoing
operations was zero. However, there was and $8,000
programing charge at the very beginning due to changes in
the application. The workload and operations of the
Permanent Fund Dividend Division would not change.
Representative Pruitt gave his interpretation which he
thought was the same as Mr. Burnett's.
2:14:16 PM
Mr. Burnett thought it was a very simplified way of looking
at it. When a person applied for their PFD, they would be
able to specify that a portion of it could be used to make
their tax payment. It would be an estimated amount. For
some people, the amount might equal their entire dividend
and for others, only a portion of it. Co-Chair Seaton added
that there might be a checked box to specify that a person
would not owe anymore.
Mr. Burnett had reviewed the fiscal notes from DOR. There
were also fiscal notes by the Department of Corrections
(DOC) and by the Department of Administration (DOA). He
could speak to the fiscal note by DOA. The fiscal note had
to do with the Office of Administrative Hearings. The
department was estimating hearing costs in the amount of
$174,000 in the first year and staying in the $170,000
range in the out years. The Office of Administrative
Hearings had looked at other states with personal income
taxes to estimate hearing costs. Appeals were anticipated,
as some people believed the state did not treat them well
in the collection of their taxes. The fiscal note reflected
general funds. He mentioned the possibility of substituting
a fiscal note in interagency receipts and putting the
general funds in DOR's fiscal note. The amount had to come
from one place or the other.
Representative Wilson mentioned those individuals that did
not live in the state, especially if they had a joint
return where some assets were in Alaska and some were in
another state such as Washington. She asked if appeals came
from folks with joint returns or from Alaskan residents.
Mr. Burnett was not positive where the appeals would come
from. He described the appeal process. The first appeal
would be handled within DOR. If it was not satisfied there,
it would go to the Office of Administrative hearings, then
to court. He suggested that a person could suspect that
there would be appeals by people, whether they had income
earned in the State of Alaska or attributed to the State of
Alaska. However, there were a number of other reasons. He
cited an example.
Representative Wilson asked about a scenario with a couple
where one person worked in Alaska and the other did not.
She asked about the person earning income in the state and
whether they would only claim their job income from Alaska.
She relayed that most of their assets, like a checking
account, might be in Washington state, for example. Mr.
Burnett deferred to Mr. Spanos.
2:18:54 PM
Mr. Spanos wondered if Representative Wilson was asking
whether an employee who worked only on the North Slope,
lived in Washington, and had income from investments and
other sources would only be paying income tax on the
portion from the North Slope. Representative Wilson
responded in the affirmative. Mr. Spanos indicated she was
correct. If income made working on the North Slope was the
only source of income they made in the state, they would
only be paying tax in Alaska on the North Slope income.
Representative Wilson asked about a resident with a
business outside of the state. She wondered if that
business would only be taxed by the other state. Mr. Spanos
responded that it depended on whether the other state had
an income tax and the income tax was as much or greater
than in Alaska. If so, the income would presumably be taxed
in the other state. The business would get a credit.
However, if the business was in a state with no income tax,
then it would be taxed entirely in Alaska due to the
person's residency in Alaska.
Representative Wilson suggested that if she had investment
properties, such as rentals, in other states as long as the
states had an income tax, she would be able to apply her
credits to her Alaska filing. Mr. Spanos relayed that for
the investment income, as long as it was taxed by that
state, a person would receive a credit against taxes paid
in Alaska.
Vice-Chair Gara asked how the interstate tax compact
worked. It was easy to understand that with a state income
tax, a person would be taxed on their Alaska income. There
were two parts of the bill's definition of Alaska income:
one for individuals who earned their wages in Alaska and
one for businesses. Issues arose when a person had a
business in another state, such as Arizona. It would be
different if a person did not pay Arizona taxes versus if
they did pay Arizona taxes. He thought the interstate tax
compact came into play in certain circumstances. Mr. Spanos
could not speak to whether it was based on the interstate
tax compact. There was some general language provided by
the Multi-State Tax Commission to help with interstate
taxes. It was based on fairly apportioning income to where
it was earned to avoid double taxation. A tax could be
found unconstitutional if it did not fairly apportion
income or apply income to its source.
Vice-Chair Gara thought the multi-state issue was that
there were constitutional limitations. The states that
participated found a way to avoid double taxation by
adopting similar rules. He asked if he was correct about
the idea behind the tax compact. Mr. Spanos believed Vice-
Chair Gara was referring to corporate taxes. He referred to
unified taxation between states which was the pre-factor
formula that the state had for corporate taxes. The formula
included property, payroll, and sales. He continued that if
every state had the exact same statute, the income would be
fairly apportioned among the states. It had been some time
ago that the Multi-State Tax Commission had suggested such
language. Alaska had incorporated the language word-for-
word into Alaska's statute (AS 43.19). However, most states
have changed it slightly so that if a person had a business
in all 50 states, they might be taxed on their income more
than once. The courts have looked at whether it was fair if
state tax was applied in all 50 states.
2:24:39 PM
Vice-Chair Gara interrupted Mr. Spanos. He was not trying
to use Mr. Spanos' time on his own bill. On the bill before
the committee, he wondered about a business outside of
Alaska that sold products in Alaska. He wondered how the
tax would be applied. Mr. Spanos asked Vice-Chair Gara to
clarify his question. Co-Chair Seaton asked Vice-Chair Gara
to limit his questions to the topic of individual income
tax.
Vice-Chair Gara wondered about an individual (Not a C
corporation) who owned a business in Arizona and lived in
Arizona but sold products in Alaska. He asked if the income
tax would apply to them. Mr. Spanos restated the question.
Vice-Chair Gara was talking about a business that operated
via the mail and had no presence in Alaska. Mr. Spanos
responded that generally, for corporations, the US Supreme
Court found that companies would not have a taxable nexus
in Alaska without a physical presence. He thought the same
would apply to S corporations, partnerships, and sole
proprietorships. Generally, an income tax would not apply
unless a business had an employee in Alaska receiving and
dispersing goods, an office in Alaska, or a sales person
that traveled to Alaska occasionally to make sales calls.
These conditions would create a physical presence nexus and
trigger Alaska to apportion part of the business' income.
Most states did not tax only sales. He thought the same
would apply to individual income taxes.
Representative Pruitt spoke to the fiscal notes and the
Office of Administrative Hearings. He spoke to tax auditors
and the need by 2020. He asked how many IRS tax auditors
were in Alaska. Mr. Burnett did not know. Mr. Spanos did
not know.
Representative Pruitt asked about the need for auditors.
Mr. Spanos replied it would depend on several factors. He
recently spoke to the House Finance subcommittee about
corporate income tax auditors. He had stated that if the
department had more resources, it could potentially raise
more revenue. He thought the same would apply to individual
income tax. Generally, most states had discovered that by
adding additional auditors, more revenue was generated.
Most people tried to avoid or evade paying taxes. People
tended to be more diligent about reporting all of their
income when additional auditing was taking place.
2:30:00 PM
Representative Pruitt referred to the Office of
Administrative Hearings' request for one full-time auditor.
He noted that in the seventies Alaska's income tax
accounted for about 20 percent of the workload for 3
revenue appeals officers. Since that time, the state has
increased by 84 percent. He asked if the state would
eventually need another administrative judge. He wondered
if one position was sufficient, as the state had grown
substantially. Mr. Spanos answered that the individual
income tax cases in other states were mostly resolved or
settled at the first stage of the appeal, which in Alaska
was handled by DOR. The Office of Administrative Hearings
indicated the one position would be sufficient for now. The
complexity of cases would influence hiring. He suggested
that most cases were easily resolved through an informal
conference. If individuals were appealing that they did not
have a taxable nexus, the appeal process would be more
complicated and require going up further in the appeal
process.
2:32:01 PM
Ms. Hansen was available for questions.
Representative Pruitt thought it would be interesting to
hear from the Board of Public Accountants. He suggested
asking the board for a name of someone to talk to about
some of the complexities and potential challenges with the
bill. He mentioned the focus had been on the income tax
portion of the bill rather than on the Permanent Fund. He
opined that for many people, changes to the Permanent Fund
would have a larger impact. He hoped to hear from an
outside economist about the impact individuals. He thought
the macro side of things had been explored. However, he
wanted to know what a middle-class individual should
expect. He wanted to better understand how things would
trickle down. He asked if the committee would be hearing a
different perspective.
Co-Chair Foster thought the committee could work with
Representative Pruitt in finding an individual or
organization to come before the committee. He invited Co-
Chair Seaton to comment.
Co-Chair Seaton responded that they had heard testimony
from the Institute of Social and Economic Research and
Northern Economics and other people who had done reviews
looking at impacts to the economy. He did not have anyone
lined up to speak to the impacts of individuals. He offered
that 41 other states had income taxes with neighboring
states with income taxes. The complexities of in-state and
out-of-state income taxes and filing returns in multiple
states was a very common process across the United States.
There were only 7 states that did not have an income tax.
He was not sure who he would invite to testify but would
appreciate any suggestions.
2:37:12 PM
Representative Wilson asked if there was any income
excluded from the bill. Ms. Hansen responded that the bill
was based on federal tax liability. Therefore, anything
taxed at the federal level would be taxed at the state
level with the exception of things states were not allowed
to tax. For example, income from federal bonds was an
exemption in the bill.
Representative Wilson asked if a sole proprietorship would
be taxed differently from a limited liability corporation.
The income from her sole proprietorship was reported on her
federal income tax filing. She would be taxed at 15
percent. If she were a different entity she would not be
taxed at the same level. She asked if she was accurate. Ms.
Hansen believed she was correct but deferred to Mr. Spanos.
Mr. Spanos responded that S corporations and partnerships
had pass through income, meaning that the income was not
taxed at the partnership or S corporation level. Rather, it
was reported down to the individual owners or shareholders.
They reported that information on their federal Form 1040
and paid taxes on it federally. It would be included as
income.
Representative Wilson asked if an individual and a sole
proprietor would be taxed in the same way. She asked if
there was a difference. Mr. Spanos answered that a sole
proprietor would fill out a Schedule C form showing income
and business deductions. A business partnership would file
Form 1065 and would report it to the individual. Income and
deductions would be reported proportionate to a partner's
percentage of ownership. The rules could become
complicated. If a partner owned 50 percent of a business,
they would report 50 percent of the income and take 50
percent of the deductions on their individual income tax
return.
Representative Wilson wondered if a study had been done
showing that businesses would leave Alaska because of a
sweeter deal in another state that did not have an income
tax. She asked if there was any data or a map showing who
would be paying income taxes. She thought the same people
who were already paying property taxes and sales taxes
would be paying income taxes. She wanted to know who would
be paying income taxes and other taxes in different areas
of the state. She did not want the same people being taxed
over and over again.
2:42:14 PM
Co-Chair Foster wondered if there was anyone wanting to
address Representative Wilson's question.
Representative Wilson was not expecting that someone would
be able to draw her a map quickly. She wanted to have a
better understanding. She mentioned hearing about
high-income and low-income folks but thought all of the
bills targeted middle-income people. She did not believe it
was anyone's intention to target one specific group of
people. She thought a map would be helpful.
Co-Chair Foster asked if there was anyone willing to look
into it and get back to the committee. Representative
Kawasaki informed the committee that there was a report
sponsored by the Rasmussen foundation that came out in late
April 2016. It discussed exactly what Representative Wilson
had brought up. It used a generic income tax model along
with a PFD testing regressively. There were documents
specific to Alaska and specific to certain types of taxes.
Co-Chair Seaton pointed out that there were no other income
taxes in Alaska. He noted that no local jurisdictions had
income taxes. The proportion of income tax that would be
paid was based on a person's income and location. If people
worked on the North Slope and were high-income individuals,
they would be paying on their income. There were no other
state taxes except the fuel tax. The taxes at local
jurisdictions that had been voted on to pay for special
services were different from taxes paid to the state
treasury to provide infrastructure in Alaska. He thought it
was important to distinguish state taxes from local taxes
and not refer to them as double taxes.
Representative Wilson did not believe it was the intent of
any member to overburden any one group. She agreed that not
all taxes were state taxes. However, they were all taxes on
Alaska residents. She thought it was important not to lose
sight of the burdens being placed on Alaskans. Although
some taxes were not imposed by the state, they still had a
significant effect on Alaskans.
2:46:19 PM
Representative Grenn echoed Representative Pruitt's desire
for a more detailed breakdown regarding individual tax
payers. He noted he had sent out the tax matrix document to
some of his constituents. It was a good matrix which
included single, married, and married with children. The
chart was a good starting place. He wanted to see
additional detail and echoed Representative Pruitt's
proposal to get more information.
Representative Tilton had a technical question on taxation.
She relayed that when a person filed their taxes they could
take a deduction of their state income tax. From her
understanding, though, a person could not deduct a state
income tax and a sales tax at the same time. The person
would be paying a tax on the sales tax. She wondered if she
was correct. Mr. Spanos clarified that Representative
Tilton was saying that the federal government did not allow
a person to deduct both an income tax and a sales tax. He
thought she wanted to know if they would be paying tax on a
sales tax. He asked her if he had understood her question
correctly.
Representative Tilton suggested that a person would be
paying a tax on a tax that had already been paid. Mr.
Spanos responded that the deduction for sales tax was a
line item deduction on the federal form which allowed a
person to receive a benefit for taxes paid to the state.
The income tax and the sales tax were not quite the same.
There had been complaints from states that imposed a sales
tax but not an income tax about not receiving the same
benefit as other states with an income tax. It was similar
to congress applying the allowance per deduction against
sales tax. If someone claimed the income tax because it was
a choice, a person could claim their income tax or sales
tax, whichever was most beneficial to the individual. If
someone were to choose to claim their income tax because it
was more beneficial, they would not be really losing
anything and would not be paying the income tax twice.
Representative Tilton agreed that they would not be paying
an income tax twice. However, their income could be higher
because they would not have the deduction. Mr. Spanos
responded, "Correct." They would have to choose to deduct
either their state income tax or the local sales tax.
Representative Tilton also wanted to know more about hoe
the bill would affect private sector jobs and the state's
economy overall.
Vice-Chair Gara referred to Representative Wilson's
question about whether companies would come to or leave
Alaska if the state imposed an income tax. He suggested
that every business in the world would be in the 9 states
that did not have an income tax right now if it was a
company's goal to locate to a place with the lowest income
tax. He mentioned that Alaska had the fourth lowest income
tax in the nation. He requested that Mr. Spanos address his
points.
2:51:27 PM
Representative Pruitt referred to a question he had asked a
prior day. He had heard the answer but was not comfortable
with it. He had asked about 401K plans and the elderly. He
noted 10 percent would be added to capital gains. He could
not understand the answer that was provided. The idea was
that a person could offset their taxes until later. Many
people operated under the understanding that Alaska did not
have an income tax and they planned on retiring in the
state. He wanted to confirm that the state would be
imposing an additional 10 percent capital gains tax on top
of the federal capital gains tax of 28 percent. He wondered
if he was correct about the ramifications for a senior
drawing from their 401K. He wondered how such a policy
would impact Alaska's senior population which was currently
growing. Ms. Hansen responded that she was in the midst of
putting together a list of how the different pension
disbursements were counted. Some would be counted as
capital gains and some would not. She would be able to more
cleanly answer his question once she completed the list.
Representative Pruitt asked for more information to be
provided. Mr. Spanos added that most 401K plans were taxed
as ordinary income at the same income rate as a paycheck.
Co-Chair Seaton added that the purpose of the capital gains
tax was to approximate the taxation on capital gains as if
it were ordinary income. There were some calculation
difficulties in the bill currently, which he was looking at
correcting. The idea was for all income to be taxed about
equally. He would get back to members with further
clarification.
Vice-Chair Gara also had concerns about capital gains. In
the bill he thought that the 10 percent tax only applied to
long-term capital gains.
Co-Chair Seaton wanted to let people know that in response
to public testimony, testimony by representatives from
APFC, and some of the modeling of the bill, the co-chairs
were posing some amendments to the sections that related to
the POMV draw on the ERA. As soon as the amendments were
finalized, they would be put forward for committee review
and consideration. It could happen by the end of the week
as long as the amendments were drafted in time to give
members 24 hours to review them before they came before the
committee. It would not be the final round of amendments.
HB 115 was HEARD and HELD in committee for further
consideration.
Co-Chair Foster reviewed the agenda for the following day.
ADJOURNMENT
2:56:32 PM
The meeting was adjourned at 2:56 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 115 Amendment Additional..pdf |
HFIN 2/21/2017 1:30:00 PM |
HB 115 |
| HB 115 Amendment Pkt..pdf |
HFIN 2/21/2017 1:30:00 PM |
HB 115 |
| HB 115 Answers to 2.21 questions_Alaska state-local tax_ITEP who pays_2.22.2017.pdf |
HFIN 2/21/2017 1:30:00 PM |
HB 115 |
| HB 115 answers to 2.21 questions_Alaska taxable 2017.pdf |
HFIN 2/21/2017 1:30:00 PM |
HB 115 |
| HB 115 Answers to 2.21.2017 committee questions_ISER- impacts_February 2017.pdf |
HFIN 2/21/2017 1:30:00 PM |
HB 115 |
| HB 115 Opposition Documents PKT 7 3.1.17.pdf |
HFIN 2/21/2017 1:30:00 PM |
HB 115 |
| HB 115 Support Documents PKT 7 3.1.17.pdf |
HFIN 2/21/2017 1:30:00 PM |
HB 115 |