Legislature(1995 - 1996)
03/08/1996 01:12 PM JUD
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HOUSE JUDICIARY STANDING COMMITTEE March 8, 1996 1:12 p.m. MEMBERS PRESENT Representative Brian Porter, Chairman Representative Joe Green, Vice Chairman Representative Con Bunde Representative Al Vezey Representative Cynthia Toohey Representative David Finkelstein MEMBERS ABSENT Representative Bettye Davis COMMITTEE CALENDAR HOUSE BILL 493 "An Act relating to involuntary commitment for alcoholism or drug abuse." - SCHEDULED BUT NOT HEARD HOUSE BILL 462 "An Act relating to the offenses of driving while intoxicated and refusal to submit to a chemical test of breath or blood; amending Rules 6 and 32.1, Alaska Rules of Criminal Procedure; and providing for an effective date." - SCHEDULED BUT NOT HEARD HOUSE BILL 536 "An Act relating to charitable gaming." - SCHEDULED BUT NOT HEARD HOUSE BILL 341 "An Act establishing a tax court to consider and determine certain taxes and penalties due and collateral matters, and amending provisions relating to taxpayer challenges to the assessment, levy, and collection of taxes by the state; and providing for an effective date." - HEARD AND HELD PREVIOUS ACTION BILL: HB 493 SHORT TITLE: INVOLUNTARY COMMITMENT:ALCOHOL/DRUG ABUSE SPONSOR(S): REPRESENTATIVE(S) IVAN JRN-DATE JRN-PG ACTION 02/09/96 2698 (H) READ THE FIRST TIME - REFERRAL(S) 02/09/96 2698 (H) JUDICIARY, FINANCE 02/23/96 (H) JUD AT 1:00 PM CAPITOL 120 02/23/96 (H) MINUTE(JUD) 02/26/96 (H) JUD AT 1:00 PM CAPITOL 120 02/26/96 (H) MINUTE(JUD) 03/08/96 (H) JUD AT 1:00 PM CAPITOL 120 BILL: HB 462 SHORT TITLE: DRUNK DRIVING: EVIDENCE & SENTENCING SPONSOR(S): REPRESENTATIVE(S) PORTER,Toohey JRN-DATE JRN-PG ACTION 02/02/96 2606 (H) READ THE FIRST TIME - REFERRAL(S) 02/02/96 2606 (H) TRANSPORTATION, JUDICIARY 02/28/96 (H) TRA AT 1:00 PM CAPITOL 17 02/28/96 (H) MINUTE(TRA) 03/06/96 (H) TRA AT 1:00 PM CAPITOL 17 03/06/96 (H) MINUTE(TRA) 03/08/96 (H) JUD AT 1:00 PM CAPITOL 120 BILL: HB 536 SHORT TITLE: CHARITABLE GAMING:PERCENTAGE TO CHARITY SPONSOR(S): FINANCE JRN-DATE JRN-PG ACTION 02/29/96 2962 (H) READ THE FIRST TIME - REFERRAL(S) 02/29/96 2962 (H) JUDICIARY 03/08/96 (H) JUD AT 1:00 PM CAPITOL 120 BILL: HB 341 SHORT TITLE: TAX APPEALS/ASSESSMENT/LEVY/COLLECTION SPONSOR(S): REPRESENTATIVE(S) GREEN JRN-DATE JRN-PG ACTION 05/09/95 2042 (H) READ THE FIRST TIME - REFERRAL(S) 05/09/95 2042 (H) RES, JUD, FINANCE 10/24/95 (H) RES AT 9:00 AM ANCHORAGE LIO 10/24/95 (H) MINUTE(RES) 01/19/96 (H) RES AT 9:00 AM CAPITOL 124 01/19/96 (H) MINUTE(RES) 01/24/96 (H) RES AT 8:00 AM CAPITOL 124 01/24/96 (H) MINUTE(RES) 01/26/96 2536 (H) RES RPT CS(RES) NT 1DP 4NR 3AM 01/26/96 2537 (H) DP: GREEN 01/26/96 2537 (H) NR: OGAN, AUSTERMAN, KOTT, WILLIAMS 01/26/96 2537 (H) AM: NICHOLIA, DAVIES, LONG 01/26/96 2537 (H) FISCAL NOTE (COURT) 01/26/96 2537 (H) ZERO FISCAL NOTE (REV) 01/26/96 (H) RES AT 8:00 AM CAPITOL 124 01/26/96 (H) JUD AT 1:00 PM CAPITOL 120 01/26/96 (H) MINUTE(RES) 01/26/96 (H) MINUTE(JUD) 01/29/96 (H) JUD AT 1:00 PM CAPITOL 120 01/29/96 (H) MINUTE(JUD) 02/28/96 (H) JUD AT 3:00 PM CAPITOL 124 02/29/96 (H) JUD AT 4:00 PM HOUSE FINANCE 519 02/29/96 (H) MINUTE(JUD) 03/01/96 (H) JUD AT 8:00 AM CAPITOL 124 03/06/96 (H) JUD AT 1:00 PM CAPITOL 120 03/08/96 (H) FIN AT 8:00 AM HOUSE FINANCE 519 03/08/96 (H) JUD AT 1:00 PM CAPITOL 120 03/08/96 (H) FIN AT 1:30 PM HOUSE FINANCE 519 WITNESS REGISTER DAN SECKERS, Chairman Tax Committee of the Alaska Oil & Gas Association (AOGA) Alaska Tax Counsel for EXXON 3301 C Street, Suite 400 Anchorage, Alaska 99503 Telephone: (907) 564-3776 POSITION STATEMENT: Provided information on HB 341 TOM WILLIAMS Tax Committee of the Alaska Oil & Gas Association Alaska Tax Counsel for BP P.O. Box 196612 Anchorage, Alaska 99519-6612 Telephone: (907) 564-5955 POSITION STATEMENT: Provided information on HB 341 DEBORAH VOGT, Deputy Commissioner Department of Revenue P.O. Box 110405 Juneau, Alaska 99811-0405 Telephone: (907) 465-2300 POSITION STATEMENT: Provided information on HB 341 ROBERT BRIGGS, Assistant Attorney of Law Oil, Gas & Mining Section Department of Law P.O. Box 110300 Juneau, Alaska 99811-0300 Telephone: (907) 465-3600 POSITION STATEMENT: Provided information on HB 341 ACTION NARRATIVE TAPE 96-31, SIDE A Number 000 CHAIRMAN BRIAN PORTER called the House Judiciary committee meeting to order at 1:12 p.m. Members present at the call to order were Representatives Green, Toohey, Vezey and Finkelstein. Representative Bunde arrived at 2:04 p.m. Representative Davis was absent due to a death in her family. HB 341 TAX APPEALS/ASSESSMENT/LEVY/COLLECTION CHAIRMAN PORTER noted that the first bill for consideration was CSHB 341 and added that a joint hearing took place with the House Judiciary and House Finance Committees already regarding this legislation. He asked that the sponsor give an opening statement and a status report as to the legislation in it's present form. He also asked that the industry representatives and the Department of Revenue representatives come forward to present testimony as well. Number 222 REPRESENTATIVE JOE GREEN as sponsor stated that at the joint hearing already mentioned Mr. Paul Frankel, a partner of Morrison & Foerester, a New York law office gave a presentation regarding tax court systems. Mr. Frankel is an international expert on tax appeal and he is very knowledgeable about how these systems work in other states. Representative Green noted that while there were still some sticking points to this legislation he stated that he was extremely pleased with both the stake holders and the department for a very cooperative and focused series of meetings. There were still points which hadn't been resolved and he felt as though these could be answered in the House Judiciary Committee hearings. REPRESENTATIVE GREEN said that the draft before the committee 9LS1129/R dated 3/7/96 was the product to the best of everyone's ability to iron out a myriad of small difficulties encountered and compromises given on both sides, but there are were major sticking points left to resolve. The bill as drafted incorporates the institution of a quasi-judicial board established within the Department of Administration which would act on appeal matters brought before it and the members of this board would be nominated by the governor and confirmed by the legislature. Representative Green noted that there was a fairly strong difference of opinion on both the board and the makeup of the legislative approval for confirmation. Most of the other issues have been resolved. He added that there are still some very minor points that are being worked out. Representative Green also mentioned three amendments which he brought to the committee which did not cover points of contention, but oversights relating to wording agreed to in subcommittee. Number 491 REPRESENTATIVE AL VEZEY stated that his first question dealt with a two person make-up of this tax court and he personally didn't see that they would need more than this amount of people. He noted also that it took the majority of the board to dismiss one of these individuals. REPRESENTATIVE GREEN clarified that this majority would be of the other members. He noted that this was the case because it takes more than one individual to make up a board. Whether or not, one, or two or three would be sufficient would certainly depend on the case load and this bill began as establishing a tax court which would handle essentially hydro-carbon type appeals because while these cases don't represent a large number they certainly represent a magnitude dollar wise. The appeals which are brought before the department, superior court or otherwise are large in regard to the dollar amount. This tax court system was modified significantly through the efforts of the Department of Revenue. The governor also introduced a similar bill, but that one covers more situations other than hydro-carbons. This is mentioned in the opening page of the legislation. Representative Green added that there may well be more than two legislative law types of judges which are needed to handle this case load. REPRESENTATIVE VEZEY thought that the essence of Mr. Frankel's testimony revolved around the fact that it didn't matter where they created the Board of Tax Appeal as long as it wasn't in the Department of Revenue. CHAIRMAN PORTER stated that it was his impression that Mr. Frankel said that this panel should not be in the Department of Revenue, but there were varying degrees of comfort which might be felt by everyone involved depending on where else it was placed. REPRESENTATIVE GREEN also stated that "the further the better" was the concept behind where the court was placed and it was going to be further in the first bill, but they got into a problem in establishing a tax court which might not have a tax expert appointed to it. They then decided to leave it not in the Department of Revenue, but the Department of Administration. He then gave a very brief overview of how someone would move through this system. REPRESENTATIVE GREEN said that the appeals now stay within the Department of Revenue until they go to court. Under the new system this method allows for an informal hearing within the department and then there would be a formal hearing within the Department of Administration and the case would be heard by a tax expert. The alternative to this process is that a person can go from an informal hearing, by-pass the formal review, and then go directly to superior court. The reason for this is to allow at least some place for a de novo hearing so all the facts can be heard, rather than it stay in the Department of Revenue and finally get to an adjudication where that amount of information be forwarded on to the superior court. This could create a possible prejudice situation. DAN SECKERS, Chairman, Tax Committee of the Alaska Oil and Gas Association (AOGA) and Alaska Tax Counsel for Exxon introduced himself, as well as noted that there were others members of AOGA in attendance from Marathon, Unocal and ARCO was on line from Anchorage. He read the following statement into the record: "AOGA is a trade association whose 19 member companies account for the majority of oil and gas exploration, production, transportation, refining and marketing activities in the state of Alaska. We are grateful again for this opportunity to offer our comments, which reflect the unanimous consensus of the Tax Committee. The present tax appeals process is, we believe, seriously flawed in practice and denies taxpayers the opportunity to have their tax appeals heard and decided by a truly independent and impartial tribunal. The draft Judiciary CS for HB 341 would significantly reform this process. There are nine areas in particular which we would like to address. In some areas we have reached agreement with the Administration, and in others we have not. 1. Legislative confirmation. Unlike the Department of Revenue, AOGA believes it is sound public policy for the Legislature to confirm appointments to the administrative law judge positions. These people may decide cases involving tens or even hundreds of millions of dollars in tax claims. Surely the Legislature has a proper interest in ensuring that these people are qualified, capable and fair. AOGA also supports confirmation because it provides taxpayers with an opportunity to comment on a candidate before the decision to appoint him or her becomes final. This ensures that, in the event someone is named who has demonstrated bias or similar improper conduct in the past, that there will be an opportunity to make people aware of those facts before the appointment becomes final. Finally, AOGA supports confirmation because it prevents an improper influence that the Executive Branch may otherwise have over an administrative law judge if it could hold out the lure of appointment or reappointment over that person. We are not saying that this has ever happened, nor that we believe it is likely to happen. But the point is, it could happen. By having an independent body like the Legislature involved, even the possibility of this happening is removed, since the Executive Branch would no longer be able to 'deliver' on such a promise on its own. Under Bradner v. Hammond, 553 P.2d 1 (Alaska 1976), legislative 11confirmation is allowed under the 'separations of power' doctrine only to the extent it is specifically authorized under the Alaska Constitution. AOGA is pleased to see that '9-LS1129\R' dated 3/7/96 (which I will refer to as 'Work Draft R' in the rest of my testimony) includes provisions to ensure that the new administrative law judges will fall within the scope of allowable legislative confirmation under section 26, Article III of the Alaska Constitution. 2. Standards of review. It is important here to emphasize at the outset that AOGA and the Department of Revenue are in fundamental agreement about the standards by which the tax claims made by the Department are to be reviewed. On questions of fact, both sides agree that disputes about what actually happened should be heard and decided as if there were a clean slate. This is the heart of what the attorneys call 'trail de novo.' On questions of law, which most often relate to what a particular statute or regulation means, the administrative law judges will not be bound by the legal positions taken by the Department of Revenue, but will be free to decide for themselves which position or interpretation is best. On questions where the Department has been legally vested with discretion, its exercise of that discretion is to be upheld so long as it is has a reasonable basis. While both sides endorse these standards of review, it is probably also true that both have concerns about how the last two will work in practice. Given the broad statutory mandates of the Department to administer, collect and enforce the state's tax laws, taxpayers are concerned that almost any legal question could potentially be characterized as one involving the Department's discretion. In practice, this would make a dead letter of the 'substitution of judgment' standard for ordinary legal issues, which is something we, as taxpayers, do not believe is appropriate or intended. Conversely, an unduly narrow reading of when the Department is legally vested with discretion could end up impairing the Department's proper exercise of the discretion that the Legislature intended it to have, which is something we doubt is either supported by the Department or intended by your Committee. Because of the decision about which rule applies is so dependent on the particular circumstances of each individual case, we do not see a way to legislate so as to ensure that the administrative law judges will make the right call in choosing which rule to apply. Instead, we will have to trust the administrative law judges to call balls as balls and strikes as strikes in this area. However, because the question of which rule is applicable is itself a legal question, the administrative law judges will decide this question for themselves on a case-by-case basis without being bound by the Department's characterization of it. This gives them the authority to decide independently, which is as far as one can go with legislation. Whether they actually exercise that authority in practice will be up to the individuals who are named as the administrative law judges. There is one change however, that AOGA urges the Committee to make to Work Draft R. In lines 15-16 on page 4, you should delete the words 'the finding of fact of the informal conference decision are presumed correct unless the taxpayer rebuts the findings' and also delete the semicolon at the end of line 16. AOGA is pleased to see that this amendment has been introduced already by Representative Green. 3. Discovery. AOGA is in partial agreement with the Department of Revenue about the subject of discovery. The Administration's bill (HB 427) would generally limit discovery to only that information which would actually be admissible in the formal hearing. AOGA pointed out that there some types of discovery in which it is impossible to know in advance whether it will yield admissible evidence or not. For example, a taxpayer should be able to find out whether the State has been taking a consistent position with other taxpayers on an issue or not. If it has been consistent, then there is no issue, and the answer to the question is irrelevant and inadmissible. But if the State has been inconsistent, then it becomes highly relevant to the question of discrimination against particular taxpayers, or whether the Department has actually adopted a position on the issue. There was no disagreement over AOGA's point, nor did AOGA disagree with the Department's concern that open-ended 'fishing expeditions' should be prevented. As a result of discussions with the Department of Revenue, compromise language was developed on this matter which is satisfactory to both sides. AOGA is pleased to see that compromise language appears in Work Draft R, beginning with line 28 on page 4 and continuing through line 5 on page 5. However, the other area regarding discovery is one where AOGA and the Department of Revenue do not agree. The Department wants to declare inadmissible, as a matter of law, evidence about the legislative history of bills that did not pass, about regulations that were not adopted, and about other taxpayers. AOGA acknowledges that in many cases these types of information may be irrelevant. But there have been real cases in the past where these types of evidence were in fact highly relevant to issues in the appeal. It is therefore important not to prevent this information from being discovered and admitted as evidence when it is relevant. The latest language offered by the Department to AOGA still declares these types of evidence to be irrelevant as a matter of law, even though it then proceeds to authorize the administrative law judges to make exceptions and admit the evidence anyway. We believe it is completely inappropriate to declare an entire category of evidence to be irrelevant when in fact everyone knows that sometimes the evidence can in fact be relevant. Therefore, AOGA cannot endorse the Department's most recent proposal. We believe the language already in Work Draft R sufficiently authorizes the administrative law judge to prevent discovery from becoming abusive in tax appeals and thereby lead to greater efficiency. Ultimately, one reaches a point in legislation where one has fully enabled people to do the right thing, and thereafter one must trust that those people will actually exercise their authority and do it. We believe this is where we are with respect to this area in the subject of discovery. 4. Option to go directly to court. The option of proceeding directly to Superior Court instead of to the new administrative law judges was not something that AOGA had originally proposed. However, we find merit in this proposal and accordingly endorse it. Although we agree with the Administration that most taxpayers will prefer that tax expertise and procedural rules of the new system of administrative law judges, there may be times when it would be more efficient and expedient to proceed directly to court. For example, when it is clear that a particular issue will likely be appealed to the Superior Court and beyond, the taxpayer may prefer to proceed directly to court to avoid the time and expense of going first to an administrative law judge and then to court. Or, if a dispute involves issues that an administrative law judge cannot rule on, such as constitutional issues, it would make much more sense to allow a direct appeal to the forum where those issues can be dealt with. Otherwise, they could well end up having to be litigated twice - once before the administrative law judge anyway, in order to preserve the right to argue those issues later on appeal, and then again in court. As Mr. Paul Frankel mentioned in his testimony before the joint hearing of the House Judiciary and Finance Committees on February 29th, the federal tax system offers taxpayers a choice of forums. Certain states likewise provide such an option (e.g. New Hampshire, Florida, Georgia and Alabama just to name a few). By making the option available in Alaska, the State is saying to taxpayers that it is committed to ensuring the tax appeal process is fair. If any taxpayer has a residual concern about the independence of the administrative law judges, the taxpayer has the other option. But I would repeat that we expect the option of going directly to court to be one that is used only on an exceptional basis. Having a choice to go either to an administrative law judge or to court will provide a balance between the two forums and will aid each other in arriving at fair, impartial decisions: one with technical expertise and the other with judicial wisdom. 5. Court Rule change. In an earlier draft of the Judiciary CS, there was a Bill Section stating that the creation of a right to de novo review when a taxpayer elects to go directly to Superior Court is a change in Rule 609(b) of the Alaska Rules of Appellate Procedure. AOGA agrees with the legal conclusion, reflected in Work Draft R, that the creation of such a right is a change of substantive tax policy, and therefore does not require a two-thirds vote of each legislative body as would be required in a change of a Court Rule. In Matanuska-Sustina Borough v. Lum, 538 P.2d 994 (Alaska 1975), and Winegardner v. Greater Anchorage Area Borough, 534 P.2d 541 (Alaska 1975), the Alaska Supreme Court ruled that the creation of a right to de novo consideration in court is a matter of substantive tax policy, and not one of court procedure. In both cases the Court upheld a statutory right to de novo consideration in an administrative appeal despite former Appellate Rule 45, which said that court review in administrative appeals would be based on the record below. Appellate Rule 609(b) reflects the general statutory rule under the Administrative Procedures Act. AS 44.62.570, which sets the scope of judicial review for all administrative appeals to which the Administrative Procedures Act applies, does not create a right to de novo consideration in court. Rather, it says the court 'may' grant trial de novo in whole or in part, which means de novo consideration is discretionary with the judge. However, tax appeals currently are not subject to the Administrative Procedures Act, nor would they be under Work Draft R. And, as Wingardner and Lum make clear, the Legislature can, by statute, create a substantive right to de novo consideration in certain kinds of administrative appeals, and that right will be upheld even though it may be inconsistent with the Court Rules. Since it is a substantive right that would be created under Work Draft R, and not a change in the courts' internal procedure, a two- thirds vote is not needed and Bill Section 19 should be deleted. Indeed, Rule 609(b) will still apply with perfect force to those administrative appeals that are subject to the Administrative Procedures Act since, in those, there still won't be a statutory right under the Administrative Procedures Act to de novo consideration in court. 6. Public proceedings. AOGA endorses the provisions in Work Draf R to keep confidential the record, proceedings and decision in a tax appeal in front of an administrative law judge until the appeal gets to Superior Court. This reflects the rule under existing law. The Department of Revenue has proposed that the proceedings be opened at the beginning of the formal hearing process before an administrative law judge, instead of at the end of that process. AOGA sees no reason why, in moving the formal hearing to an administrative law judge outside of the Department of Revenue, there should be any change to the present rule. When a case moves to court, the full record bearing on the argument and adjudication of the issues in the case does become public. In other words, the public cannot watch a tax appeal live and in person as they watched the O.J. Simpson trial on TV. They have to wait to find out what happened. But they are not cut off from that information; eventually they do have access. Meanwhile, the existing protection of confidentiality as the proceedings unfold allows the participants to focus on the matters at hand, instead of grandstanding to a public audience. It has been suggested that the public feels uneasy about the negotiation of large tax settlements in private in the past, and that this public concern justifies opening the tax-appeal process to the public at an earlier stage than the current law provides. However, settlement discussions would still be private and confidential even if the formal hearing were opened to the public. Even the particular terms of any settlement could still be kept confidential. In other words, opening the hearings up to the public isn't a cure to the alleged problem about negotiating tax settlements in private. Nor is there a cure to this particular problem - if the State wishes to preserve the possibility of having tax settlements in the future, there will have to be a way for them to be negotiated privately and off the record. Otherwise there simply would not be any settlements. 7. Definition of 'de novo'. AOGA and the Department of Revenue have reached an agreement on the issue of whether a definition of 'de novo' should be included in the Bill or not. Both sides agree that, in the context of this particular legislation, 'de novo' means the standards and procedures for tax appeals that will be heard before the administrative law judges under the Bill. Since there is only one place that the term is used in the context of administrative law judges, inserting language there to make this clarification will eliminate the need for a definition. AOGA is pleased to see that such a clarification has been made in lines 11- 12 of p. 4 of Work Draft R. 8. Procedure to rebut the presumed production rate at the economic limit for ELF purposes under the production tax. Bill Section 15, beginning with line 27 on p. 17 of Work Draft R and running through line 7 on p. 18, makes certain amendments to AS 43.55.013(g). Section 013(g) provides for the rebuttal of a presumption about the rate of gas production at the economic limit for a lease or property. AOGA and the Department of Revenue agree that the second sentence in AS 43.55.013(g) should be changed to read as follows: 'The taxpayer may rebut this presumption by providing clear and convincing evidence of a different monthly production rate at the economic limit for the lease or property.' This change will ensure that the 'clear and convincing' standard for rebutting this ELF presumption under the present law will continue to apply under the new procedures, both in making the initial showing to the Department of Revenue and in any subsequent appeal from the Department's decision based on that showing, regardless whether that appeal goes to an administrative law judge or directly to Superior Court. It is unclear at this time whether any further changes to AS 43.055.0123(g) should be made in light of the procedural changes made elsewhere in the Bill, and AOGA and the Department of Revenue have agreed to study this question further. 9. Transition rule. AOGA is in basic agreement with the Department of Revenue that taxpayers who are far advanced in their formal hearings when the Bill becomes law should not be allowed to switch over to the new procedures and start again. Conversely, they agree with us that taxpayers who are still at a very early stage in their formal hearing proceeding should be allowed to use the new procedures. We have been unable to reach agreement with the Department of Revenue on the precise wording of such a transition rule, and so we offer our own proposal for the Committee's consideration, AOGA recommends striking in its entirety Bill Section 17(a), which appears in lines 2-15 on p. 19 of Work Draft R, and replace it with a new Bill Section 17(a) that would work as follows:" MR. SECKERS stated that rather than reading this section into the record, he would characterize it for the committee. He stated that they were basically trying to establish it so the new bill can be used by any taxpayer who hasn't progressed too far in the system so that just because the bill happens to be enacted on a given date for example, this tax payer should be precluded from having to begin their case again. CHAIRMAN PORTER asked if this should replace Section 17 in this R draft. MR. SECKERS responded that this was correct. He went on to add. "There is also a technical change to Work Draft R that AOGA would ask the Committee to make. At the beginning of line 31 on p. 2, we would ask that you insert the words 'disciplined or' in front of the word 'removed'. This would treat the chief administrative law judge the same way as the other administrative law judges are treated in lines 1-3 on p. 3. In conclusion, Mr. Chairman, we in AOGA applaud you and your Committee for your diligence and hard work in developing the Committee's CS for HB 341. We particularly applaud the subcommittee and their efforts. We also acknowledge and appreciate the willingness of the Department of Revenue and the Attorney Generals' Office to meet with us and sincerely try to resolve or at least narrow the areas of disagreement. As it has been for a number of years, the reform of Alaska's present tax-appeals system remains a priority of AOGA and its members. We believe that, with the changes outlined earlier, you will have a sound, fair and workable bill that will provide real reform to the tax appeals process. I can pledge to you that we in AOGA are committed to working with you, with this Legislature and the Administration to ensure that these reforms are enacted. Once again, thank you for the opportunity to testify." Number 2000 DEBORAH VOGT, Deputy Commissioner, Department of Revenue was next to testify on CSHB 341. "Mr. Chairman you have before you the product of a great deal of effort on the part of both the administration and the oil industry not to mention Representative Green, to develop legislation that will change the way tax matters are reviewed and appealed. As you know, this is a subject that were encouraged to give a fresh look to by the industry, and when we did look, we agreed that moving the appeal process out of the Department of Revenue is an idea whose time has come. The department worked with representatives of the industry to develop legislation that was submitted by the Governor." MS. VOGT said she wanted to emphasis that the governor's bill is the result of a long effort of a lot of meetings with people outside the administration, it's not just the administration's bill, but the result of a lot of compromises on the administration's part. Many of the provisions of the bill before the committee are taken from the governor's bill. "There are, however, a number of very significant differences that have emerged between the bill that the governor submitted and the CS that you have in front of you. While the administration has agreed to some changes in approach, and to quite a number of more minor changes, we do not agree with the CS in some important ways. I would like to address those differences, first in a general sense and then perhaps at your pleasure after the testimony, by way of actual amendment. First, the CS permits a taxpayer to take its choice between the administrative law judge review established by the bill and going straight to court for a hearing "de novo" at the superior court. This is a very substantial departure from the approach suggested in the Governor's bill and is an idea that was not suggested by the AOGA Tax Committee, in the comments that they provided to the subcommittee." MS. VOGT noted that AOGA now endorses the idea, but it was not an AOGA idea to begin with. "In our view, providing a taxpayer with the unilateral opportunity to jump out of the process and go to superior court, where the case will be randomly assigned, negates the whole purpose, the whole point of setting up an office of tax appeals. Most of you had the pleasure of hearing Mr. Paul Frankel testify last week at the joint Judiciary/Finance Committee meeting. As you know, Mr. Frankel is a taxpayer advocate with whom the Department of Revenue consulted early in this process. We asked him to review our current laws and regulations, and advise us on our system. When I first spoke with Paul and asked if he would work with us, he said he'd be happy to work with us, and he told me what he would say. He said he would say that a tax review system should have three components: First, it should be independent from the taxing agency (the Department of Revenue in this case); second, it should provide the taxpayer with the opportunity to make its case, to have its trial, to present its evidence, before the taxpayer had to pay his taxes (it should be a prepayment forum), and third, tax cases should be heard by tax professionals - by people who are trained in tax, and people who like tax. Sure enough, that's what he told us when he finished looking over our statutes and regulations and that's what he told the committee last week. In working with the taxpayers or tax representatives of some of the taxpayers to develop the governor's bill, we kept those three standards firmly in mind. The CS does not meet those criteria. A system that permits a taxpayer to bypass the administrative law judge and go straight to court for trial is not a system that provides for tax professionals deciding tax cases. It strikes terror into my heart, as a tax administrator, to think that complex tax cases, involving issues of first impression, might be decided by a superior court judge who is bored silly by tax matters. Such a decision would be binding on the department, and set precedent for all other taxpayers." MS. VOGT added that in Mr. Frankel's presentation he emphasized that most of these systems, especially the federal tax court required pre-payment if the tax payers wanted to go outside of the tax court. But secondly, if a system was established which had thousands of tax payers who argue the same issues over and over, fisheries business tax for example, she wouldn't mind in these instances if the taxpayers had an option to go directly to court. This would especially be true on a tax case where there are a lot of small tax players who are not going to be arguing over half of the state's general revenue in one year. She thought the committee should think about non-tax professionals deciding cases of the magnitude they get in Alaska. "There are other problems with the 'straight to court' option. The taxpayers that we worked with in developing the governor's bill were concerned about the language setting the standards of review. We labored and labored over the language that appears on page 4 of the bill, in Section 43.05.435. That language is very carefully drafted to provide for the de novo review that the taxpayers desire while being careful not to usurp the policy prerogatives of the Commissioner of Revenue. However, the 'straight to court' option of the CS provides no such guidance to the superior court judge. There are no standards of review at all set out, if the taxpayer goes straight to court. Apparently under the CS (and this is something they didn't discuss in the committee meeting), the taxpayer could request a jury trial. There is nothing in the legislation that would prohibit a taxpayer from requesting a jury. I would doubt that there is any place in the United States that a taxpayer can have its tax liability determined by a jury. It is a very bad idea. A tax program needs integrity and predictability, and scholarly attention. The second major difficulty with the CS is the creation of a board, appointed by the governor and confirmed by the legislature, instead of a hearing officer within the Department of Administration. The idea of legislative confirmation appeared in AOGA's comments. We pointed out that it would be unconstitutional to require confirmation of an Administrative Law Judge (ALJ) within the Department of Administration; the legislature cannot require confirmation of a person down within the bowels of an agency. Their response to this was to suggest the creation of a separate board, which they agreed would meet the constitutional requirements of Alaska's constitution. The taxpayers response to our constitutional comment was to jettison the idea of an administrative office within the Department of Administration, and to create a whole special board to hear tax appeals. Since a board cannot be just one person, the draft provides for 'at least' two members. Thus, the fiscal impact of the legislation is much higher than the governor's bill envisioned: Two highly paid board members instead of one hearing officer-style ALJ; a full time clerical person instead of half; rent for office space; office machine, furniture, equipment that would have been provided by the Department of Administration. We have provided a draft revised fiscal note; but she noted that she wasn't sure who's fiscal note this would be. The fiscal note would be significantly in excess of the fiscal note prepared initially for $125,000 for a hearing officer within the department. The taxpayer's concern that is intended to be addressed by legislative confirmation option is independence. We agree that the administrative law judge set up by this legislation should be the best available person; should have integrity; should be independent; should not be either seen as or in fact be a 'political' appointee, appointed to carry out any particular governor's agenda or Revenue Department's agenda. But we do not agree that legislative confirmation is the way to accomplish that goal. To us, legislative confirmation makes the process more political, not less political. Judges in Alaska are not confirmed by the legislature. We don't think administrative law judges should be. We believe that the tail is wagging the dog here. We worked hard in the Governor's bill to provide protection for independence -- like the ALJ serving for a term of years, and being dismissible only for cause. If taxpayers are still uncomfortable with the provisions that were drafted in the governor's bill, we would be happy to work to find mutually acceptable protection. But an unwieldy and expensive board is the wrong way to go. The CS creates a hybrid organization without precedent. Generally, if a commission (like the Limited Entry Commission or the Public Utilities Commission) holds hearings and decides cases, the way it works is that the commissioners hire a hearing officer, who proposes a decision to the commission, which adopts or rejects it. Here, we would have a two-person commission, with each individual deciding cases. Our idea was to have a simple little office, with a chief and whoever else that person needed. But one person would be in charge. (She noted that she didn't understand how the Administrative Law Judges would work in terms of discipline, in terms of one person deciding if there were disagreement among the people in the office on how a case should be decided, etc. The CS provides that the Chief ALJ is dismissible only for cause, but by the Commissioner. She stated that this was an idea foreign to her. She noted the Permanent Fund Board where the members of the board are subject to dismissal by the Commissioner of the agency to which they are attached. She noted that Will Condon cannot dismiss Grace Shibel from the Permanent Fund Board.) The third major disagreement we have with the CS is that it provides that proceedings in front of the ALJ (or board) will be behind closed doors. Although tax hearings are now confidential in the Department of Revenue, we believed, when we drafted the governor's bill, that the time had come to open the door on these proceedings. Over the years, there has been a tremendous interest both by the public and by the legislature in the large oil and gas cases. The department has been hamstrung in talking about these cases, even to the legislature. There are strong public policy reasons to let these hearings take place in the sun. Now, if a tax payer appeals to court from the Department's decision, the court hearing is public. We believe that when a matter goes out of the department, it should be public. Allowing the sunshine in on these proceedings will allow the world to see if the independence and integrity we all seek is in fact taking place. (It would provide a measure of accountability which isn't currently there and wouldn't be under the CS). The governor's bill set up a system whereby if a taxpayer were concerned about particularly sensitive trade or competitive secrets, the taxpayer could request a protective order and certain parts of the proceeding could be protected. Although I believe that many individual taxpayers either liked or did not oppose the provision as it appeared in the Governor's bill, AOGA will only act if they are unanimous, so one objection can result in a recommendation of opposition. However, when quizzed on an individual basis, most taxpayers would not object to having the proceedings public. The administration believes these proceedings should be public. Those are the three main concerns that we have with the bill as it is drafted in work draft R. Other, more minor, matters include our preference that an administrative law judge be in the partially exempt rather than the exempt service. Exempt positions are traditionally regarded as political appointments, dismissible at will. The exempt classification is inconsistent with a desire to shield an ALJ from politics. (Exempt service goes with the idea of a Board or Commission which the department objects to.) We are disappointed that taxpayers have failed to concur in part of our recommendation of discovery." MS. VOGT stated that they did concur in part of it, but they had drafted language which would make three categories of information irrelevant and inadmissible unless the administrative law judge found that the information should be admitted in the interest of justice and these three are 1) information relating to legislation which hasn't passed, 2) information relating to a regulation which was not adopted and 3) information of a taxpayer, other than the taxpayer who's tax proceeding is at issue. As to the first two, the court's have held in relation to what the legislature didn't do, that no legal significance can be drawn from the legislature's failure to do something. As a matter of law most of this information is irrelevant. The reason they wanted the provision in the legislation is that the Department of Revenue and the state's lawyers are repeatedly asked for discovery and mountains of discovery on legislation which is not at issue in whatever tax is being litigated and legislation that in fact may not have passed. She noted that they did recognize that there might occasionally be circumstances in which this type of information should be admitted, for example, the draft CS makes the legislative history on the governor's bill concerning this subject a part of this bill, but even if it didn't pass this information would be relevant in determining the meaning of Representative Green's bill because they have been joined together. As to the information of a taxpayer other than the taxpayer at issue, information which taxpayer A gives to taxpayer B is not confidential. To the extent that one taxpayer agrees to show another taxpayer, this information wouldn't even be covered by the bill. This concluded Ms. Vogt's testimony. TAPE 96-31, SIDE B Number 354 CHAIRMAN PORTER summarized the major disagreements with this legislation for clarification. The first area was legislative confirmation, with a sidebar that deals with the boards and how that board is constituted (whether it would established to deal with a constitutional issue or not), the second, the provision in the draft that allows a taxpayer to go directly to court and circumvent the informal and formal hearing process, and third, whether the formal hearing should be confidential or not. CHAIRMAN PORTER first noted that judges in Alaska do run for what is called confirmation by an election of the public. He recalled that Mr. Frankel had said that legislative confirmation was not that unusual with other states. Number 575 TOM WILLIAMS, Tax Committee of the Alaska Oil & Gas Association, Alaska Tax Counsel for BP, said he saw no reason to second guess Mr. Frankel's knowledge and expertise. He recalled that Mr. Frankel said that where state's do have confirmation it works perfectly well and he saw no downside to this procedure. REPRESENTATIVE GREEN noted that this confirmation would involve one or more members who would act as a tax board. He noted that they would have something for them to be confirmed to as opposed to an employee within the Department of Administration. MS. VOGT noted that there was no disagreement here. If there is a confirmation provision, a board would need to exist. CHAIRMAN PORTER asked then, within this concept of a board, the notion of an appeal by the board of an individual ALJ's decision seemed to be perplexing and how would this work with a two person board. MR. WILLIAMS said that it would work much the same way as the administration proposed in their bill where there would be circulation of draft opinions between offices of two ALJ's. They could set a rule if they had a situation of a tie. Number 626 REPRESENTATIVE DAVID FINKELSTEIN noted that Alaska has Administrative Judges all over the place and they work in a number of areas. He said it seemed somewhat artificial not to require confirmation of ALJs and put them on a board, but at the same time retain provisions that they're still essentially part of the hierarchy and that the Commissioner can get rid of the Chief Administrative Law Judge and the Chief can get rid of the others. He asked if there were fooling anyone. He questioned the use of the term "board" even when the usual system for dismissing someone is applied. MR. WILLIAMS said that the word board is essential because this is what the constitution calls for, it says that a board or commission needs to be established at the head of a quasi-judicial agency. If there's confirmation, there has to be a board. The constitution is silent about how this board will operate and make it's decisions. The most immediate paradigm that comes to mind is the APUC, but it doesn't necessarily follow that this is the only way a board would end up making a decision. There are a number of provisions in the pending legislation where there are collective actions by the board. If after five years an income tax is adopted there may well be a lot of tax cases going to this board and the work load may justify having three or four ALJ's and possibly more. Even small cases considered could have important fundamental principles of law involved. Number 774 REPRESENTATIVE FINKELSTEIN said he didn't see the APUC analogy as clearly as Mr. Williams did. MS. VOGT said she understood that individuals in the Department of Law would be looking at this issues and noted that she was bothered by the same aspects. Boards and commissions are normally quasi- legislative bodies which act with quorums and act on motions, etc. This is a concept so totally different from anything she's seen in government, it's hard to know if this would work or not. CHAIRMAN PORTER asked Mr. Briggs if an APUC board member and be removed for cause. ROBERT BRIGGS, Assistant Attorney of Law; Oil, Gas & Mining Section Department of Law; said that he couldn't answer this question because this board question came up so recently, he said they were trying to get a grip on all of the different aspects of this. Number 895 MR. WILLIAMS noted that in the case of Bradner v. Hammond the Supreme Court pointed out the difference between Section 25, which provides for confirmation and boards and commissions. In Section 25 there is a specific provision that these commissioners serve at the pleasure of the governor. In Section 26 it says that they can be removed as provided by law. The court pointed out that this doesn't necessarily mean that they serve at the pleasure of the governor. The legislature has authority to prescribe how these individuals are removed and by whom. The fact that APUC Chairman can't remove other members means only that the legislature hasn't legislated this statutory power for them to do so. REPRESENTATIVE AL VEZEY said he happened to like the idea of confirmation by the legislature. He thought that this reduced the politics involved. He felt they may have created an unnecessary problem for themselves by calling this a board rather than a court. He noted that this situation goes to the problem of keeping this body separate from a department's jurisdiction. If they give a commissioner the right to dismiss any judge, they haven't got anything different than what currently exists. MR. WILLIAMS said that they were in agreement with the Administration about what cause is regarding removal. He noted that removal for cause would result as a violation of the code of conduct and such. Number 1100 CHAIRMAN PORTER next opened up the discussion about a taxpayer circumventing the process and go directly to court. He asked what circumstances did the participants see as an avenue that a taxpayer would want to pursue superior court instead. MR. SECKERS said that one case would be on constitutional issues, such as equal protection. An Administrative Law Judge would not be permitted to decide an issue such as this. MS. VOGT said that she didn't agree that an Administrative Law Judge cannot decide whether a certain set of circumstances denies equal protection. What an Administrative Law Judge cannot do is invalidate a regulation or a statute because of a constitutional challenge. The administration agrees that there are certain powers that an ALJ doesn't normally have, but they rule all the time on due process under equal protection and constitutional questions. MS. VOGT responded to Chairman Porter's question regarding if a formal hearing was de novo, would the trial be on the record of the formal hearing or would the trial be de novo, she stated that there was confusion in the use of the terms on the record. On the record, for purposes of the legislation, means that there is a recording devise, or a court reporter present at the proceedings. The administrative proceeding envisioned by everyone in the Department of Administration is a proceeding where all evidence presented by the taxpayer can be brought forward. There were certain provisions which were agreed upon that if the taxpayer refuses to show any information to the auditors or the informal conferee and then brings everything into the Administrative Law Judge, the ALJ can remand the case to the department if the department has not had an opportunity to examine the evidence. CHAIRMAN PORTER said he was concerned about the next step, from the formal proceeding, if it was the position of the taxpayer that the ALJ couldn't change the regulation or wasn't correct in their interpretation of the constitutionality of a regulation what kind of a hearing would the court procedure be, a de novo hearing or a hearing on the record of the informal hearing. MS. VOGT said that it would be on the record, but the superior court judge is going to substitute their judgment on the questions of law which a constitutional question most certainly is. Normally what happens when constitutional issues are raised to an ALJ they are simply preserved, to the extent that they are pure constitutional issues. It is very rare that pure constitutional issues arise. If so the administrative proceeding is skipped and the case goes directly to court. Often what a taxpayer can do is preserve a constitutional question for appeal. Number 1320 MR. WILLIAMS said that there is a problem when there is an appeal from the Administrative Law Judge to the superior court and it is on the record unless the court exercises it's general discretion itself and retries part of a case. It may be as an excess of caution that the taxpayer has to present it's evidence to the ALJ even though it knows that the ALJ won't be able to rule on the question (indisc. - crosstalking with Chairman Porter). Then this case goes to the superior court and then this judge is faced with the dilemma of either taking the record without being able to judge how the witness's looked and that sort of thing, which is a key element. Great transcripts can be made and actually the witnesses come off really "crummy" and conversely you can have very good witnesses who make an incoherent transcript. If the judge decides that these issues will be heard over again, these facts relating constitutional issues will be litigated twice. REPRESENTATIVE GREEN made the remark that rather than take a chance of having back to back de novo hearings, this would in fact allow a single hearing. It would then have to be decided if the case would be heard at superior court or a formal hearing within the department. Number 1411 MS. VOGT noted that she had heard the taxpayer representatives here this afternoon and earlier assert that this superior court avenue would be rarely used. She had never heard any indication of how they are suppose to know it is rarely used. It seemed to her that if an ALJ ruled against a taxpayer in a major oil and gas case this is the last time an ALJ would be used. This would rather be the avenue rarely used. With the type of Alaska cases, setting up a system where the taxpayer can take their choice of forums does not make good sense. The constitutional issue referred to was a red herring, if they want to work on making provisions to permit some special treatment for constitutional issues, they might be able to do this. MR. WILLIAMS stated that the department (indisc. - paper shuffling) to the court on the grounds that there is no specialized tax expertise in the judiciary. It might be purely happenstance that someone gets a judge who if familiar with tax law or interested in tax. This in itself is a concern to them. In the separate accounting case which Ms. Vogt referred to, Judge Carlson came out with an opinion upholding the constitutionality of the law which was one and a half pages long. Half of the page was just the caption. This was a case involving $2 billion dollars already collected in the state treasury and $6 billion by the time it reached the state Supreme Court. They don't want to go to a forum such as this one where there this type of superficial treatment, unless there is a good compelling reason otherwise. This is why they feel as though this avenue would be rarely used. MR. WILLIAMS continued that if an ALJ ruled against them, if it's an opinion which is soundly reasoned and the better the quality of this opinion, the less likely they will say this judge has a bias against them. If it is a one page opinion as noted, they would be inclined to think that there is very little point in wasting their time with the ALJ process. It would be a function of the experience, but it's also a function of who is appointed and confirmed. Their preference would be to go with the forum of expertise. Number 1587 MR. SECKERS pointed out that if a superior court judge rules against a taxpayer then it's just as equal that the taxpayer may not want to go there and rather go to the ALJ. Just because Ms. Vogt says that if an ALJ rules against a taxpayer that they're all going to go superior court could also be true in the opposite. He said they don't understand what would be the aversion to having this option available. He said he couldn't see where there would be a fiscal note to the state. The court is already in existence. Superior courts right now have to hear appeals from a formal hearing process. They would have to be competent enough to understand what the "tax expert" in the ALJ decided on the case. Superior court judges are qualified. They hear complex cases today and there's no evidence to suggest that their cases are anymore or any less complex than tax cases. Right now under the procedure provided in legislation someone goes formal, then to a de novo hearing at the ALJ level and then this is appealed to superior court, and then to the Supreme Court. While it may be true that some of the discovery procedures would be more relaxed in the court, it seems that this cost comparison would pale to the cost of a de novo for a formal hearing and then an appeal to superior court and consequently an appeal to the Supreme Court. A lot of the cases that were decided in the past were decided in the superior court in an on the record review, which was a record controlled by the Department of Revenue in it's current hearing process. This would be a de novo review. There is no way someone could suggest that the same results, a one page decision would be the product. This would be a very rare exception. Number 1732 MR. BRIGGS addressed some of the points made by Mr. Seckers. One of the features of HB 427 was to create a system for creating a body of precedent of tax law through the ALJ and this provision is in the CS now considered. The problem with the dual track system created by work draft R is that it is unclear which opinions would be controlling, either the opinion of a superior court judge in a case where a taxpayer has gone directly to superior court, would that control over a decision by an Administrative Law Judge. This is unclear under the bill. He thought that the committee members intrinsically understand the importance of stability in the tax law area for this state and the taxpayers. House Bill 427 was carefully drafted in consultation with taxpayers to try to set up a system which gives them more stability, more predictability in tax law, but having a dual track system will erode this and de- stabilize the predictability of Alaska's tax laws. MR. BRIGGS rhetorically asked why it was bad to go to superior court in the first instance and suggested that they talk to a superior court judge about this. He would guess that nine out of ten superior court judges would tell them that they would prefer that a tax case be tried at an administrative level first because it would refine the issues, it would narrow the issues and would be a much easier case for them to decide than getting a tax case plopped on their doorstep in the first instance. For this reason, the department thinks it's a very bad idea to have this dual track system. Number 1856 REPRESENTATIVE GREEN stated as they may recall, when Mr. Frankel made his presentation he mentioned that in California, a state with 60 times as many people as Alaska, their system provides for a taxpayer to go directly to court rather than the Board of Equalization. Apparently it works there and not all case automatically funnel to the court. This option is used with discretion. REPRESENTATIVE VEZEY asked if they were talking about Section 11 of the bill in relation to an individual opting to go straight to court. He referred to page 16. He asked if this provided for an alternate method of adjudication prior to paying the disputed tax. His understanding was that this tax had to be paid before the appeal can be made. Number 1959 MS. VOGT said that as she understood the language, the taxpayer was required to pay the amount of the tax which is not in dispute and post a bond for the rest. REPRESENTATIVE VEZEY said he saw nothing in the legislation to provide for a jury trial. MR. WILLIAMS stated (indisc. - coughing) if the state sues somebody then the defendant has the right to choose a jury, but if someone brings an original action against the state, the state has the right not to have a jury trial. Secondly, these will be appeals still even though the proceeding will be a de novo proceeding, the court is acting as an appellate court, not as a (indisc. - cross talking with Representative Vezey). REPRESENTATIVE VEZEY asked if it was in statute or court rule that if the state is a defendant it's up to the defendant to request a jury trial. MR. WILLIAMS remembered that when he was in the AG's office that this was the way it worked then. Number 2100 REPRESENTATIVE FINKELSTEIN asked if they would be agreeable to an amendment to preclude jury trials. MR. SECKERS stated that AOGA didn't have a position on this issue at this time. This was something that they haven't had cause to take up before now. CHAIRMAN PORTER didn't know how they could obtain one. In response to Representative Finkelstein's reference to the previous information imparted by Mr. Williams, Chairman Porter noted that they would be sitting in an appeal position and not a court of general jurisdiction. He stressed that a jury is not required for an appeal procedure. Number 2169 MR. BRIGGS noted that the problem with work draft R as currently proposed is that the language is not clear regarding this de novo trial proceeding. He suggested that the committee adopts language to clarify this, where there is no right to a jury trial. He felt as though tax cases shouldn't be tried before a jury. MR. WILLIAMS noted that in the federal system someone can get a jury trial by paying in the amount of tax disputed instead of going to a tax court. The assessment is paid and then this person goes to the Court of Claims, not the district court, they sue and then they ask for a jury trial. This means that plutocrats get to have jury trials and ordinary people don't. AOGA doesn't have a position on this, but neither has AOGA been asking for a jury trial. This issue came up in the context of appeals where there are no juries. REPRESENTATIVE GREEN and Chairman Porter agreed that the parties should probably work on some language to take care of this situation of duality. Number 2401 REPRESENTATIVE VEZEY reiterated that in the federal process if someone wants a jury trial they have to go to the court of appeals. His understanding of the federal process is that if someone wants a jury trial, the tax must be paid and then the person sues the federal government in district court and then this person can request a jury trial. MR. WILLIAMS noted that it used to be the practice and it still might, if a person pays the tax, they had two choices, they could go to district court or to a special U.S. Court of Claims in Washington, D.C. If this person goes to the Court of Claims, but only there do they have the right to a jury trial. In the district court, it used to mean that the person would not get a jury trial. REPRESENTATIVE VEZEY said this was not the advise that he gets from his attorney. He said it wouldn't be the first time his attorney was wrong. MR. BRIGGS stated that the committee could decide easily enough one way or another if they wanted to do away with a jury trial provision. This would obviate litigation on the point ultimately decided by the Supreme Court. He urged the committee to call it up or down. TAPE 96-32, SIDE A Number 254 MR. SECKERS responded to a another general discussion concerning which avenue a taxpayer would choose and what they were allowed to chose under existing systems. He noted that it seemed to him that if an ALJ ruled on a particular situation under issue A for example, and another taxpayer took this same issue to superior court and prevailed, whether this tax payer would appeal this decision to the superior court the judge would be bound by this court anyway and rule in the same way. There wouldn't be this inconsistency as Mr. Briggs indicated. Under current law, if the ALJ system is upheld and then the tax payer goes to superior court, if the superior court overturns the ALJ system this is binding on the ALJ. MR. SECKERS used the example of his company and if they were to litigate an issue that another taxpayer won in superior court and they were involved in this issue with the ALJ and the ALJ ruled against them, they would appeal to the superior court. They would have their decision because the judge would rule the same way as the prior superior court judge ruled on the same issue at a different time. Number 287 CHAIRMAN PORTER asked about an example where an informal hearing occurs and the taxpayer prevails. Six months later another taxpayer takes a complicated case to superior court, but for whatever reason the superior court rules on the previous issue before the ALJ and overturns this decision. He asked what then would prevail. How would this be resolved, are they guided by the superior court's decision on this issue or by the previous ALJ decision. MR. SECKERS said it seemed to him that if the superior court has ruled on this exact issue, then it comes up again, the ALJ should be bound by this decision, because if the ALJ rules inconsistent with this same issue and the same laws apply, whoever the losing party is will appeal this decision to superior court. There wouldn't be this inconsistency and as Mr. Frankel pointed out there are a number of states which provide this very option. Number 395 MR. WILLIAMS noted that ordinarily decisions of the superior court aren't precedent even to that judge or other judges of the same court. It's the appellate courts which have precedent. Even if the court has acted as an appellate by the first instance, if it's a concern they could specify in the bill that these ALJ decisions have a precedent until (indisc.) the full board of ALJ's, by the Alaska Supreme Court or by legislative enactment. MS. VOGT thought that this was an important issue and one of the things they were trying to address in the efforts that the administration has put in, is to develop a spot in which tax law will reside. It is important that they have a body of tax law that is available to all tax payers so that they can understand and adjust their actions accordingly, both the state and the taxpayers. She felt uncomfortable with the idea that case law would be made simultaneously in two or more forums. She understood that they'll still get cases which go off into different directions. At least one body will deal with them all first, the Administrative Law Judge. Number 580 CHAIRMAN PORTER noted for the record that there was probably still a disagreement in this area which needed work. The next area to discuss was whether the administrative hearings should be sunshined or not. He asked about the inconsistency of this concept when settlement hearings would still be confidential. MS. VOGT noted that there was an entire spectrum of issues which they are asked about time and again, issues they would be able to discuss and read about if the proceedings were public. Certainly settlements to the extent that the parties wish to keep them confidential would remain so. She hoped that more and more matters would go to hearing and be decided. Almost all of the Alaska tax cases have been settled in the last few years. The public aspect of proceedings speak to a lot of the concerns which have been expressed from the taxpayers, in order to require accountability, impartiality and so on. All of these things are protected if the proceedings are made public. They would like to see options for portions of some the cases under protective order. Number 781 MR. WRIGHT said that it was easy to think of this system through oil and gas tax issues, but without going into details of one particular case settled over separate accounting and production taxes, they paid in settlement $1,400,000,000.00 dollars so they could imagine the claims. He submitted that in a state this size a two to eight billion dollar cases are going to have exactly the same sensational coverage that they saw with the O.J. Simpson trial. He personally thought that BP shouldn't have to go through a circus like that. These big spectacular cases really would become circuses rather than good, sound administrative adjudications. MR. WRIGHT went on to make the point that there are a lot of small tax cases and used the example of a dentist with a professional corporation and this dentist has to pay corporate income tax. Why should this dentist have all their issues out in the public. If there is a personal income tax, why should an individual's tax return be ventilated around in the public to have an impartial ruling and the merits of claims made against them. Number 910 MR. BRIGGS stated that with all due respect to Mr. Williams he disagreed that it was likely that tax cases would generate the kind of publicity the O.J. Simpson trial did. Mr. Briggs participated in the last phase in the ANS oil royalty litigation. It was every bit as sophisticated and fully litigated as the O.J. Simpson trial, but did not generate the same type of interest. MR. BRIGGS also made a second point that Alaska does not have a personal income tax now. He noted that the state is also concerned about an individual being required to divulge their personal issues to the public as part of litigation. Mr. Briggs said that this type of issue was not addressed in the legislation because of the lack of an Alaska personal income tax. Number 1009 REPRESENTATIVE VEZEY said that if a taxpayer elects to go before a superior court rather than an administrative proceeding, to the best of his knowledge there wouldn't be any question this information would be public. He thought that this would be an incentive to use the administrative adjudication channels instead. He tended to agree that tax matters should stay out of the public domain as long as possible. This could be very intimidating to any person that is required to expose their records to public scrutiny. REPRESENTATIVE FINKELSTEIN stated that in either version of the legislation, with or without an amendment to this there will still be the provision that says, "upon a showing of good cause an Administrative Law Judge can keep portions of it confidential" and if parts are at issue then these portions can be deleted. He reminded everyone that they were in the business of government. There are lots of times they deal with subjects they would rather not have exposed, but that's the price to be paid in dealing with the government. Another confusing issue was that he thought this information would be made available anyway. MR. WILLIAMS responded that taxes aren't optional for BP and they're not optional for an individual with the IRS. Confidentiality is a lynch pin to a self-reported, self-assessed taxation system under the United State constitution. When it is made mandatory for people to disclose the full particulars about their liability, they have protection here. He didn't feel it was appropriate that someone should have a choice between having one shot at a fair hearing on the claims made against someone with respect to their tax liability or they give up their rights to privacy and confidentiality, etc. They shouldn't be forced to choose between confidentiality and having the right to petition government for redress of grievances. Someone shouldn't be put in this position. This in effect would happen if a case was opened up. He noted that there is tons of information disclosed, but irrelevant when a case comes to a hearing. Nonetheless this information would be exposed to the public domain. Number 1275 MS. VOGT responded to this irrelevant information as being discoverable and noted that they worked long and hard on discovery provisions so there wouldn't be tons of stuff produced and in the second place, until it's entered into the record information doesn't become part of the record. Just because information is discoverable doesn't mean it will all become part of the public record. She said she was surprised about the vehemence of the comments here because since last summer since they started working on this legislation and during this time they've heard from most of the taxpayers. Since proceedings become public at the superior court anyway, it really doesn't matter that much whether they're public at the formal hearing or not and some of the taxpayers are inclined to feel that the accountability and reviewability of public proceedings is worth something. REPRESENTATIVE FINKELSTEIN referred to the legislation which states that once the final decision is released the records become public. Number 1408 MR. WILLIAMS stated that it's true in the superior court forum that discovery is not a part of the record except if copies are filed with the court, but this legislation does not allow for a superior court like forum with an Administrative Law Judge set up. The ALJ system would be much more involved in the control of discovery. It is not a foregone conclusion if there is a debate about what should have been produced in discovery that this information will not be in there and off the record. REPRESENTATIVE BUNDE asked if confidentiality would be used as an encouragement to use the Administrative Law Judge. REPRESENTATIVE GREEN in response asked what purpose does the public gain during the deliberation. It seemed to him that confidentiality of cases is best preserved for the litigants. What public benefit is there to have the record open during litigation. REPRESENTATIVE VEZEY said he couldn't support an administrative proceeding where all the records would become public. This would give the Department of Revenue the right to take any taxpayer in the state for a hearing and make all their records public information. He said there was no way he could vote for something like this. Number 1568 MS. VOGT stated that the proceedings now are confidential until the taxpayer appeals to court. If the taxpayer appeals to court everything becomes public. The legislation as currently drafted permits the parties to agree to a protective order for any particularly sensitive information which a taxpayer hopes to keep confidential. The whole reason this issue became a part of the discussion was a concern by Mr. Briggs. He clerked for a superior court judge before the last big royalty case was heard. The parties involved worried a lot about confidentiality and proprietary information. The first thing they did was hammer out an extensive and elaborate protective order procedure by which the producer parties could request that certain parts of the record be closed or sealed, but this was never used. Number 1680 MR. BRIGGS said the basis for the suggestion to make the record public was that in the past there has been doubt about the outcome of tax settlements. People have wanted to know what was at dispute and why settlements were arrived at. The vision of HB 427 was not that settlements or settlement proceedings would be opened to the public or that proprietary or sensitive information would be made public, the vision was that to the extent the public had any interest in certain proceedings that they be permitted to attend. Ms. Vogt pointed out the importance of the public being in attendance during any kind of litigation, this is why civil trials are open to the public so they can watch the proceedings and see how the dispute is resolved. This was the primary purpose behind this ideal. The committee must consider whether they think it is sound public policy to adopt this type of proposal. MR. BRIGGS noted that in drafting this bill they asked themselves what are some of the problems with the way tax disputes are resolved. Confidentiality was one example they came up with. He went on to add that in the Oil and Gas Journal there is a lot of published information about the operation of Oil and Gas companies because this helps them get investors and because they're highly regulated by other public agencies, this information is required to be reported. He wondered if AOGA's expression of concern was bonafide. For small taxpayers who's information is more private, these concerns are real. He noted that the department was willing to work on language which would address these concerns. Number 1824 MR. WILLIAMS stated that everyone is aware that price fixing is a crime and it's a violation of the anti-trust statutes. If Exxon and BP shared their strategy about how they were going to sell North Slope oil to their customers, the Justice Department would be knocking on their door. If they spread the results of these strategies in the form of contracts for the sale of North Slope oil, which is relevant to value of oil for production tax purposes in the record, this would result with problems from the Justice Department as well. This would be the exact sort of situation where they would want a protective order. MS. VOGT pointed out that these exact same considerations are at issue in royalty litigation which is not confidential and the courts find a way to deal with it. MR. BRIGGS noted that there was a public perception of doubt about how tax disputes were resolved and that if the tax payers were permitted access to tax proceedings and could observe them, there might be more public confidence about how they were resolved. Number 1929 REPRESENTATIVE TOOHEY said that tax disputes were not an issue for her and if her taxes were out on the table, she would very concerned that people in competition with her would have an advantage to see where she is spending her money. It's a matter of competition. REPRESENTATIVE BUNDE noted that there were two things the public wanted to know in relation to these disputes, how much money was asked for and how much was accepted. Number 2001 CHAIRMAN PORTER noted that their discussions so far had been good and clear about what the sticking points still are. He asked that the parties meet to discuss further compromises on these points. He envisioned one more hearing such as this one with public testimony. After that he suggested everyone have representatives present while the committee discussed amendments. Number 2245 REPRESENTATIVE GREEN said that another issue which hadn't been discussed yet was the draft letter of intent regarding the legislation. This letter did not have a purpose section in it, but there should be a legislative intent letter to accompany the legislation. He asked that he receive feedback on this letter from the interested parties. MS. VOGT noted that the letter of intent drafted by other folks focused so much on the parts of the legislation which they don't agree with, that it would be very hard for them to give some input. ADJOURNMENT CHAIRMAN PORTER adjourned the meeting at 3:28 p.m.