Legislature(1997 - 1998)
02/04/1998 03:28 PM House L&C
| Audio | Topic |
|---|
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE LABOR AND COMMERCE STANDING COMMITTEE
February 4, 1998
3:28 p.m.
MEMBERS PRESENT
Representative Norman Rokeberg, Chairman
Representative John Cowdery, Vice Chairman
Representative Bill Hudson
Representative Jerry Sanders
Representative Joe Ryan
Representative Tom Brice
Representative Gene Kubina
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
SPONSOR SUBSTITUTE FOR HOUSE BILL NO. 142
"An Act relating to the sale or transfer of new or used motor
vehicles; relating to the confidentiality of certain information
related to attorney general investigations of unlawful trade
practices and antitrust activities; establishing additional
unlawful trade practices; relating to the exemptions from
telephonic solicitation regulation; regulating the sale of business
opportunities; amending Rules 4 and 73, Alaska Rules of Civil
Procedure; and providing for an effective date."
- HEARD AND HELD
* HOUSE BILL NO. 187
"An Act relating to a small business development tax credit under
the Alaska Net Income Tax Act; and providing for an effective
date."
- MOVED CSHB 187(L&C) OUT OF COMMITTEE
(* First public hearing)
PREVIOUS ACTION
BILL: HB 142
SHORT TITLE: BUSINESS PRACTICE REGULATIONS
SPONSOR(S): REPRESENTATIVES(S) DAVIS, Croft
Jrn-Date Jrn-Page Action
02/17/97 374 (H) READ THE FIRST TIME - REFERRAL(S)
02/17/97 374 (H) L&C, JUDICIARY
02/19/97 408 (H) COSPONSOR(S): CROFT
04/08/97 1025 (H) SPONSOR SUBSTITUTE INTRODUCED
- REFERRALS
04/08/97 1025 (H) LABOR & COMMERCE, JUDICIARY
05/02/97 (H) L&C AT 3:15 PM CAPITOL 17
05/02/97 (H) MINUTE(L&C)
05/05/97 (H) L&C AT 3:15 PM CAPITOL 17
05/05/97 (H) MINUTE(L&C)
10/15/97 (H) L&C AT 1:00 PM ANCHORAGE LIO
10/15/97 (H) MINUTE(L&C)
10/20/97 (H) L&C AT 1:00 PM ANCHORAGE LIO
10/20/97 (H) MINUTE(L&C)
02/04/98 (H) L&C AT 3:15 PM CAPITOL 17
BILL: HB 187
SHORT TITLE: SMALL BUSINESS DEVELOPMENT TAX CREDIT
SPONSOR(S): RULES BY REQUEST OF THE GOVERNOR
Jrn-Date Jrn-Page Action
03/12/97 638 (H) READ THE FIRST TIME - REFERRAL(S)
03/12/97 638 (H) L&C, STATE AFFAIRS, FINANCE
03/12/97 638 (H) FISCAL NOTE (REV)
03/12/97 639 (H) GOVERNOR'S TRANSMITTAL LETTER
02/04/98 (H) L&C AT 3:15 PM CAPITOL 17
WITNESS REGISTER
REPRESENTATIVE GARY DAVIS
Alaska State Legislature
Capitol Building, Room 513
Juneau, Alaska 99801
Telephone: (907) 465-2693
POSITION STATEMENT: Presented sponsor statement for SSHB 142.
MICHAEL STEPP, President
Alaska Finance and Insurance Company, Incorporated
d.b.a. Stepp Brothers Lincoln Mercury BMW and
Land Rover Anchorage;
President, Alaska Auto Dealers Association
730 East 5th Avenue
Anchorage, Alaska 99501
Telephone: (907) 257-6600
POSITION STATEMENT: Testified against SSHB 142 on behalf of the
Alaska Auto Dealers Association; proposed
amendment to Section 1.
DAVEED SCHWARTZ, Assistant Attorney General
Commercial Section, Civil Division
Department of Law
1031 West 4th Avenue, Suite 200
Anchorage, Alaska 99501-1994
Telephone: (907) 269-5265
POSITION STATEMENT: Testified on SSHB 142.
JEFF BUSH, Deputy Commissioner
Department of Commerce and Economic Development
P.O. Box 110800
Juneau, Alaska 99811-0800
Telephone: (907) 465-2500
POSITION STATEMENT: Testified in favor of HB 187.
BOB BARTHOLOMEW, Deputy Director
Income and Excise Audit Division
Department of Revenue
P.O. Box 110420
Juneau, Alaska 99811-0420
Telephone: (907) 465-2320
POSITION STATEMENT: Provided information on HB 187.
ACTION NARRATIVE
TAPE 98-9, SIDE A
Number 0001
CHAIRMAN NORMAN ROKEBERG called the House Labor and Commerce
Standing Committee meeting to order at 3:28 p.m. Members present
at the call to order were Representatives Rokeberg, Cowdery,
Sanders and Kubina. Representatives Ryan and Hudson arrived at
approximately 3:32 p.m. and 3:37 p.m. respectively, and
Representative Brice arrived at 3:45 p.m.
SSHB 142 - BUSINESS PRACTICE REGULATIONS
Number 0085
CHAIRMAN ROKEBERG announced the committee would address SSHB 142,
"An Act relating to the sale or transfer of new or used motor
vehicles; relating to the confidentiality of certain information
related to attorney general investigations of unlawful trade
practices and antitrust activities; establishing additional
unlawful trade practices; relating to the exemptions from
telephonic solicitation regulation; regulating the sale of business
opportunities; amending Rules 4 and 73, Alaska Rules of Civil
Procedure; and providing for an effective date." He noted the
bill's last public hearing had been held during the interim.
Number 0115
REPRESENTATIVE GARY DAVIS presented the sponsor statement for SSHB
142. He stated there had been a great deal of discussion on
Section 2 at a hearing last year. Section 2, he said, deals with
additional automobile dealer requirements certifying the condition
of a vehicle, including information regarding whether a vehicle had
been wrecked, and had any mechanical or body damage.
Representative Davis mentioned the interim meeting, stating there
had been discussion on the same issue. He said there did not
appear to have been satisfactory negotiations between the
automobile dealers and the Department of Law (DOL). Representative
Davis stated he feels the other inclusions in SSHB 142 are valuable
and does not want to jeopardize them, so he is offering an
amendment to the committee deleting Section 2 and all related
provisions.
Number 0255
REPRESENTATIVE DAVIS noted there is also concern from the Alaska
Auto Dealers Association and individual automobile dealers about
Section 1, which, he said, clarifies a loophole in legislation
relating to the emissions (I/M) certification automobiles in
Fairbanks and Anchorage need to have before a sale can take place.
Representative Davis stated, "It [SSHB 142] would require that a
used car dealer provide the prospective buyer with a copy of an
auto emissions certificate of inspection or noncompliance before a
sales contract is signed. Current law requires only that a used
vehicle have a certificate of compliance or noncompliance before
the dealer can transfer title to the buyer, yet sales contracts are
commonly signed days before title transfer." Representative Davis
said the buyer might not be aware of the outcome of a vehicle's I/M
test before making a purchase commitment. Representative Davis
stated this would require the automobile dealers to process another
piece of paper, a not completely baseless argument, but he feels it
is a valuable section and should be left in the bill.
Number 0444
REPRESENTATIVE DAVIS stated another section of SSHB 142 clarifies
that the state's consumer protection and anti-trust investigative
files are not available for inspection under the Alaska Public
Records Act. He said the extent to which the state's investigative
records are shielded from public scrutiny was called into question
by a recent Alaska Superior Court case, and he noted important
confidentiality issues remain unresolved. Representative Davis
stated Assistant Attorney General Daveed Schwartz would be
testifying via teleconference on this issue.
Number 0498
REPRESENTATIVE DAVIS added SSHB 142 also clarifies the existing
mail-order catalog exemption in the Alaska telemarketing law. He
commented most telemarketers are required to register with the
state under current law so they can be located if they defraud
consumers. He stated there is an overlooked "technicality" in the
telemarketing legislation brought up through complaints to the DOL.
As his final point, Representative Davis stated SSHB 142 creates a
statute regulating the sale of business opportunities. He noted
high pressure salespeople often take advantage of Alaskans'
entrepreneurial spirit by resorting to fraudulent, deceptive and
unfair sales practices. He stated he would defer to the DOL to
explain the details of that provision. Representative Davis said
he felt the key objections to SSHB 142 were addressed through the
deletion of Section 2, although he expected the committee to hear
concerns about Section 1.
Number 0629
REPRESENTATIVE JOHN COWDERY mentioned lienholders, noting the
situation of receiving title and discovering problems at that later
date. He asked Representative Davis the best way a same-day
transaction with an out-of-state or nonlocal lienholder could be
facilitated.
Number 0667
REPRESENTATIVE DAVIS stated he believed, with a same-day
transaction, the only way would be to have the vehicle I/M tested
that day.
Number 0700
REPRESENTATIVE COWDERY mentioned a vehicle with current I/M
certification near expiration.
REPRESENTATIVE DAVIS responded the question had previously come up
and he thought it might be debated during teleconference testimony.
Number 0727
CHAIRMAN ROKEBERG briefly discussed meeting agenda and noted one of
the two witnesses standing by on teleconference, Assistant Attorney
General Daveed Schwartz, had not had an opportunity to testify on
the full bill at the previous Anchorage hearing.
Number 0839
MICHAEL STEPP, President, Alaska Finance and Insurance Company,
Incorporated, d.b.a. Stepp Brothers Lincoln Mercury BMW and Land
Rover Anchorage; President, Alaska Auto Dealers Association,
testified via teleconference from Anchorage on behalf the Alaska
Auto Dealers Association. He referred to the October 1997
legislative hearing and stated, "Our main concern, with respect to
Section 1 of HB 142, is first of all the fact that it -- as one of
the communities in Anchorage that (indisc.) business deals with
..." Mr. Stepp diverged from his point to inform the committee the
I/M issue only affects the Anchorage and Fairbanks members of the
Alaska Auto Dealers Association. He then continued, "Fairbanks and
ourself, then, are the ones that are required to perform these
inspections, and with that being said, there's certain difficulties
that come into play in the normal course of doing business and -
and I don't know of anyone in your capacity who's certainly trying
to serve the public interest that would want to impede (indisc.)
commerce from taking place."
Number 0913
MR. STEPP described a scenario in which an individual trades in a
vehicle at Mr. Stepp's place of business on Friday night, noting
the business does not operate a mechanical shop after-hours on
Friday evening, Saturday or Sunday. Subsequently another
prospective buyer comes in later Friday evening and attempts to buy
that vehicle. However, under the current structure of HB 142, Mr.
Stepp said, his dealership would be preempted from either showing
or selling that vehicle "without having the client being given, or
obtaining a disclosure that essentially says, 'Yes, we will provide
you with a valid I/M compliance or noncompliance.'" Mr. Stepp
continued, "We aren't in the position to make that representation
because we have not had the opportunity -- we certainly don't want
to put ourself in a position where we are acting in - in conflict
with the law, so therefore we're faced with a dilemma: Do we lose
the potential sale? Do we have the buyer who may have been waiting
for that specific deal not be able have the opportunity to enter
into the transaction? Or do we go ahead and know that we run the
risk, then, of not complying, which certainly doesn't appear to me
to be a valid set of circumstances?"
Number 0994
MR. STEPP commented he had spoken earlier with Mr. Schwartz about
the "addendum" to Section 1 proposed by the Alaska Auto Dealers
Association which reads: "Page 2, line 12, add the following 'OR
(3) obtain from the prospective buyer, transferee, assignee, or
agent of the prospective buyer, transferee, or assignee, a signed,
written statement that the prospective buyer, transferee, or
assignee, or the agent of prospective buyer, transferee, or
assignee waives the requirements of (1) and (2) of this
subsection.'" Mr. Stepp said Mr. Schwartz indicated this proposed
amendment would be in direct conflict with the existing consumer
protection Act.
Number 1028
MR. STEPP continued, "That being said, I feel as though our
position relative to the Alaska automobile dealer association
[Alaska Auto Dealers Association] is that, we believe there's
already sufficient legislation in place, or at least a law within
the two municipalities, that being Fairbanks as well as Anchorage,
that requires, if we have to I/M a vehicle in order to transfer
title, or we have to give a consumer a noncompliance document.
Having to do so prior to entering into the contract appears, to me,
to be an additional burden that is undue. And I would state this
for the record, that ... probably in 90 plus percentage of the
cases, our vehicles are already setting on the lot, as are most
dealers, with the I/M inspection already performed. We'd only be
talking about those isolated instances where you could not have the
opportunity in most cases to have it checked prior to the client
looking at it." Mr. Stepp noted HB 142, in his opinion, appeared
to be a piece of legislation that probably would not affect many
transactions. He said, "The benefit that would be derived versus
the exposure to the selling dealer seems to me to not be a
situation where there's going to be a lot of appreciable gain."
Number 1114
MR. STEPP stated he did not think maintaining and trying to more
closely monitor the dealer body with respect to I/M certification
would have a positive effect on Anchorage's or Fairbanks' air
quality, indicating he felt this was the purpose of the I/M
requirements. Mr. Stepp noted testimony on behalf of the Alaska
Auto Dealers Association in October 1997 which, he said, clearly
pointed out, according to R. L. Polk and Company, Incorporated,
statistics, the dealer body probably accounts for less than 50
percent of vehicle transactions in the state.
MR. STEPP said, "The real goal, here again, is to try and get
vehicles that are operating cleaner and having more compliance,
rather than trying to police the dealer body and make sure that
they, in fact, have not circumvented a particular law or
requirement. And I'm the first to tell you that it - it is our
desire, in each and every case, to want to be in compliance. If
there's some way we can do this without preempting our ability to
derive a living by having the vehicles readily available for sale
-- and if you know anything at all about our industry, when a
consumer comes to us today and wants to buy something, if we tell
them, 'Sorry you're unable to look at that today because we haven't
had a chance to check it out,' a good many of them will just go on
down the street and check with somebody else."
MR. STEPP stated he felt Section 1 would be "severely negative in
its overall set of circumstance" because of the quantity of
vehicles traded in on weekends and the number of I/M certified
technicians. He commented, "So I would just submit to you that I
don't believe that there's going to be appreciable benefit derived,
based on what's currently being complied with, within the two
municipalities and - and it doesn't appear to me to be based on
information that was either given in prior testimony or, possibly,
available yet today, 'cause I have seen nothing to - to
substantiate that there are substantial abuses of this industry-
wide."
Number 1251
REPRESENTATIVE GENE KUBINA asked, when a vehicle was taken in
trade, didn't Mr. Stepp's dealership have a mechanic who examined
the vehicle and estimated a value, who could be trained to do an
I/M test as well.
Number 1269
MR. STEPP stated his dealership does not have a technician who
looks at vehicles when they are traded in, and many of his
dealership's transactions take place when no technicians are
around. The sales manager appraises vehicles as part of his
duties. Mr. Stepp said, "In all fairness, most of the transactions
that are involved for our store - and again I would just say this
is probably the case for most within the Municipality of Anchorage
and probably within the city limits of Fairbanks as well - are
taking in trade vehicles that have previously passed the I/M, or
presently have an I/M certificate with them. So, it really is not
something that - that we concern ourself with an awful lot on the
broad picture, but there are those isolated circumstances where you
do get a vehicle that has ... been tampered with, modified, that
you have no way of knowing until the particular inspection does
take place -- and if, in fact, you can't do that inspection prior
to showing the vehicle, you run the risk, under your proposed
legislation here , of having significant liability because you've,
in fact, reported something to the client that doesn't exist."
Number 1334
REPRESENTATIVE KUBINA asked what happens when a consumer buys that
vehicle and takes it in for an I/M inspection the vehicle doesn't
pass. Does Mr. Stepp's business stand by that vehicle and fix it,
or is the person stuck with a vehicle that cannot be certified?
Number 1344
MR. STEPP responded his business does not send vehicles to a third
party for I/M inspection; his business has personnel certified by
the Municipality of Anchorage to perform these inspections.
Number 1378
REPRESENTATIVE KUBINA noted he was concerned about instances Mr.
Stepp had previously described when a technician was not available.
He asked what happened when a person drives a car away on Saturday
that was taken in trade on Friday night, and was, therefore,
uninspected.
MR. STEPP replied the person would bring the vehicle back to Mr.
Stepp's business on Monday.
REPRESENTATIVE KUBINA asked if Mr. Stepp's business then guaranteed
the vehicle would pass inspection since it had been purchased
there.
Number 1401
MR. STEPP responded his business has never sold a vehicle to a
retail owner that either did not already comply or his business did
not make comply. He said, "The vehicle would come back to us, we
would perform the inspection, and, if in fact, there were upgrades
necessary to it - depending on those circumstances, we would have
the opportunity with the customer -- and - and what we do, just let
me preface this by saying, if you came in and bought a car from us
on Friday night ... and we had not inspected it the car, we would
tell you we didn't inspect the car and we would reserve the right
to allow you to rescind your purchase and not have to buy it, if we
couldn't conform it. But that's not what I'm seeing here in the
legislation."
Number 1455
REPRESENTATIVE DAVIS questioned Mr. Stepp about the Municipality of
Anchorage's requirements concerning I/M certification compliance in
private sales.
Number 1465
MR. STEPP answered it was his understanding before the title could
be transferred to the next owner, he or she must have an I/M
certificate or certificate of noncompliance. He noted did not
handle private transactions and was not familiar with the
procedure.
Number 1495
CHAIRMAN ROKEBERG referred to a bill (HB 222) passed the previous
year, "That was my 'junk car bill' that allowed cars to not have a
test the way they were previously, before they could be either --
the title could be transferred without it ...."
Number 1508
REPRESENTATIVE DAVIS noted he did not think anything, anywhere,
restricted a dealer from showing a vehicle at anytime.
Number 1525
MR. STEPP responded prior that day's rewrite of HB 142, there was
a restriction relative to showing the vehicle without proof of I/M
certification. He said he was told the term, "before entering into
a contract," applies to oral contracts "and things of that
particular nature," as well as written contracts. "If my
understanding of your proposed law is correct, that if we show you
a vehicle, you and I enter into a contract on the vehicle this
evening. I have not got the vehicle I/M, I cannot furnish you with
a valid copy of a certificate of inspection. The only thing I can
give you today is a noncompliance one, because I wouldn't know."
Number 1594
CHAIRMAN ROKEBERG stated the committee would be in contact with Mr.
Stepp. He called Mr. Schwartz to testify on the non-automobile
portions of SSHB 142.
Number 1661
DAVEED SCHWARTZ, Assistant Attorney General, Commercial Section,
Civil Division, Department of Law, testified via teleconference
from Anchorage. He noted he had many comments on Section 1, but
would defer those comments to another time at the Chairman's
request.
MR. SCHWARTZ addressed Sections 4, 5 and 6, concerning the
confidentiality of the state Unfair Trade Practices and Consumer
Protection Act and (indisc.) investigative work. This portion of
the bill clarifies that the DOL's records are not available under
the Act after the investigative file is closed. Presently, he
noted, the confidentiality section in the Unfair Trade Practices
and Consumer Protection Act says, "The consumer protection Act
records are confidential to the extent that they're not available
under the Public Records Act." The DOL's interpretation has always
been that the records cannot be accessed under the Public Records
Act either during an investigation or after that investigation has
been completed. However, in a recent Anchorage Superior Court case
involving the seafood processing industry, Mr. Schwartz noted the
plaintiffs attempted to obtain the state's closed investigative
file to support their suit. Both the industry and the state
objected. He said the state's feeling was that although the court
could order the release of records under the anti-trust Act and
subject them to a protective order making them unavailable to the
public, the records were not available under the Public Records
Act. He stated the DOL feels it would receive less cooperation
from witnesses reporting violations and from companies submitting
records in response to subpoenas during investigations if the
investigation records could be accessed under the Public Records
Act when the case was closed, and law enforcement efforts would be
hampered significantly.
Number 1783
MR. SCHWARTZ stated Section 7 clarified the mail-order catalog
exemption in the existing telemarketing registration Act (AS Title
45, Chapter 63, Telephonic Solicitations). He related that a high-
pressure sales telemarketer from San Diego had tried to say it was
exempt from registering as a telemarketer because it had a mail-
order catalog. However, the company telephoned people regularly,
engaging in obnoxious sales pitches and harassing people to the
point that there were many complaints to the Better Business Bureau
and the DOL. Mr. Schwartz stated the DOL had taken this company
all the way to Alaska Supreme Court and won; Section 7 would ensure
the law explicitly set forth the state supreme court's view "that
the mail-order catalog exemption ... is not such a broad exemption
that it allow a telemarketer ... to telemarket to people over the
phone and yet qualify as a mail-order catalog company."
Number 1840
CHAIRMAN ROKEBERG questioned if the company mentioned was
Distributel, Incorporated [Distributel, Inc. v. State of Alaska 933
P.2d 1137 (Alaska 1997)].
Number 1851
REPRESENTATIVE JOE RYAN asked how the people of Alaska are harmed
by telemarketing, other than annoyance, to cause this particular
action.
Number 1880
MR. SCHWARTZ stated Congress has recognized nationally that
Americans suffer $40 billion in losses annually from fraudulent
telemarketing and Alaska is not an exception. Mr. Schwartz called
Alaska a "victim state" and noted most telemarketing companies are
located in a few areas: Las Vegas, Nevada; Atlanta, Georgia;
Florida and Southern California. He said, historically,
telemarketing has been an area in which the consumer has been very
vulnerable to fraudulent and high-pressure sales pitches. Money
can change hands almost instantly, Mr. Schwartz stated, when a
telemarketer fraudulently obtains a consumer's credit card or bank
account number. He noted the practice of recording the
conversation and illegally convincing the consumer a binding sales
contract has been made. Mr. Schwartz commented that Alaskans,
particularly the elderly, are impacted by telemarketing fraud and
in 1993, the legislature enacted a telemarketer registration law.
More that 40 states have some sort of telemarketer registration law
and Alaska was one of the last ones to adopt one. Mr. Schwartz
said telemarketing is a very common consumer protection complaint
category in Alaska and nationally.
Number 1976
REPRESENTATIVE RYAN noted the consumer's responsibility when making
a deal.
Number 1992
MR. SCHWARTZ stated that Section 8 concerned the sale of business
opportunities. It was, he commented, another area where consumers
were "out-and-out defrauded," both in Alaska and nationally, and
noted consumers were unable to effectively check out the validity
of a business opportunity before paying money or signing a sales
contract. Mr. Schwartz mentioned "late-night infomercials" and
sales pitches to large groups of consumers, noting high-pressure
sales were involved. Many states, he said, have business
opportunity registration Acts. Mr. Schwartz stated the one
contained in this bill is modeled after the telemarketing
registration Act and requires the opportunity to seller to
disclose, up-front, key information about the business opportunity
so the consumer might be adequately informed before making a
decision.
Number 2071
CHAIRMAN ROKEBERG brought up the $75,000 surety bond requirement.
Number 2078
MR. SCHWARTZ responded that the bond was a typical requirement in
a business opportunity statute. Alaska has some surety bond
requirements in other sections of the Unfair Trade Practices and
Consumer Protection Act. He said paid solicitors for charitable
solicitations require a $10,000 surety bond. In the sale of
business opportunities, he stated, a $75,000 bond affords a minimal
amount of protection to consumers. Mr. Schwartz mentioned the long
list of exemptions similar those in the telemarketer registration
Act.
Number 2119
CHAIRMAN ROKEBERG clarified that the bond protected the person who
made the investment, who could then sue against the bond. He asked
if bonds were available and what premiums would cost for $75,000 in
coverage.
Number 2132
MR. SCHWARTZ responded it was his understanding the premiums would
be a fraction of the face of the bond, but he was not sure of the
rate.
Number 2150
CHAIRMAN ROKEBERG noted the cost could be several hundred dollars,
which, he said, could be an impediment to business sales activities
in the state. He asked if that was the bill's intention.
Number 2156
MR. SCHWARTZ stated, the intention is not to prohibit the sale of
business opportunities. The goal, he said, is to give the consumer
recourse if the business opportunity turns out to be deceptive or
fraudulent, noting often sellers will not give refunds. He stated
the business opportunity seller should easily be able to recoup the
bond's cost through the high volume of sales at any given sales
pitch. Mr. Schwartz said he did not think the bond requirement
would discourage a business opportunity seller from coming to the
state.
Number 2197
CHAIRMAN ROKEBERG asked if it was possible to have a "blanket"
fidelity bond across state lines or if the bond had to be written
within an insurance jurisdiction.
Number 2207
MR. SCHWARTZ stated the bond would certainly have to be valid in
favor of the state of Alaska so that the consumer or the state
could go after the bond. Whether that meant it had to be purchased
in the state of Alaska or not, he said, he was not sure but thought
it wouldn't.
Number 2221
MR. SCHWARTZ stated Section 9 would repeal a confusing
telemarketing exemption relating to the sale of securities. There
are already some exemptions in the telemarketing law relating to
the sale of securities, and he said this particular exemption is
redundant and confusing; this change would be a "housecleaning"
measure. He stated the rest of the bill concerns the effective
dates, regulations and changes in the (indisc.) procedures to
accommodate the business opportunity section.
Number 2274
CHAIRMAN ROKEBERG asked if investment bankers or stockbrokers would
be exempt would be exempt from the business opportunity section.
Number 2287
MR. SCHWARTZ answered in the affirmative. He referred to exemption
(6), page 17, which exempts a security regulated under the Alaska
Statutes, and (7) which exempts a sale or offer where the person is
registered by the United States Securities and Exchange Commission.
Between those two exemptions, Mr. Schwartz said, investment bankers
would be clearly exempted from this kind of legislation.
Number 2315
REPRESENTATIVE RYAN asked what provisions have been made on the
bond for a person to receive restitution who loses money in a
fraudulent transaction. He asked if current statutes allowed that
or was there something he was missing in the bill.
Number 2335
MR. SCHWARTZ referred to the existing consumer's private right of
action under the consumer protection Act. He said if the business
opportunities bill is enacted, a consumer could use that existing
right with regards to business opportunities.
Number 2347
REPRESENTATIVE RYAN clarified his question, asking whether the
following procedure would be correct: In an instance of
wrongdoing, the bond would pay the state, and the individual who
suffered the loss would have to go to court in a civil action to
access that money collected by the state.
Number 2366
MR. SCHWARTZ responded that was a possible procedure, but he said
he did not know if money payable to the state would be available to
the consumer, or whether the consumer would have to go directly to
the company for restitution. Mr. Schwartz stated the consumer
clearly does have a private right of action under the consumer
protection Act but a court might have to decide whether or not the
consumer could directly access the bond. He said the state can
clearly go after the bond
Number 2394
CHAIRMAN ROKEBERG noted there was a difference between surety and
fidelity bonds.
Number 2404
MR. SCHWARTZ stated the law clearly is designed to be a bond for
the benefit of the buyer. He said this leads him to say the
consumer could go after the bond in a private right of action.
Number 2414
REPRESENTATIVE RYAN stated he assumed the bond's purpose would be
to protect the buyer, and he asked how the buyer would go about
"being made whole from the proceeds of that bond," if the state
collected on the bond.
Number 2429
MR. SCHWARTZ responded the state would certainly be able to collect
the bond and specify, as part of the condition of collection, that
the proceeds go to certain identified buyers who were victimized by
the business opportunity seller in question.
Number 2441
REPRESENTATIVE RYAN asked if there was any provision to ensure that
in this bill.
Number 2449
MR. SCHWARTZ stated he did not believe the DOL would be seeking
that money for the state, because the DOL can already pursue civil
penalties under the existing consumer protection Act and does not
need to go after a bond to extract penalties from a fraudulent
business.
REPRESENTATIVE RYAN said, "(Indisc.) language that says the buyer
will be made whole ..."
MR. SCHWARTZ said, "Would go after the bond ..." [TESTIMONY
INTERRUPTED BY TAPE CHANGE]
TAPE 98-9, SIDE B
Number 0001
REPRESENTATIVE RYAN stated, "... transaction and otherwise why do
we want to collect this bond if there's not a mechanism to
completely make the person, who suffered the loss, whole."
Number 0018
CHAIRMAN ROKEBERG stated he thought the surety bond would be held
in favor of the state because a fidelity bond could not apply,
since both parties involved could not be known when the bond is
made. He recalled that was the difference between a surety and
fidelity bond. There is a cause of action on the part of the
buyer, who, as he noted Mr. Schwartz had pointed out, could
probably make a direct claim, or make a claim through the state.
Or, Chairman Rokeberg said, the state could file a cause of action
and recover from the bond, turning the proceeds over to the person
who was defrauded.
Number 0036
MR. SCHWARTZ noted that, since the bill does require that the bond
be for the benefit of the buyer, that language, in and of itself,
would prohibit the state from taking and retaining the bond rather
than distributing it to an injured buyer.
Number 0050
REPRESENTATIVE RYAN stated his concern that all money coming to the
state goes into the general fund, with the exception of the
permanent fund, school construction fund and dedicated funds.
Noting the possibility incoming funds appropriated back to the DOL
for damages might get "lost in the shuffle," Representative Ryan
stated he was trying to find out how the injured person was going
to made whole, and why the committee would want to pass this
legislation if there wasn't a mechanism to ensure that the person
could be made whole.
Number 0067
MR. SCHWARTZ responded that there would be a distinct possibility
a buyer would be able to made whole from the proceeds obtained from
the bond, depending on the number of buyers defrauded. He said he
did not think the money "would even see the state treasury" if the
state obtained the bond proceeds. The proceeds would be ordered by
a court, he said, to be paid directly to a buyer as a result of a
victorious action under the consumer protection Act.
Number 0090
CHAIRMAN ROKEBERG noted the "business opportunity circumstance" and
asked how many complaints the attorney general's office had
received on this type of activity in the last two years.
Number 0119
MR. SCHWARTZ commented that complaints to the attorney general's
office were more common in the past, attributing this to the
activity level of the Better Business Bureau, which he said has
fallen in recent years. He described two situations where Alaskans
had been defrauded and he had taken successful action on behalf of
these people for the state. He noted the attorney general's office
has not taken individual complaints for the last 10 or 12 years so
he was unable to provide statistics. Mr. Schwartz noted this was
a national and Alaskan concern, and there were potentially many
complaints.
Number 0200
CHAIRMAN ROKEBERG stated SSHB 142 would be held over for further
consideration and possible amendment.
Number 0235
CHAIRMAN ROKEBERG called a brief at-ease at 4:20 p.m. The meeting
reconvened at 4:30 p.m.
HB 187 - SMALL BUSINESS DEVELOPMENT TAX CREDIT
Number 0243
CHAIRMAN ROKEBERG announced the next order of business was HB 187,
"An Act relating to a small business development tax credit under
the Alaska Net Income Tax Act; and providing for an effective
date."
Number 0257
JEFF BUSH, Deputy Commissioner, Department of Commerce and Economic
Development (DCED), came forward to testify. He cited DCED figures
indicating 96 percent of Alaska businesses have 50 employees or
less, the normal definition of a small business, and he stated 70
percent of Alaskans are employed by businesses that fall under this
definition.
Number 0286
MR. BUSH stated HB 187 is part of the Governor's proposal for
Alaska business investment incentives, offering tax credits for
capital, improving and expanding investments to small businesses.
He stated it would apply to non-affiliated businesses with 50
employees or less, noting subsidiaries of larger businesses would
be ineligible. The credit would amount to 10 percent of a
business's investment on an annual basis, up to $100,000;
therefore, the total maximum credit for any one business would be
$10,000 in a year. Mr. Bush stated the other maximum would be 50
percent of business's total tax liability. Mr. Bush noted the bill
has a fiscal note which shows approximately $2 million in fiscal
impact. The committee needs to know, he said, that amount was
calculated by Department of Revenue to be the financial impact to
the state if every business qualifying for this investment credit
took the maximum credit available through investment.
Number 0355
CHAIRMAN ROKEBERG asked if Mr. Bush, as a member of the
Administration, was taking exception to a fiscal note prepared by
the Administration.
Number 0360
MR. BUSH said he did not think he was taking exception, noting it
was a very conservative fiscal note. Mr. Bush said the proposal
was designed to help small businesses. He commented that a
representative of the Department of Revenue was present to answer
technical questions.
Number 0402
REPRESENTATIVE COWDERY asked if HB 187's fiscal impact had been
included in the Governor's current budget.
Number 0415
MR. BUSH replied he thought the impact was probably not part of the
budget calculation since the impact was attached to the fiscal
note.
Number 0429
REPRESENTATIVE COWDERY asked where the money would come from to
make up the budget loss from this proposed tax credit.
Number 0442
MR. BUSH stated there would be a reduction in overall general fund
state revenues as a result of this bill. Mr. Bush said he could
make what he thought was a legitimate argument: There is the hope
there would be expanded business opportunities and expanded
business investment through this tax credit, and in the long run
there would be an increase in business activity and, therefore, an
increase in tax revenue. However, he said, any tax credit program
is a reduction in state revenues. Mr. Bush stated he thought the
fiscal impact would be incorporated into the state budget if the
bill passed.
Number 0438
REPRESENTATIVE COWDERY stated the reason for his line of
questioning was caution about bills with attached fiscal notes, in
view of oil prices, et cetera.
Number 0490
CHAIRMAN ROKEBERG noted Mr. Bush's testimony sounded like a
particular theory of economics which holds, by decreasing taxes,
economic activity increases and future gross tax revenues are
enhanced. Chairman Rokeberg said it sounded almost like a Laffer
curve or supply side economic theory.
Number 0523
MR. BUSH commented he was not subscribing to that theory. He
stated the only way this credit could apply was if a business
increased investment, developing additional infrastructure and
capital. He said the credit also involved a three year time frame.
At the end of the three years, presumably, a business would have a
greater infrastructure, more employees and a greater income, and
hopefully after that, resulting greater tax revenues might be seen
for the state. Mr. Bush said he does not think necessarily the tax
credit directly caused the increased business activity, as the
economic theory Chairman Rokeberg raised suggested.
Number 0577
REPRESENTATIVE RYAN asked if the DCED had figures for the number of
businesses or corporations in Alaska with 50 or fewer employees.
Number 0585
MR. BUSH responded that 2,461 businesses with 50 or fewer employees
pay corporate income tax, according to DCED figures.
Number 0598
REPRESENTATIVE RYAN stated that was assuming over $100,000 gross
income (indisc.).
Number 0605
MR. BUSH responded in the negative. There are 59 corporations that
pay over $20,000 in taxes and qualify as small businesses that
would be able to take the maximum credit of $10,000, or 50 percent
of their tax liability. He noted half of the 2,461 small
businesses only pay between $1 and $100 in taxes.
Number 0646
REPRESENTATIVE RYAN noted the liberalization of the limited
liability company (LLC) law the previous year and asked if LLCs
would qualify for the tax credit.
Number 0657
MR. BUSH said he was not sure if LLCs paid corporate income tax,
thus qualifying for the credit, and he directed the question to Mr.
Bartholomew of the Department of Revenue (DOR).
Number 0667
BOB BARTHOLOMEW, Deputy Director, Income and Excise Audit Division,
Department of Revenue, came forward to testify. Mr. Bartholomew
stated there are about 12,000 corporations in the state; 5,000 of
these qualify as LLCs and subchapter S corporations, are not
subject to the tax laws, and would not be eligible for the program.
Number 0693
REPRESENTATIVE RYAN asked if a corporation not chartered in Alaska
could qualify for the program.
Number 0702
MR. BARTHOLOMEW responded it would be any corporation which pays
Alaska corporate income tax that has the investment made in Alaska.
He said he thought the bill required the investment to be made in
Alaska. Mr. Bartholomew indicate a foreign corporation could
qualify.
Number 0717
REPRESENTATIVE TOM BRICE asked about the retroactive to 1997
effective date, questioning if that would be changed to 1998.
MR. BUSH responded he had an amendment prepared which moved
everything one year - the effective dates, the carry-forwards.
Number 733
REPRESENTATIVE BRICE added in question, "And the repealer?"
Number 0741
CHAIRMAN ROKEBERG asked Mr. Bartholomew for a gross number of
corporations paying taxes in the state compared to the number
fitting the small business definition. Chairman Rokeberg also
requested the amount of the state's gross corporate tax receipts,
excluding the petroleum companies.
Number 0783
MR. BARTHOLOMEW stated the DOR has a prepared chart he could
provide to the committee which shows the level of taxes paid by
corporations. He noted page 3 of the fiscal note shows, matching
the DOR's data with the Department of Labor's, the corporations
with less than 50 employees.
Number 0840
CHAIRMAN ROKEBERG referred to HB 232 in the 19th Legislature which
was very similar in construction. He said the bill was referred to
the House Finance Standing Committee and did not proceed further.
Chairman Rokeberg asked for some history of that bill.
Number 0863
MR. BARTHOLOMEW stated he was sure the DOR had been involved in the
bill as far as fiscal notes, but he said he would have to research
the files.
Number 0870
CHAIRMAN ROKEBERG noted he would be interested in knowing whether
the Administration had supported that bill. He added, to Mr. Bush,
that the current bill sounded like a modest type of investment tax
credit (ITC), noting ITCs used to be "in vogue" in the federal tax
code. He asked Mr. Bush if the DCED had done any studies regarding
the actions of other states to determine the actual economic effect
of such a measure, and if there was any basis or rationale to know
whether this bill would have its intended effect.
Number 0940
MR. BUSH replied in the negative, stating the bill was modeled
after the old federal investment tax credit system.
Number 0958
MR. BARTHOLOMEW commented that he did not think, in the discussion
which led to this bill's proposal, there had been such a
macroeconomic analysis. He said he thought it was based on the
flat to 1 percent growth rate in Alaska two years ago and the
perception small business did not seem to be receiving the benefits
larger companies may have received through lobbying efforts. The
idea, he indicated, was that if a small business was willing to
make a capital investment, the state would be willing to
participate by giving a tax break.
Number 1021
REPRESENTATIVE RYAN commented on the high cost of plane fares to
Juneau for small businesses, and mentioned the general theory that
if citizens are allowed to keep a little bit more money, they can
do things to advance their livelihood. He called this advancement,
capital investment.
REPRESENTATIVE BRICE made a motion to adopt Amendment 1.
Amendment 1 read:
Page 2, line 8:
Delete "1996"
Insert "1997"
Delete "2000"
Insert "2001"
Page 4, line 5:
Delete "1997"
Insert "1998"
Page 4, line 7:
Delete "2002"
Insert "2003"
Number 1066
CHAIRMAN ROKEBERG asked it there were any objections to Amendment
1. Hearing none, he stated Amendment 1 had been adopted.
Number 1086
CHAIRMAN ROKEBERG closed the public hearing on HB 187, noting the
presence in the bill packet of a questionnaire from the Alaska
chapter of the National Federation of Independent Business (NFIB).
Chairman Rokeberg asked if there was any further discussion of HB
187.
Number 1142
REPRESENTATIVE KUBINA made a motion to move CSHB 187 with
individual recommendations and accompanying fiscal note.
Number 1149
CHAIRMAN ROKEBERG asked if there were any objections. Hearing
none, he stated CSHB 187(L&C) was so moved.
ADJOURNMENT
Number 1207
CHAIRMAN ROKEBERG adjourned the House Labor and Commerce Standing
Committee meeting at 4:50 p.m.
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