Legislature(2015 - 2016)BARNES 124

02/10/2016 03:15 PM LABOR & COMMERCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= HB 194 AK SECURITIES ACT; PENALTIES; CRT. RULES TELECONFERENCED
<Bill Hearing Canceled>
-- Testimony <Invitation Only> --
*+ HB 263 EMPLOYER REPORT OF WORKPLACE INJURY/DEATH TELECONFERENCED
<Bill Hearing Canceled>
-- Public Testimony <Time Limit May Be Set> --
*+ HB 248 ELECTRONIC TAX RETURNS & ALCOHOL TAX TELECONFERENCED
Heard & Held
-- Testimony <Invitation Only> --
*+ HB 252 ELCTRNC TAX RETURNS; VESSEL PASSENGER TAX TELECONFERENCED
Heard & Held
-- Testimony <Invitation Only> --
                    ALASKA STATE LEGISLATURE                                                                                  
          HOUSE LABOR AND COMMERCE STANDING COMMITTEE                                                                         
                       February 10, 2016                                                                                        
                           3:18 p.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Kurt Olson, Chair                                                                                                
Representative Shelley Hughes, Vice Chair                                                                                       
Representative Jim Colver                                                                                                       
Representative Gabrielle LeDoux                                                                                                 
Representative Cathy Tilton                                                                                                     
Representative Andy Josephson                                                                                                   
Representative Sam Kito                                                                                                         
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative Mike Chenault (alternate)                                                                                        
                                                                                                                                
OTHER LEGISLATORS PRESENT                                                                                                     
                                                                                                                                
Representative Dan Ortiz                                                                                                        
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
HOUSE BILL NO. 248                                                                                                              
"An Act  requiring the electronic  submission of a tax  return or                                                               
report with  the Department  of Revenue;  relating to  the excise                                                               
tax  on  alcoholic  beverages; and  providing  for  an  effective                                                               
date."                                                                                                                          
                                                                                                                                
     - HEARD & HELD                                                                                                             
                                                                                                                                
HOUSE BILL NO. 252                                                                                                              
"An  Act  requiring electronic  submission  of  a tax  return  or                                                               
report  with  the  Department  of   Revenue;  repealing  the  tax                                                               
reduction for  local levies for  the commercial  vessel passenger                                                               
excise tax;  amending the definition  of 'voyage';  and providing                                                               
for an effective date."                                                                                                         
                                                                                                                                
     - HEARD & HELD                                                                                                             
                                                                                                                                
HOUSE BILL NO. 194                                                                                                              
"An  Act  repealing and  reenacting  the  Alaska Securities  Act,                                                               
including   provisions   relating   to  exempt   securities   and                                                               
transactions; relating to registration  of securities, firms, and                                                               
agents  that  offer or  sell  securities  and investment  advice;                                                               
relating  to  administrative,  civil,  and  criminal  enforcement                                                               
provisions,  including   restitution  and  civil   penalties  for                                                               
violations; allowing  certain civil penalties  to be used  for an                                                               
investor  training fund;  establishing increased  civil penalties                                                               
for  harming  older  Alaskans;  retaining  provisions  concerning                                                               
corporations organized under the  Alaska Native Claims Settlement                                                               
Act; amending Rules  4, 5, 54, 65, and 90,  Alaska Rules of Civil                                                               
Procedure; and providing for an effective date."                                                                                
                                                                                                                                
     - BILL HEARING CANCELED                                                                                                    
                                                                                                                                
HOUSE BILL NO. 263                                                                                                              
"An  Act  relating to  reporting  of  workplace injuries  to  the                                                               
division of labor standards and safety."                                                                                        
                                                                                                                                
     - BILL HEARING CANCELED                                                                                                    
                                                                                                                                
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
BILL: HB 248                                                                                                                  
SHORT TITLE: ELECTRONIC TAX RETURNS & ALCOHOL TAX                                                                               
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR                                                                                    
                                                                                                                                
01/19/16       (H)       READ THE FIRST TIME - REFERRALS                                                                        
01/19/16       (H)       L&C, FIN                                                                                               
02/10/16       (H)       L&C AT 3:15 PM BARNES 124                                                                              
                                                                                                                                
BILL: HB 252                                                                                                                  
SHORT TITLE: ELCTRNC TAX RETURNS; VESSEL PASSENGER TAX                                                                          
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR                                                                                    
                                                                                                                                
01/19/16       (H)       READ THE FIRST TIME - REFERRALS                                                                        
01/19/16       (H)       L&C, FIN                                                                                               
02/10/16       (H)       L&C AT 3:15 PM BARNES 124                                                                              
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
BRANDON SPANOS, Deputy Director                                                                                                 
Tax Division                                                                                                                    
Department of Revenue                                                                                                           
Anchorage, Alaska                                                                                                               
POSITION   STATEMENT:     Provided   a  PowerPoint   presentation                                                             
entitled, "Alcoholic Beverage Tax HB248," dated 2/10/16.                                                                        
                                                                                                                                
CHRIS HLADICK, Commissioner                                                                                                     
Department of Commerce, Community & Economic Development                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Answered questions  during the hearing on HB                                                             
248.                                                                                                                            
                                                                                                                                
CHRIS HLADICK, Commissioner                                                                                                     
Department of Commerce, Community & Economic Development                                                                        
Juneau, Alaska                                                                                                                  
POSITION   STATEMENT:     Provided   a  PowerPoint   presentation                                                             
entitled,   "Commercial  Passenger   Vessel  Tax   HB252,"  dated                                                               
2/10/16.                                                                                                                      
                                                                                                                                
CHRIS PELOSO, Assistant Attorney General                                                                                        
Environmental Section                                                                                                           
Civil Division (Juneau)                                                                                                         
Department of Law                                                                                                               
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Answered questions  during the hearing on HB                                                             
252.                                                                                                                            
                                                                                                                                
KEN ALPER, Director                                                                                                             
Tax Division                                                                                                                    
Department of Revenue                                                                                                           
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Answered questions  during the hearing on HB                                                             
252.                                                                                                                            
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
3:18:48 PM                                                                                                                    
                                                                                                                                
CHAIR KURT  OLSON called  the House  Labor and  Commerce Standing                                                             
Committee meeting to  order at 3:18 p.m.   Representatives Olson,                                                               
Josephson, Hughes, LeDoux,  Tilton, and Kito were  present at the                                                               
call to order.  Representative  Colver arrived as the meeting was                                                               
in progress.  Representative Ortiz also was present.                                                                            
                                                                                                                                
          HB 248-ELECTRONIC TAX RETURNS & ALCOHOL TAX                                                                       
                                                                                                                                
3:19:17 PM                                                                                                                    
                                                                                                                                
CHAIR OLSON announced  that the first order of  business would be                                                               
HOUSE BILL NO.  248, "An Act requiring  the electronic submission                                                               
of  a  tax return  or  report  with  the Department  of  Revenue;                                                               
relating to the excise tax  on alcoholic beverages; and providing                                                               
for an effective date."                                                                                                         
                                                                                                                                
3:20:26 PM                                                                                                                    
                                                                                                                                
BRANDON  SPANOS, Deputy  Director,  Tax  Division, Department  of                                                               
Revenue, provided a  PowerPoint presentation entitled, "Alcoholic                                                               
Beverage Tax HB  248," dated 2/10/16.  He  informed the committee                                                               
HB 248  is an act  requiring the  electronic submission of  a tax                                                               
return or report  with the Department of  Revenue (DOR), relating                                                               
to the  excise tax on  alcoholic beverages, and providing  for an                                                               
effective  date  [slide  2].    Mr.  Spanos  said  the  alcoholic                                                               
beverage tax was  first imposed in 1933, and  the basic structure                                                               
has  remained unchanged  since  1937.   The  tax  is charged  and                                                               
collected  monthly at  the wholesale  level.   The  tax rate  has                                                               
increased  along  with inflation  and  with  the rates  of  other                                                               
states;  the last  major change  was in  2002, when  the tax  was                                                               
raised to  $0.10 per drink  by legislation that also  created the                                                               
Alcohol  and Other  Drug Treatment  &  Prevention Authority  fund                                                               
which is funded  by 50 percent of the tax  collected.  Currently,                                                               
revenue  is  about  $40  million  per year  and  $20  million  is                                                               
deposited  to  the  drug  abuse  treatment  and  prevention  fund                                                               
[slides 3  and 4].  For  current tax rates, one  drink portion is                                                               
considered one ounce  of distilled spirits, five  ounces of wine,                                                               
and twelve ounces of beer, which  is taxed about $0.10 per drink,                                                               
with  the   exception  of  small-rate  breweries   -  by  federal                                                               
definition  - which  are taxed  $0.35 cents  per drink  for their                                                               
first 60,000 barrels [slide 5].                                                                                                 
                                                                                                                                
CHAIR  OLSON asked  how  many breweries  in  Alaska produce  over                                                               
60,000 barrels of beer.                                                                                                         
                                                                                                                                
MR. SPANOS  pointed out  that the tax  applies also  to breweries                                                               
importing into Alaska;  however, none of the  breweries in Alaska                                                               
produce enough to  meet the federal definition for  the full tax,                                                               
nor  do many  that import  beer  into the  state [slide  5].   He                                                               
further  explained  that small-brewery  beer  is  taxed at  $0.35                                                               
cents for the  first 60,000 barrels, distilled  spirits are taxed                                                               
at  $12.80,  and the  proposed  bill  would double  the  existing                                                               
taxes.  The bill also  includes an electronic filing requirement,                                                               
and a change to the minimum bond requirement [slide 6].                                                                         
                                                                                                                                
CHAIR  OLSON  asked  whether  DOR   must  take  action  on  bonds                                                               
occasionally.                                                                                                                   
                                                                                                                                
MR. SPANOS  said he  is not aware  of action taken  on a  bond in                                                               
recent history,  but to get  a license  from the tax  division, a                                                               
bond is necessary.                                                                                                              
                                                                                                                                
3:25:37 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE LEDOUX asked what the bond protects against.                                                                     
                                                                                                                                
MR. SPANOS  responded that the  bond is  to protect the  state in                                                               
case  there is  a  default on  taxes  due.   He  returned to  the                                                               
presentation, noting  that Alaska's  alcohol taxes are  among the                                                               
highest  in the  country,  however, many  states  with lower  tax                                                               
rates  on alcohol  collect sales  taxes, and  others have  state-                                                               
owned stores with  hidden taxes and fees, and  unknown revenue to                                                               
the state.   The proposed  bill would  raise Alaska's tax  to the                                                               
highest for  wine, spirits,  and beer [slide  7]. In  response to                                                               
Representative  LeDoux,  he said  spirits  are  hard liquor.  The                                                               
department  estimates that  doubling  the tax  rate would  nearly                                                               
double  collections, and  double  the amount  designated for  the                                                               
Alcohol and Other Drug Treatment & Prevention Authority fund.                                                                   
                                                                                                                                
REPRESENTATIVE HUGHES  has heard that raising  taxes would reduce                                                               
the  consumption  of  alcohol,  but   pointed  out  that  DOR  is                                                               
estimating that  the same  amount would be  consumed.   She asked                                                               
whether the tax increase in 2002 affected consumption habits.                                                                   
                                                                                                                                
MR.  SPANOS said  DOR has  not done  an analysis.   He  said, "It                                                               
seems that  in the past,  we've seen  a dip initially,  over that                                                               
first year,  and it  does eventually  come back  up.   But again,                                                               
we've not  done an analysis of  that."  The estimates  were based                                                               
on the fall  2015 forecast, which did not account  for changes in                                                               
alcohol demand or potential stockpiling [slide 8].                                                                              
                                                                                                                                
3:29:24 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HUGHES  asked whether  the amount diverted  to the                                                               
Alcohol and Other  Drug Treatment & Prevention  Authority fund is                                                               
a statutory designation.                                                                                                        
                                                                                                                                
3:29:44 PM                                                                                                                    
                                                                                                                                
MR. SPANOS  confirmed that the  50 percent amount  is established                                                               
in statute  for the  special fund.   In a  manner similar  to the                                                               
other  tax proposals  from the  administration,  to implement  HB                                                               
248, DOR  must update  its Tax  Revenue Management  System (TRMS)                                                               
and its  Revenue Online  (ROL) component in  order to  manage the                                                               
new tax  rates, and update  forms.   These changes would  be paid                                                               
for  by an  implementation  cost  of $50,000,  and  there are  no                                                               
additional costs  to administer the  tax program [slide 9].   Mr.                                                               
Spanos   advised   that   the   alcohol   tax   fits   into   the                                                               
administration's  plan  to  close  the budget  gap  by  providing                                                               
$40,000 in  new revenue [slides  10 and 11].   Impacts of  HB 248                                                               
are that  alcohol would be  slightly more expensive,  which could                                                               
decrease consumption,  and there  could be  stockpiling, although                                                               
DOR does not anticipate much of an effect overall [slide 12].                                                                   
                                                                                                                                
REPRESENTATIVE  LEDOUX questioned  how  the administration  could                                                               
forecast a decrease in consumption  but at the same time forecast                                                               
double the amount of revenue.                                                                                                   
                                                                                                                                
3:32:20 PM                                                                                                                    
                                                                                                                                
CHRIS HLADICK, Commissioner, Department  of Commerce, Community &                                                               
Economic  Development, speaking  from  his experience  as a  city                                                               
manager, said there  may be a slight decrease  initially, but the                                                               
rate of consumption would return to normal levels.                                                                              
                                                                                                                                
3:32:59 PM                                                                                                                    
                                                                                                                                
MR. SPANOS  directed attention to  the sectional analysis  for HB                                                               
248 [slides 13 and 14]:                                                                                                         
                                                                                                                                
   · Section 1 adds a $25 or 1 percent tax penalty for failure                                                                  
     to file electronically unless an exemption is issued by DOR                                                                
   · Section 2 requires electronic submission of tax returns,                                                                   
     license applications, and other  documents submitted to DOR;                                                               
     this changes the  general tax statutes, AS  43.05, and would                                                               
     apply  to  all tax  types  administered  by the  department;                                                               
     provides a  process to  request an  exemption if  a taxpayer                                                               
     does not have the technological capability to do so                                                                        
   · Section 3 changes the per-gallon tax rate for the three                                                                    
     major categories of alcoholic beverages                                                                                    
   · Section 4 changes the per-gallon tax rate for the first                                                                    
     60,000 barrels sold in the state from small craft breweries                                                                
     that meet the federal definition of a small brewer                                                                         
   · Section 5 changes statutes describing tax filing so that                                                                   
     taxpayers must submit their statements electronically                                                                      
   · Section 6 changes the surety bond requirement                                                                              
   · Section 7 clarifies the effective date                                                                                     
   · Section 8 is transitional language allowing for regulations                                                                
   · Section 9 is the effective date for Section 8                                                                              
  · Section 10 is the effective date for the rest of the bill                                                                   
                                                                                                                                
3:35:11 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOSEPHSON has  been told  the consumer  would pay                                                               
more  than  the estimated  $0.10  per  drink, because  there  are                                                               
additional costs that  the bar owner or wholesaler  would pass to                                                               
the consumer.                                                                                                                   
                                                                                                                                
MR. SPANOS  suggested that  the industry  should respond  to that                                                               
question.                                                                                                                       
                                                                                                                                
REPRESENTATIVE JOSEPHSON asked whether  the percentage of revenue                                                               
directed to  the Alcohol  and Other  Drug Treatment  & Prevention                                                               
Authority fund is  an exception to the  prohibition on designated                                                               
funds.                                                                                                                          
                                                                                                                                
MR. SPANOS  answered that the fund  is a special fund  subject to                                                               
appropriation.                                                                                                                  
                                                                                                                                
REPRESENTATIVE JOSEPHSON posited that  if the legislature imposed                                                               
an increase  of $10  million, would  the administration  seek the                                                               
additional $30 million from another source.                                                                                     
                                                                                                                                
MR. SPANOS stated the intent  of the administration is to balance                                                               
the budget, but  he could not directly address  what would happen                                                               
in that situation.                                                                                                              
                                                                                                                                
3:37:13 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE KITO questioned at what  point the tax is assessed                                                               
or paid.                                                                                                                        
                                                                                                                                
MR.  SPANOS explained  that the  tax is  placed at  the wholesale                                                               
level,  thus if  alcohol  is  imported to  a  warehouse, and  the                                                               
warehouse owner  holds the  license, the  warehouse owner  is the                                                               
taxpayer; when  the liquor is sold  to the bar owner,  the tax is                                                               
paid.   He characterized the  tax as  "a true excise  tax meaning                                                               
the tax  is hidden  up the  chain."  An  exception would  be that                                                               
when  liquor is  shipped directly  to a  retail store,  the store                                                               
owner is the taxpayer.                                                                                                          
                                                                                                                                
REPRESENTATIVE KITO  asked how  a wholesaler  proves the  tax has                                                               
been assessed and paid.                                                                                                         
                                                                                                                                
MR. SPANOS said that  licensees have self-reporting requirements,                                                               
and  all  importers  of  alcohol are  licensed  with  DOR,  which                                                               
investigates and verifies purchases and reporting.                                                                              
                                                                                                                                
REPRESENTATIVE  KITO  asked   whether  the  electronic  reporting                                                               
requirements  in HB  248  -  and other  legislation  - have  been                                                               
implemented or are brand new to taxpayers.                                                                                      
                                                                                                                                
MR.   SPANOS   said   corporate  income   taxpayers   must   file                                                               
electronically if required  to do so for federal purposes.    The                                                               
ROL system is in use, but this is a new requirement.                                                                            
                                                                                                                                
REPRESENTATIVE  LEDOUX   referred  to  the  50   percent  payment                                                               
designated for the Alcohol and  Other Drug Treatment & Prevention                                                               
Authority fund,  and asked whether  the payment to this  fund can                                                               
be confirmed.                                                                                                                   
                                                                                                                                
3:40:32 PM                                                                                                                    
                                                                                                                                
MR. SPANOS expressed  his understanding that the  funds have been                                                               
appropriated every year; however, he will verify.                                                                               
                                                                                                                                
REPRESENTATIVE LEDOUX  questioned whether  the tax  increase will                                                               
result in  $40 million to the  general fund (GF) and  $20 million                                                               
to the  Alcohol and Other  Drug Treatment &  Prevention Authority                                                               
fund.                                                                                                                           
                                                                                                                                
MR. SPANOS said  initially $40 million goes to GF,  and from that                                                               
$20 million would be appropriated to the special fund.                                                                          
                                                                                                                                
REPRESENTATIVE   HUGHES  observed   that   if   HB  248   passes,                                                               
individuals  may  choose  to  order liquor  online.    She  asked                                                               
whether  the   administration  completed   an  analysis   on  the                                                               
potential impact  of online purchases  of alcohol to  small local                                                               
businesses and to jobs.                                                                                                         
                                                                                                                                
MR. SPANOS said DOR did not.                                                                                                    
                                                                                                                                
CHAIR  OLSON opined  that shipping  wine is  very expensive,  and                                                               
liquor cannot be mailed, thus  outside purchases would not affect                                                               
businesses.                                                                                                                     
                                                                                                                                
REPRESENTATIVE  HUGHES questioned  why there  was no  analysis on                                                               
the potential  economic impact of  this and other  revenue bills;                                                               
furthermore,  she  asked whether  DOR  considered  that in  rural                                                               
areas, the increased cost might encourage black market activity.                                                                
                                                                                                                                
MR. SPANOS  acknowledged that black  market activity is  always a                                                               
concern; he restated that the focus  of the tax bills is to close                                                               
the budget  gap, and  their impact  on revenue.   He  pointed out                                                               
that the funds  directed to the Alcohol and  Other Drug Treatment                                                               
& Prevention Authority  fund is used to assist  with "those types                                                               
of activities."                                                                                                                 
                                                                                                                                
3:44:46 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HUGHES said  she  was troubled  that  there is  a                                                               
focus  on  how  to  pay   for  government,  without  concern  for                                                               
residents and  their communities.    She reviewed the  changes to                                                               
taxes to  small breweries  and noted that  breweries in  her area                                                               
could grow and expand, but the tax would stop growth.                                                                           
                                                                                                                                
MR. SPANOS  said he would  confirm the production numbers  of all                                                               
of the breweries in Alaska and the tax rates thereof.                                                                           
                                                                                                                                
REPRESENTATIVE JOSEPHSON  returned attention  to the  increase in                                                               
funding  to the  Alcohol and  Other Drug  Treatment &  Prevention                                                               
Authority fund  and asked  whether the  increase would  be offset                                                               
from another  category such as  behavioral health, or  the Mental                                                               
Health Trust Authority.                                                                                                         
                                                                                                                                
MR. SPANOS said he will inquire.                                                                                                
                                                                                                                                
CHAIR OLSON stated that HB  248 would impact constituents who may                                                               
be unaware  of its consequences;  in a manner similar  to tobacco                                                               
taxes, the  bill seeks to  increase the cost  to those who  buy a                                                               
product from an industry that  has "significant problems," but is                                                               
not illegal.  He predicted there  would be a response to the bill                                                               
if it passes.                                                                                                                   
                                                                                                                                
3:49:22 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  LEDOUX  questioned  whether  the  change  to  the                                                               
amount of the  required bond intends to give  DOR discretion with                                                               
respect to individuals who apply for a bond.                                                                                    
                                                                                                                                
MR. SPANOS  said currently DOR  analyzes the estimated  tax prior                                                               
to approving  a bond, and the  bond is usually double  the amount                                                               
of the estimated tax amount,  with a minimum of $25,000; however,                                                               
the removal  of the  minimum bond  value allows  DOR to  accept a                                                               
smaller bond  amount for a  business with an expected  tax amount                                                               
of $5,000, for example.                                                                                                         
                                                                                                                                
REPRESENTATIVE LEDOUX  said, "But it  doesn't say that  the upper                                                               
amount, is like, 25 or 50,  or something like that, it just gives                                                               
you total discretion."                                                                                                          
                                                                                                                                
MR.  SPANOS responded  that under  the current  statute, DOR  has                                                               
total discretion  to increase the  amount to cover  the estimated                                                               
tax.   In further response  to Representative LeDoux, he  said he                                                               
would review the language in the regulations.                                                                                   
                                                                                                                                
REPRESENTATIVE LEDOUX  said, "So,  you're telling  me that  if we                                                               
have a  statute that  says ... 'of  $25,000', that  by regulation                                                               
you can  make it [$50,000]  or [$100,000] or [$150,000]?   That's                                                               
kind of perplexing to me."                                                                                                      
                                                                                                                                
3:52:17 PM                                                                                                                    
                                                                                                                                
COMMISSIONER HLADICK  said this  provision in the  bill addresses                                                               
doing away  with the  $25,000 minimum  requirement, so  the state                                                               
has the ability to charge a small businessman less.                                                                             
                                                                                                                                
REPRESENTATIVE LEDOUX asked, under the  current law, if the state                                                               
has the discretion to raise the  amount, why it does not have the                                                               
discretion to lower the amount.                                                                                                 
                                                                                                                                
MR. SPANOS said he will review the regulations.                                                                                 
                                                                                                                                
REPRESENTATIVE HUGHES  asked how many wholesalers  - distributers                                                               
with a warehouse  - would be affected, since the  bars and liquor                                                               
stores would not be affected.                                                                                                   
                                                                                                                                
MR. SPANOS explained  that the bill would  address small wineries                                                               
that  are producing  wine and  must get  a tax  bond, as  well as                                                               
specialty  importers.   He  agreed  there are  only  a few  large                                                               
warehouses, which are the main taxpayers.                                                                                       
                                                                                                                                
[HB 248 was held over.]                                                                                                         
                                                                                                                                
3:54:32 PM                                                                                                                    
                                                                                                                                
The committee took an at ease from 3:54 p.m. to 3:56 p.m.                                                                       
                                                                                                                                
        HB 252-ELCTRNC TAX RETURNS; VESSEL PASSENGER TAX                                                                    
                                                                                                                                
3:56:35 PM                                                                                                                    
                                                                                                                                
CHAIR OLSON announced  that the final order of  business would be                                                               
HOUSE BILL NO. 252, "An  Act requiring electronic submission of a                                                               
tax return  or report with  the Department of  Revenue; repealing                                                               
the  tax reduction  for local  levies for  the commercial  vessel                                                               
passenger excise  tax; amending  the definition of  'voyage'; and                                                               
providing for an effective date."                                                                                               
                                                                                                                                
3:56:59 PM                                                                                                                    
                                                                                                                                
CHRIS HLADICK, Commissioner, Department  of Commerce, Community &                                                               
Economic   Development,   provided  a   PowerPoint   presentation                                                               
entitled,   "Commercial  Passenger   Vessel  Tax   HB252,"  dated                                                               
2/10/16.  Commissioner  Hladick informed the committee  HB 252 is                                                               
an  act   requiring  electronic  submission  of   a  tax  return,                                                               
repealing the tax  reduction for local levies  for the commercial                                                               
vessel  passenger   excise  tax,   amending  the   definition  of                                                               
'voyage,' and  providing an effective  date [slide 2].   He noted                                                               
the cruise ship  head tax was created by the  [Alaska Cruise Ship                                                               
Tax  Initiative,   Measure  2,  approved  8/22/06   (cruise  ship                                                               
initiative)], and  major changes to  it made  in 2010 were:   tax                                                               
reduced from  $46 to  $34.50 per  passenger; increased  number of                                                               
ports  that can  receive  $5 per  passenger  sharing; credit  for                                                               
municipal port  fees added; tax  restricted to voyages  that were                                                               
in Alaska  waters for at  least 72 hours  [slide 3].   He further                                                               
explained the proposed  bill repeals credit for  local head taxes                                                               
of $8  in Juneau and  $7 in  Ketchikan, amends the  definition of                                                               
'voyage' thereby restoring  the tax to all trips  greater than 72                                                               
hours,  and requires  electronic filing,  including an  exemption                                                               
process [slide  4].   The Department  of Revenue  (DOR) estimates                                                               
increasing  the commercial  passenger  vessel tax  will raise  an                                                               
additional $16.6 million  per year, of which  $14.8 million would                                                               
be   kept  by   the  state,   and  $1.8   million  would   go  to                                                               
municipalities.  The  increase in municipal share  is largely due                                                               
to the  change to the  72-hour rule  [slide 5].   The assumptions                                                               
behind  the revenue  estimates  are as  follows:   900,000  total                                                               
passengers before the tax change;  12 percent increase due to the                                                               
repeal of the 72-hour rule; $34.50  per passenger, for a total of                                                               
$34.5 million; 3.5  ports per voyage receive  $5 municipal share;                                                               
and  the number  of  voyages and  passengers  would stay  roughly                                                               
constant  [slide 6].    In  a similar  manner  to  the other  tax                                                               
initiatives, DOR  must update the  Tax Revenue  Management System                                                               
(TRMS),  the Revenue  Online  (ROL) filing,  and  create the  tax                                                               
return  forms.    There  is a  one-time  implementation  cost  of                                                               
$100,000 to  recreate the tax  forms, and reprogram and  test the                                                               
tax system, and  there are no additional costs  to administer the                                                               
tax program  [slide 7].   Slides 8  and 9 illustrated  the fiscal                                                               
year 2016 (FY16) budget, and  the revenue from tourism adding $15                                                               
million to total  reductions and new revenue.  The  impact of the                                                               
cruise ship tax proposal would  be that voyages are slightly more                                                               
expensive  for  the  passengers   and/or  companies  [slide  10].                                                               
Commissioner Hladick began the sectional  analysis [slides 11 and                                                               
12]:                                                                                                                            
                                                                                                                                
   · Section 1 adds a $25 or 1 percent tax penalty for failure                                                                  
     to file electronically                                                                                                     
   · Section 2 requires electronic submission of tax returns,                                                                   
     license applications, and other  documents submitted to DOR;                                                               
     changes  all  tax statutes  and  applies  to all  tax  types                                                               
     administered  by  DOR;  provides  a process  to  request  an                                                               
     exemption  if a  taxpayer  does not  have the  technological                                                               
     capability to file online                                                                                                  
   · Section 3 amends the definition of voyage to mean any trip                                                                 
     or itinerary lasting more than 72 hours                                                                                    
   · Section 4 repeals current law which allows for a tax                                                                       
     reduction in the amount of certain local levies - this is                                                                  
     the most important section of the bill                                                                                     
   · Section 5 adds transitional language allowing for                                                                          
     regulations                                                                                                                
   · Section 6 is the immediate effective date for the                                                                          
     transitional regulatory language                                                                                           
   · Section 7 sets the effective date                                                                                          
                                                                                                                                
4:01:28 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE LEDOUX  recalled that  when head taxes  were first                                                               
addressed by  a previous legislature  there was a  question about                                                               
the constitutionality of head taxes.                                                                                            
                                                                                                                                
COMMISSIONER HLADICK deferred to the Department of Law.                                                                         
                                                                                                                                
4:02:12 PM                                                                                                                    
                                                                                                                                
CHRIS PELOSO, Assistant  Attorney General, Environmental Section,                                                               
Civil  Division  (Juneau),  Department  of Law,  in  response  to                                                               
Representative LeDoux, informed the  committee that in 2009 there                                                               
was  a  lawsuit filed  by  the  Alaska Cruise  Association  (ACA)                                                               
following  the establishment  of  the original  head  tax by  the                                                               
cruise  ship  initiative.    In 2010,  the  lawsuit  was  dropped                                                               
because there  was a settlement  agreement between the  state and                                                               
ACA  that  the  state  would  lower the  tax  rate  from  $46  to                                                               
[$34.50],  and  provide  an exemption  to  municipalities.    Mr.                                                               
Peloso  opined  that if  the  state  makes further  changes,  the                                                               
settlement  agreement is  still valid  because the  settlement is                                                               
related  to  legislative  action  taken in  2010.    However,  he                                                               
cautioned that ACA may revisit its  stance which was based on "an                                                               
obscure  constitutional provision  called the  Duty of  Tonnage -                                                               
the  tonnage clause.   Without  endorsing  their argument,  their                                                               
argument was  that any  fee ...  any tax  collected by  the state                                                               
that  doesn't  go  towards  docks   or  other  ship  expenses  is                                                               
unconstitutional."                                                                                                              
                                                                                                                                
REPRESENTATIVE LEDOUX  questioned whether the debate  was related                                                               
to interstate commerce laws.                                                                                                    
                                                                                                                                
MR.  PELOSO stated  that  the  tonnage clause  is  in Article  1,                                                               
Section  10  of  the  U.S.   Constitution,  and  there  are  also                                                               
interstate commerce  issues.  He  advised that the  issues raised                                                               
in  2009  would be  the  same  whether the  head  tax  is $46  or                                                               
[$34.50].                                                                                                                       
                                                                                                                                
REPRESENTATIVE LEDOUX surmised  that if the state  raises the tax                                                               
and nullifies the  settlement, the state may win  [a new lawsuit]                                                               
and collect more tax, or may lose and get no tax.                                                                               
                                                                                                                                
MR.  PELOSO  agreed  with  that  result  if  the  tax  were  held                                                               
unconstitutional,  however, he  could  not speak  to whether  the                                                               
cruise industry would revisit a lawsuit,  or to a court ruling in                                                               
this regard.                                                                                                                    
                                                                                                                                
4:05:51 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  LEDOUX observed  that  the state  entered into  a                                                               
settlement  agreement and  asked whether  that creates  a problem                                                               
with legally raising the tax.                                                                                                   
                                                                                                                                
MR.  PELOSO informed  the committee  that a  court case  does not                                                               
affect  legislative  actions.    All of  the  provisions  of  the                                                               
settlement agreement have  been fulfilled, thus HB  252 would not                                                               
be  in  violation  of  the  settlement  agreement.    In  further                                                               
response  to Representative  LeDoux, he  advised that  the cruise                                                               
association dropped  its lawsuit  with prejudice,  although there                                                               
are potentially ways  it could start a new lawsuit,  and he could                                                               
not speak for the cruise association.                                                                                           
                                                                                                                                
4:07:34 PM                                                                                                                    
                                                                                                                                
KEN  ALPER,  Director,  Tax   Division,  Department  of  Revenue,                                                               
advised that  the possibility of  the state losing a  lawsuit and                                                               
being held to  a retroactive liability are somewhat  limited.  He                                                               
pointed  out  that during  the  years  2007-2010, the  state  was                                                               
receiving about $25  million per year from the head  tax, and the                                                               
funds  were  defined in  a  section  of  the capital  budget  for                                                               
projects expressly  for dock and  harbor projects, as  related to                                                               
the tonnage clause.  Since  enactment of the legislation in 2010,                                                               
the state  receives about $2  million per year after  the reduced                                                               
tax  and increased  municipal sharing,  and the  money is  easily                                                               
identified as supporting dock and harbor projects.                                                                              
                                                                                                                                
4:08:40 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HUGHES  directed attention to slide  10, and urged                                                               
for the  administration to think  about the proposal's  impact to                                                               
the people of Alaska.   She remarked:                                                                                           
                                                                                                                                
     My  understanding was  back after  the initiative  that                                                                    
     the  number  of  passengers  did  go  down  by  15,  20                                                                    
     percent, there  were fewer ships coming  into our ports                                                                    
     and you  might think that just  impacted Southeast, but                                                                    
     it actually impacted up in  my area ... it impacted the                                                                    
     whole   state  and   it  particularly   impacted  small                                                                    
     business.                                                                                                                  
                                                                                                                                
REPRESENTATIVE HUGHES  expressed her  disappointment at  the lack                                                               
of analysis  on the  proposal's impact  to communities,  and then                                                               
asked whether  the money can only  be used for ports  and harbors                                                               
or can be deposited to the general fund (GF).                                                                                   
                                                                                                                                
MR. ALPER  explained that  the lawsuit  was never  resolved, thus                                                               
restrictions on  the use of  the funds are unknown;  however, the                                                               
state  intends  to  use  the money  to  pay  for  tourism-related                                                               
expenditures, and  could be targeted  "towards things  that would                                                               
meet any  sort of theoretical  constitutional restriction  on the                                                               
use of the funds."                                                                                                              
                                                                                                                                
REPRESENTATIVE HUGHES said there  are strict federal requirements                                                               
on the use of  the funds.  She asked, "What is  being paid out of                                                               
the general  fund right now for  those, those kind of  things, my                                                               
understanding it's, there's not, money  coming out of the general                                                               
fund for, being  paid for those kind of things,  and so now we're                                                               
going to be doing things that we might not otherwise be doing."                                                                 
                                                                                                                                
MR. ALPER  explained that the state  does not spend as  much from                                                               
the  capital budget  on  grants to  municipalities  for dock  and                                                               
harbor  projects as  in prior  years.   He acknowledged  that the                                                               
state does  spend money in  support of tourism marketing,  and in                                                               
support of DCCED tourism activities.                                                                                            
                                                                                                                                
REPRESENTATIVE HUGHES  expressed her  concern that it  is unknown                                                               
whether these funds  can be put in  GF and used in a  way to help                                                               
close  the  budget  gap.     She  requested  additional  specific                                                               
information in this regard.                                                                                                     
                                                                                                                                
4:12:11 PM                                                                                                                    
                                                                                                                                
COMMISSIONER HLADICK  agreed with Representative  Hughes' request                                                               
for  additional  information  because  as  the  city  manager  of                                                               
Unalaska, he received  grants for its harbor  from the Department                                                               
of Transportation & Public Facilities.                                                                                          
                                                                                                                                
CHAIR OLSON  asked whether HB 248  or HB 252 are  included in the                                                               
Institute of  Social and Economic Research  (ISER), University of                                                               
Alaska Anchorage, study of economic impact.                                                                                     
                                                                                                                                
MR.  ALPER  said  yes,  the   ISER  request  for  proposal  (RFP)                                                               
contained "the  suite of  possible revenue  measures that  we put                                                               
together over the summer."                                                                                                      
                                                                                                                                
CHAIR OLSON asked when the ISER report would be received.                                                                       
                                                                                                                                
MR. ALPER responded  that either an executive summary  or a first                                                               
draft is due  [2/15/16].  In further response to  Chair Olson, he                                                               
said the  executive summary would be  a summary of impacts  and a                                                               
table of key data.                                                                                                              
                                                                                                                                
4:14:06 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOSEPHSON  noted  the  "totally  valid"  comments                                                               
about  the impacts  of the  governor's  plan on  industry and  on                                                               
citizens, and pointed out that  cuts also have tremendous impact,                                                               
such as  those to the  University of  Alaska, which has  lost 500                                                               
employees.  He  returned to the settlement  agreement between the                                                               
cruise  ship industry  and the  state, and  observed that  if the                                                               
settlement was with  prejudice, there could not  be a retroactive                                                               
rescission of the settlement agreement.                                                                                         
                                                                                                                                
MR. PELOSO  agreed; however, another  party that was not  part of                                                               
the lawsuit  could file a  similar lawsuit based on  the original                                                               
argument.                                                                                                                       
                                                                                                                                
REPRESENTATIVE  JOSEPHSON  asked  what  taxes  were  received  by                                                               
municipal and state governments prior to 2010, and after 2010.                                                                  
                                                                                                                                
MR. ALPER  stated that at  the time  the state was  receiving the                                                               
$46 head tax  - approximately from 2007 through 2010  - the state                                                               
received $15  million to  $20 million  per year.   He  offered to                                                               
document a complete  history thereof.  One of the  changes in the                                                               
2010 amendment increased  the number of ports  that could receive                                                               
the  "shared $5"  which totaled  $15.5 million  in the  operating                                                               
budget last year.   He  stressed that the important difference is                                                               
to the portion that  is kept by the state, which  was made by the                                                               
legislative change  that reduced  the tax  to $34.50  and created                                                               
the offset.   For example, in 2008, a cruise  ship passenger paid                                                               
$61:  $46 to  the state, $8 to Juneau, and $7  to Ketchikan.  The                                                               
tax cut  to $34.50,  less the Juneau  and Ketchikan  taxes, meant                                                               
the state is  now receiving $19.50.  Almost all  of the reduction                                                               
of $26.50  per passenger came out  of the state's portion  of the                                                               
tax.                                                                                                                            
                                                                                                                                
4:18:19 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  LEDOUX inquired  as  to  how much  municipalities                                                               
receive each year through this tax.                                                                                             
                                                                                                                                
MR.  ALPER  offered   to  provide  a  report   which  shows  each                                                               
municipality that receive $5 per  taxable passenger.  He recalled                                                               
that the  total for the  current year  is $15.5 million,  and the                                                               
amount  each  municipality  receives  is  disparate  because  the                                                               
amount is  based on the  number of each  municipality's visitors.                                                               
In response  to Chair Olson,  he said  he would provide  a 5-year                                                               
history of payments.                                                                                                            
                                                                                                                                
REPRESENTATIVE  LEDOUX  posited  that if  the  state  incorrectly                                                               
assumes  that  the  cruise  ship   industry  would  not  bring  a                                                               
successful lawsuit,  the result would  impact not only  the state                                                               
but each community as well.                                                                                                     
                                                                                                                                
MR.  PELOSO   stated  that   is  impossible   to  say   what  the                                                               
repercussions of a lawsuit would  be; however, a court may decide                                                               
the  tax is  acceptable as  long as  the state  ensures that  the                                                               
money goes to municipalities.                                                                                                   
                                                                                                                                
REPRESENTATIVE HUGHES  asked how much  the head tax  would affect                                                               
fares on tourists from California or Washington.                                                                                
                                                                                                                                
MR. ALPER  said he was unsure  about docking fees and  head taxes                                                               
outside of  the state's jurisdiction,  or how they  are collected                                                               
by the industry.                                                                                                                
                                                                                                                                
[HB 252 was held over.]                                                                                                         
                                                                                                                                
                                                                                                                                
4:21:45 PM                                                                                                                    
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no further business before the committee, the House                                                                 
Labor and Commerce Standing Committee meeting was adjourned at                                                                  
4:21 p.m.                                                                                                                       

Document Name Date/Time Subjects
HB248 ver A.pdf HL&C 2/10/2016 3:15:00 PM
HB 248
HB248 Sponsor Statement-Governor's Transmittal Letter 1-15-16.pdf HL&C 2/10/2016 3:15:00 PM
HB 248
HB248 Fiscal Note-DOR-TAX-01-13-16.pdf HL&C 2/10/2016 3:15:00 PM
HB 248
HB252 ver A.pdf HL&C 2/10/2016 3:15:00 PM
HB 252
HB252 Sponsor Statement-Governor's Transmittal Letter 1-15-16.pdf HL&C 2/10/2016 3:15:00 PM
HB 252
HB252 Sectional Analysis.pdf HL&C 2/10/2016 3:15:00 PM
HB 252
HB252 Fiscal Note-DOR-TAX-01-13-16.pdf HL&C 2/10/2016 3:15:00 PM
HB 252
HB252 DOR-Presentation to HLAC 2-9-16.pdf HL&C 2/10/2016 3:15:00 PM
HB 252
HB248 DOR-Presentation to HLAC 2-9-16.pdf HL&C 2/10/2016 3:15:00 PM
HB 248