Legislature(2003 - 2004)
05/06/2003 07:10 AM House W&M
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON WAYS AND MEANS
May 6, 2003
7:10 a.m.
MEMBERS PRESENT
Representative Mike Hawker, Co-Chair
Representative Jim Whitaker, Co-Chair
Representative Cheryll Heinze
Representative Vic Kohring
Representative Bruce Weyhrauch
Representative Peggy Wilson
Representative Max Gruenberg
Representative Carl Moses
MEMBERS ABSENT
Representative Norman Rokeberg
OTHER LEGISLATORS PRESENT
Representative Dan Ogg
Representative Paul Seaton
Representative John Harris
COMMITTEE CALENDAR
HOUSE BILL NO. 298
"An Act relating to the distribution of appropriations from the
Alaska permanent fund under art. IX, sec. 15(b), Constitution of
the State of Alaska, and making conforming amendments; and
providing for an effective date."
- HEARD AND HELD
HOUSE BILL NO. 293
"An Act levying and collecting a state sales and use tax; and
providing for an effective date."
- HEARD AND HELD
PREVIOUS ACTION
BILL: HB 298
SHORT TITLE:DISTRIBUTIONS OF APPROPS FROM PERM FUND
SPONSOR(S): WAYS & MEANS
Jrn-Date Jrn-Page Action
05/05/03 1318 (H) READ THE FIRST TIME -
REFERRALS
05/05/03 1318 (H) W&M, FIN
05/05/03 1318 (H) REFERRED TO WAYS & MEANS
05/06/03 (H) W&M AT 7:00 AM HOUSE FINANCE
519
BILL: HB 293
SHORT TITLE:STATE SALES AND USE TAX
SPONSOR(S): WAYS & MEANS
Jrn-Date Jrn-Page Action
04/30/03 1202 (H) READ THE FIRST TIME -
REFERRALS
04/30/03 1202 (H) W&M, FIN
04/30/03 1202 (H) REFERRED TO WAYS & MEANS
05/01/03 (H) W&M AT 7:00 AM HOUSE FINANCE
519
05/01/03 (H) Heard & Held --
Teleconference --
MINUTE(W&M)
05/06/03 (H) W&M AT 7:00 AM HOUSE FINANCE
519
WITNESS REGISTER
ROD SWOPE, Manager
City and Borough of Juneau
Juneau, Alaska
POSITION STATEMENT: Expressed concerns with HB 293.
DON ANDERSON
Anchorage, Alaska
POSITION STATEMENT: His testimony in support of a state sales
tax was read by his wife, Dana Anderson, during the hearing on
HB 293.
LINDA FREED, Manager
City of Kodiak
Kodiak, Alaska
POSITION STATEMENT: Expressed concerns with HB 293.
ROY ECKERT, Manager
Ketchikan Gateway Borough
Ketchikan, Alaska
POSITION STATEMENT: During the hearing on HB 293, opposed a
statewide sales tax.
RAY McCARTHY
Wasilla, Alaska
POSITION STATEMENT: During the hearing on HB 293, testified
that the state has no right to supercede the local communities
that already have a sales tax in place.
TOM BOEDEKER, Manager
City of Soldotna
Soldotna, Alaska
POSITION STATEMENT: Expressed concern with the structure of HB
293 as well as a number of logistical and policy questions
ANDY HARRINGTON
Fairbanks, Alaska
POSITION STATEMENT: Testified that he would reluctantly support
the statewide sales tax because he views it as the lesser of two
evils.
GEORGE BRIGGS, Director
Dillingham Chamber of Commerce
Dillingham, Alaska
POSITION STATEMENT: During the hearing on HB 293, announced
that the Dillingham Chamber of Commerce doesn't support a
[state] sales tax.
MICHAEL CATSI, Member
Skagway City Council
Skagway, Alaska
POSITION STATEMENT: During the hearing on HB 293, testified
that the City of Skagway shares the same concerns about a state
sales tax as other cities and boroughs.
JOE GRIFFITH, President
Commonwealth North
Anchorage, Alaska
POSITION STATEMENT: During the hearing on HB 293, testified
that a [state] sales tax is one part of a long-range fiscal
plan.
PAT HOLMES
Kodiak, Alaska
POSITION STATEMENT: During the hearing on HB 293, testified
that he is opposed to the sales tax proposal.
BOB WEINSTEIN, Mayor
City of Ketchikan
Ketchikan, Alaska
POSITION STATEMENT: Testified in opposition to HB 293.
MARCI SCHMIDT
(No address provided)
POSITION STATEMENT: Expressed concerns with HB 293.
LARRY SEMMONS, Finance Director
City of Kenai
Kenai, Alaska
POSITION STATEMENT: During the hearing on HB 293, expressed
concerns with regard to the creation of differential tax rates.
JON BOLLING, Administrator
City of Craig
Craig, Alaska
POSITION STATEMENT: Testified in opposition to HB 293.
DR. BOB JOHNSON
Kodiak, Alaska
POSITION STATEMENT: Testified in opposition to HB 293.
ROGER JENKINS
Nikolai, Alaska
POSITION STATEMENT: During the hearing on HB 293, suggested the
review of a wholesale tax.
JACK SHAY, Member
Borough Assembly
Ketchikan Gateway Borough
Ketchikan, Alaska
POSITION STATEMENT: During the hearing on HB 293, testified in
opposition to a [state] sales tax.
JED WHITTAKER
Anchorage, Alaska
POSITION STATEMENT: During the hearing on HB 293, testified in
opposition to a [state] sales tax.
MIKE MILLIGAN, former assemblyman
Kodiak Island Borough
Kodiak, Alaska
POSITION STATEMENT: During the hearing on HB 293, testified
that a flat income tax is the best option.
DOUG WARD, President
Ketchikan Chamber of Commerce
Ward Cove, Alaska
POSITION STATEMENT: During the hearing on HB 293, expressed
concerns with regard to regional issues related to the proposed
sales tax.
ACTION NARRATIVE
TAPE 03-22, SIDE A
Number 0001
CO-CHAIR JIM WHITAKER called the House Special Committee on Ways
and Means meeting to order at 7:10 a.m. Representatives Hawker,
Whitaker, Heinze, Kohring, Weyhrauch, Wilson, Gruenberg, and
Moses were present at the call to order. Representatives
Seaton, Ogg, and Harris were also present.
HB 298-DISTRIBUTIONS OF APPROPS FROM PERM FUND
CO-CHAIR WHITAKER announced that before the committee is HOUSE
BILL NO. 298, "An Act relating to the distribution of
appropriations from the Alaska permanent fund under art. IX,
sec. 15(b), Constitution of the State of Alaska, and making
conforming amendments; and providing for an effective date."
CO-CHAIR WHITAKER informed the committee that HB 298 is
statutory language relative to HJR 26, which is a constitutional
amendment that will institute a percent of market value (POMV)
methodology for the permanent fund. This resolution would, if
passed by the legislature, be placed before the voters. If the
resolution is approved by the voters, HB 298 will prescribe the
distribution allocation of funds available.
CO-CHAIR HAWKER moved to adopt HB 298, Version 23-LS1075\A, as
the working document. There being no objection, HB 298 was
before the committee.
CO-CHAIR WHITAKER announced that HB 298 would be heard in the
relatively near future.
[HB 298 was held over.]
HB 293-STATE SALES AND USE TAX
CO-CHAIR WHITAKER announced that the next order of business
would be HOUSE BILL NO. 293, "An Act levying and collecting a
state sales and use tax; and providing for an effective date."
Number 0447
ROD SWOPE, Manger, City and Borough of Juneau, highlighted that
the citizens of Juneau have elected to fund the city's basic
services through property taxes as well as a sales tax.
Currently, about $29 million is collected in property taxes and
about an equivalent amount in sales tax. The City and Borough
of Juneau (CBJ) has a 5 percent sales tax of which 1 percent is
permanent, 3 percent is temporary and approved by the voters
every five years, and 1 percent is voter-approved bonded
indebtedness. The 3 percent funds such things as maintenance
and improvements in the areas of roads, water, and sewer.
Furthermore, the 3 percent funds youth activities. He noted
that some of the 3 percent goes to the budget reserve and some
of it supports miscellaneous government services. He explained
that the bonded indebtedness goes toward a major project, such
as a school or significant harbor improvement. At the time the
bond is paid off and the project is completed, that 1 percent
tax disappears. Mr. Swope noted that in the past the voters in
Juneau have been willing to tax themselves to provide for the
basic services. However, in recent years the votes for these
taxes have been closer and therein lies part of the concern, he
said. Mr. Swope predicted that it's going to be more difficult
for voters to approve a 3 percent temporary tax when there is
already an additional 3 percent mandatory tax by the state.
With regard to the suggestion that if the 3 percent temporary
tax isn't approved by the voters the property tax could be
increased, Mr. Swope pointed out that CBJ has a cap on the
property tax. The CBJ is close to the cap and anything
exceeding the cap has to be approved by the voters. Mr. Swope
said he believes it's fair to assume that if the voters aren't
willing to approve a sales tax increase, then they aren't likely
to approve a property tax increase. "So, therein lies the
dilemma," he remarked. Furthermore, if the voters didn't
approve the 3 percent temporary tax, it would be disastrous and
CBJ couldn't function as a city and borough.
MR. SWOPE turned to exemptions and noted that CBJ has a large
number of exemptions. From experience, Mr. Swope related that
those exemptions were hard-fought and very contentious. In his
view, exemptions are and should be a local decision. For
example, health care services provided are [tax] exempt because
the community believes health care services aren't a luxury.
Similarly, CBJ grants a number of exemptions to seniors. Mr.
Swope said that he didn't know if there is a way in which to
construct HB 293 to address the case-by-case situations for each
community. Furthermore, he related his belief that HB 293 would
have a severe impact on business. He said he wasn't sure of the
critical point at which the tax reaches the level at which there
is a disincentive to purchase goods at that location. However,
he guessed that 8 percent would be close to that point.
Number 1221
DON ANDERSON had his testimony read by his wife, Dana Anderson.
She read his testimony as follows:
This is a statement in support of a state sales tax in
preference to a state income tax. The headline in
Monday's Anchorage Daily News (ADN) proclaimed, "Sales
tax would fall hardest on the poor, experts say."
This is false, but to see why we need to examine
"expert" analyst with their simple-minded calculations
go wrong. First, they confuse the incidence of a tax
with its impact. For example, in the ADN article they
claim the higher percentage of income paid by the
poorer of the poor represents the impact of this tax.
It does not. This is only the initial incidence of
the tax and does not begin to trace its impact on all
the players in our highly complex economy. In fact,
the poor pay taxes on 123 percent of their income in
the ADN example. Any change in the form or rate of
taxation sets off a complex series of adjustments in
the economy that are too elaborate to model. In
short, unless we know how each person's situation
changes with respect to jobs, work time, income, and
retirement as well as taxation, we cannot claim that a
sales tax impacts the poor more than an income tax.
Only long-term empirical studies can provide any
guidance. In fact, empirical evidence suggests just
the opposite.
Second, income tax proponents ignore the effect on the
economy. Taxation does not occur in isolation.
Federal and state income and sales taxes affect where
they live, where they set up business, who and how
many they employee, when they work, when they retire,
and a host of other economy-affecting decisions. A
strong economy can employ a very high percentage of
available workers. As an economy weakens of the
result of increased inappropriate taxation, the
marginal workers are often laid off first. Losing 100
percent of your income is a pretty high rate and it is
visited not as the incidence of taxation for none is
paid by the victim. Rather, it is the ugly impact of
perverse incentives fostered [by] high or
inappropriate taxation. A grim example of ignoring
the effects of taxation is the federal government's
continued use of "static scoring" to predict revenue
changes when they change the tax rate. They continue
to use this model in spite of the fact that it has
been wrong every time it was applied to tax rates.
For example, it is predicted a revenue loss when the
capital gains rate is lower. They are now wrong eight
for eight since 1913, and still failing. By
comparison, the Alaska Legislature looks like
descendants of Einstein. A little thought might show
income tax proponents that they're incentive schedule
is all wrong. They are discouraging productive
behavior. Long experience has shown that removing
incentives for productive behavior make us all poorer,
rich and poor alike. In their eagerness to flatten
apparent income, they end up ... driving a steamroller
over the poor.
Now let's examine the empirical results of comparisons
between the growth in sales tax base and income tax
base. There is a wealth of evidence from other states
to demonstrate that growth is suppressed by any income
tax. Evidence also demonstrates that an income tax
reduces per capita income. Income ... adjusted per
capita has increased 89 percent, since 1970, across
the U.S. However, the eight states without an income
tax, Alaska excluded, has increases averaging 96
percent compared to 81 in the eight highest tax
states. Over a longer period, since 1948, income in
zero income tax states grew faster than high tax
states by 29 percent. High-income states, as a group,
have a (indisc.) per capita wage decline to 91 percent
of the national average. Meanwhile, non income tax
states have increased income from well below the
national average. Nine states that recently
implemented an income tax showed slower growth than
other states. A (indisc.) comparison of states that
are demographically similar shows that in each case an
income state has less personal income growth than a no
income tax state: Tennessee beats Kentucky; Texas
beats Oklahoma; Florida beats California; New
Hampshire beats Vermont; and South Dakota beats North
Dakota. Forget the usual catch phrases of
"regressive" or "progressive." These are merely
advertising slogans dreamed up by income tax
proponents to demonize other taxes. Look at the
underlying reality, they have defined regressive to
mean taxing people according to what they consume -
what they take out of the economy for their own
benefit. Progressive means taxing people according to
the value of what they produce, what they do for other
people. I'll take regressive tax any day; I want to
encourage people to work, save, invest, and create
wealth not punish them for their socially beneficial
activity. Proponents of an income tax complain that
the rich won't pay enough under the sales tax.
(Indisc.) the sales tax system to be built to assuage
someone's feelings of envy. I would prefer a solid
plan to obtain revenue with the least expense, time
waste, and economic damage. Someone who will accept
an inferior tax because it punishes "the rich" must
also accept my contempt. Remember, some people are
looking at the incidence of an income tax rather than
its impact. If modeled on the federal law, the
incidence of the income tax is primarily on the upper
half of the income earners - with this group paying
about 95 percent of the tax. However, the impact of
this tax is felt most strongly at lower incomes where
it leads to higher unemployment. This and other
attempts at shifting the wealth from more economically
capable to less economically capable hands fail
because the resulting damage for both groups. Jobs
disappear when "the wealthy" are unable to invest and
they often take their talents and depart to more tax
hospitable climes. I've never been offered a job by a
"poor" person.
Alaska legislators have done a fine job over the last
decade in resisting the usual pressures to expand
government to destructive levels. Their job would be
more difficult with an income tax. The experience of
other states shows that the eight highest income tax
states spent 40 percent more per capita than the non
income tax states. An Ohio University economist has
calculated that personal [income] increases 3.6
percent for every 1 percent reduction in state tax
burden. I suspect the converse is also true. An
economical government is the best hope for most
citizens as taxes damage the economy, in particularly
the least capable. The empirical evidence from other
states shows that this damage is accentuated by using
an income tax rather than a retail sales tax.
Number 2149
LINDA FREED, Manager, City of Kodiak, related that the City of
Kodiak is very concerned with regard to the implementation of a
statewide sales tax. Ms. Freed said that she wanted to echo all
the comments of Mr. Swope because most of his examples are also
applicable to the City of Kodiak. She explained that
municipalities around the state are built on sales tax and
property tax. Depending upon the year, the City of Kodiak,
which has a 6 percent sales tax, brings in between 70-80 percent
of its general fund revenue by the sales tax. The City of
Kodiak's property tax is quite small in order to allow the
Kodiak Island Borough to bring a larger portion of its revenue
from property tax and to pay for the school education system in
the region. With the reduced state funding for municipalities,
Kodiak can't afford to reduce the income and revenue it receives
from sales tax. She informed the committee that from the sales
tax the City of Kodiak funds $1 million for ports and harbors
every year; $900,000 for capital improvements to roads, and
$100,000 for capital activities with parks and recreations. The
balance of the sales tax funding pays for all the other
municipal functions, specifically police, fire, and ambulance.
In fact, the [city sales tax] subsidizes the community jail that
[the city] contracted to operate on behalf of the state.
MS. FREED related the belief that the implementation of a
statewide sales tax will reduce revenue to the City of Kodiak in
two ways. One, people will shop elsewhere. The current
legislation doesn't include a cap on the amount of tax people
would have to pay, which is a feature of the City of Kodiak's
sales tax. The aforementioned was done purposefully in order to
encourage shopping in the community. Second, the city will lose
significant revenue through the implementation and enforcement
of the sales tax on the state level. As Mr. Swope discussed,
Kodiak has exemptions based on specific community need and
desire. Furthermore, there is a $500 cap on the sales tax. Ms.
Freed informed the committee that the City of Kodiak anticipates
that it could lose at least 20 percent of the city's sales tax
with state administration attached. She emphasized that the
City of Kodiak very aggressively enforces the sales tax. She
expressed concern with the administration of a sales tax from
Anchorage or Juneau because [the city officials] believe that
many merchants won't pay the sales tax.
MS. FREED pointed out that the City of Kodiak has had a sales
tax system in place for over 30 years. Ms. Freed related that
if the legislature feels the absolute need to impose a state
sales tax, then municipalities with functioning sales tax
systems in place should be allowed to administer and enforce the
sales tax in their community on behalf of the state.
Number 2534
ROY ECKERT, Manager, Ketchikan Gateway Borough, announced that
the Ketchikan Gateway Borough is opposed to the state sales tax,
particularly the administration and collection of the state
sales tax by a state agency. He informed the committee that he
has worked in municipal government for 26 years. He recalled
that when he was the city manager in Orange Beach, Alabama, the
city lobbied to get out from under the state collection of sales
tax. The first year the city of Orange Beach collected its own
sales and use tax, the revenue increased by 70 percent. Every
city and county in the State of Alabama that started collecting
their own sales and use taxes saw a minimum increase of 30
percent. Therefore, he said he believes the earlier estimate
that a city would lose at least 20 percent of the taxes and
revenues under state collection to be a conservative estimate.
MR. ECKERT expressed concern with the move toward the nationwide
streamlined sales tax project. Twenty states are trying not to
opt in. He read from a position paper as follows:
State level tax administration of all state and local
sales and use taxes, businesses will no longer file
tax returns with each local government within which it
conducts business in a state. Each state will provide
a central point of administration for all state and
local sales and use taxes in the distribution of the
local taxes to the local governments. A state and its
local governments will use common tax bases.
Therein lies a problem because he questioned who will know who
is paying taxes as it will be an honor system for which there is
no way to enforce it. This would especially be true in a
tourist area. Other states have run into the problem that there
couldn't be enough people to enforce and collect, and
furthermore there would be no authority for the local
governments to enforce this. Under the uniform audit procedures
of the streamlined sales tax it specifies: "Sellers who
participate in one of the certified streamlined sales tax system
technology models will either not be audited or will have
limited scope audits." Therefore, that will drastically
decrease the sales and use taxes locally as well as statewide.
He further quoted: "Depending on the technology model used, the
states may conduct joint audits of large multi-state
businesses." However, he questioned who in state government is
going to do this [audit]. He related that last year at the
State Revenue Officers Convention, Alabama's state comptroller
admitted that by allowing the cities and counties to collect
their own sales and use taxes and perform their own auditing,
the State of Alabama has saved over $1 billion in administrative
costs as well as [eliminated] the need for over 1,500 state tax
collector positions. He related another quote, "To reduce the
financial burdens on sellers, states will assume responsibility
for funding some of the technology models." Therefore, he hoped
the State of Alaska would not get involved with this. He
pointed out that the Streamlined Sales Tax model says, "The
states are also participating in a joint business, government
study of the cost of collection on sellers." However, Mr.
Eckert submitted that such has already been done by other states
that are opting out of the sales tax collection business by
allowing local entities to collect and audit their own sales and
use tax. Should this legislature go ahead with this, he
requested that those cities and boroughs already collecting and
auditing their sales and use taxes be allowed to continue. He
concluded by urging the committee not to enter into this
Streamlined Sales Tax project, but suggested that if the state
does enter into this project the cities and boroughs should be
allowed to collect and audit their own sales tax users.
Number 3136
RAY McCARTHY related his belief that the state doesn't have the
right to supercede the local communities, approximately 97
communities, that already have a sales tax in place. The City
of Wasilla has $22 million in outstanding bonds, of which $4.5
million is for road projects, $5 million for water and sewer
projects, and $14.7 million for a multi-purpose sports complex.
If Wasilla has to give up part of its sales tax, there is no way
these bonds can be paid. Mr. McCarthy said he could see that
[this statewide sales tax] could bankrupt some cities.
Number 3334
TOM BOEDEKER, Manager, City of Soldotna, informed the committee
that he is also a former borough attorney for the Kenai
Peninsula Borough, and therefore has been extensively involved
in sales tax administration and enforcement. Mr. Boedeker
expressed concern with the structure of HB 293 as well as a
number of logistical and policy questions that he doesn't
believe have been addressed nor is there time to address before
the end of session. He noted that he hasn't had time to review
this with the city council or provide adequate notice to meet
with citizens on this matter. He questioned when local taxes
would be remitted to the local government for their share. He
asked if the aforementioned would happen in a timely fashion in
order to avoid cash flow problems for the municipalities. This
legislation proposes to go into effect next January, which is
the middle of the fiscal year for a number of the communities.
Mr. Boedeker echoed the comments questioning whether the state
tax collection system would be as good as the local systems with
which people in the community are familiar. Furthermore, small
amounts [of unpaid sales tax] may not be worth pursuing at the
state level, although it would be significant at the local
level. Mr. Boedeker opined that the proposed staffing for this
is totally inadequate to have a vigorous pursuit for collection.
MR. BOEDEKER said there are a number of other issues. For
instance, the legislation proposes to tax out-of-state purchases
in order to prevent people from going elsewhere. However, no
mechanism is provided in the legislation. Mr. Boedeker surmised
that there will be regulations and the complexity of those
regulations would make it virtually impossible to adopt them by
January. Mr. Boedeker questioned why sales by the state or
federal government should be exempted, especially because that
raises a question with medical services. In general, Mr.
Boedeker related his belief that there should be a maximum
transaction limit. For instance, in the City of Soldotna there
is a $500 sale limit. Without this limitation, people would
drive to Anchorage to purchase a vehicle because of the $1,500
price difference. Mr. Boedeker said that there are serious
questions that need to be weighed. He asked if the benefits to
the state under this proposal would outweigh the detrimental
impacts to the communities.
Number 3733
ANDY HARRINGTON remarked that he would reluctantly support the
statewide sales tax because he views it as the lesser of two
evils. He acknowledged that the incidence and impact of a sales
tax falls on the backs of poor Alaskans. He further
acknowledged that for those 20 percent of Alaskans who itemize
an income tax would be preferable to a sales tax. Furthermore,
a sales tax is going to make it even more difficult for the
already [struggling] municipalities. Mr. Harrington related his
preference for an income tax. He expressed the need to balance
the tax on earnings and the tax on consumption. Given that
municipalities in the state are allowed to tax consumption, he
said he believes it makes sense for the state to tax earnings.
However, without doing something the impact on the state's
credit ratings will be disastrous. Therefore, he supported the
[sales] tax, and with regard to the exemptions, he said they
should be geared toward relieving the incidence and impact to
the state's poor population. The exemptions should be geared to
the needs-based criteria to the maximum extent possible.
Number 3951
GEORGE BRIGGS, Director, Dillingham Chamber of Commerce,
announced that the Dillingham Chamber of Commerce doesn't
support a [state] sales tax. Over the past few years,
Dillingham has been hit hard economically and an implementation
of a statewide sales tax would be a further burden. He informed
the committee that Dillingham has a 6 percent sales tax in
place, and therefore with an additional 3 percent people will
start shopping elsewhere. This lose of revenue would possibly
bankrupt several businesses in place. If the state chooses a
sales tax, Mr. Briggs questioned whether cities such as
Dillingham would receive a type of credit. "We feel it's
necessary that in some form we have to recoup this money that
would be leaving," he said. He indicated the need to exempt the
state sales tax on items that are crucial in the economy, such
as retail food sales and pharmaceuticals. He noted that the
local sales tax is imposed on the retail food sales and
pharmaceuticals because those are the items that are the most
purchased in the economy. Dillingham experiences a strong
influx of seasonal people who purchase food [and other items] in
large quantities, and therefore an additional sales tax may
force them to shop elsewhere.
MR. BRIGGS turned to the collection of the tax and opined that
the local government is a crucial player in the implementation
of a statewide sales tax. Having the state administer and
collect the tax leaves open many questions with regard to how
fair a statewide sales tax would be.
Number 4254
MICHAEL CATSI, Member, Skagway City Council, said that the City
of Skagway shares the same concerns about a state sales tax as
does the City and Borough of Juneau, Ketchikan, Kodiak,
Dillingham, and Soldotna.
JOE GRIFFITH, President, Commonwealth North, began by applauding
the efforts to develop a fiscal plan. Clearly, one leg in the
fiscal plan is a taxation plan, and therefore sales taxes have
to be considered. Mr. Griffith said that there is a track
record in this country that clearly supports the sales tax. He
expressed the hope that a [long-range fiscal plan] will be in
place that will satisfy the state's needs as well as those of
the credit rating agencies.
Number 4518
PAT HOLMES informed the committee that he is opposed to the
sales tax proposal. He related his belief that it was
inappropriate to have dropped the state income tax because if it
was maintained there probably would've been an endowment fund by
now. He also related his belief that a sales tax is repressive,
punitive, and has serious impacts on local economies. He
mentioned that there are already places in the Aleutians where
hamburger meat is $5 per pound and with the implementation of a
sales tax, those folks simply aren't going to purchase their
food. Furthermore, there will be a serious impact on seniors
and retired individuals because the sales tax will be placed on
health care and medical services. Mr. Holmes said he strongly
disfavored a graduated [tape ends]
TAPE 03-22, SIDE B
Number 4625
BOB WEINSTEIN, Mayor, City of Ketchikan, announced that on
behalf of the City of Ketchikan he is speaking in opposition to
HB 293. He echoed the concerns expressed by Mr. Swope. Mr.
Weinstein recognized that the state faces a fiscal problem, but
he pointed out that it should be addressed by a variety of
tools. However, some communities like Ketchikan have fiscal
problems and have less tools available to address them. In the
last few years, this issue has become exacerbated as the state
reduces its support to municipalities. Therefore, it's
important for the communities to protect the few tools they do
have to address the revenue situation. In Ketchikan most sales
are subject to a 5.5 percent tax, which breaks down to 3.5
percent city and 2 percent borough. City residents have voted
to pay for public safety, public works, and building
improvements for the city-owned hospital. The city has chosen
to have a number of exemptions for seniors, health care, and
those portions of sales in excess of $1,000. The proposed
legislation doesn't have similar exemptions. He noted that the
City of Ketchikan owns and operates the electric, water, and
telephone utilities in Ketchikan, and the city has chosen to
exempt such utility sales from the local sales tax. The
proposed legislation does not, and therefore would represent a 3
percent rate increase for Ketchikan customers.
MR. WEINSTEIN related his understanding that the proposed use
tax applies to all property acquired outside of the state for
which a similar sales tax wasn't collected. Mr. Weinstein
questioned who would know when someone purchases say, a shirt
from Nordstrom and doesn't pay tax. Mr. Weinstein also related
his understanding that by enacting a moratorium on taxation of
Internet sales, the federal government has precluded states from
taxing such sales regardless of the language in legislation such
as HB 293. There can't be a direct or indirect sales tax such
as the proposed use tax for Internet sales. With the proposed
tax, citizens in Ketchikan would face an 8.5 percent tax and
thus he predicted there would be a diversion of sales to outside
the city and state. Mr. Weinstein concluded by expressing the
need for an Alaskan solution to the fiscal gap rather than the
implementation of a nationwide cookie cutter sales tax project
approach. Mr. Weinstein said that if HB 293 is passed, he
requested that there be an exemption for sales in communities
with a population below 50,000.
Number 4247
MARCI SCHMIDT, a small business owner, informed the committee
that the state sales tax would probably run her out of business.
She related that her customers would probably go to Anchorage to
shop because there isn't a [local] sales tax. Ms. Schmidt said
that this [sales tax proposal] is not the way [to deal with
Alaska's fiscal problems]. She said that this is merely
taxation without proper representation because this should be
placed before the voters in Alaska, which should be the case
with any tax before it's implemented. Ms. Schmidt said that
"we" are still waiting for the government to cut back on some of
its spending.
Number 4148
LARRY SEMMONS, Finance Director, City of Kenai, echoed the
concerns expressed by other municipalities. The City of Kenai
has a 3 percent tax and the borough has a 2 percent tax, and
therefore adding this proposed 3 percent state sales tax would
bring the tax to 8 percent. The City of Kenai already has
extreme revenue problems. One of the problems in the Kenai
Peninsula Borough is differential tax rates; that is areas
outside of the city are taxed at a 2 percent rate. Therefore, a
3 percent addition on the full amount of the sale will create
differential tax zones throughout the state. He predicted that
there won't be any automobile dealerships on the Kenai Peninsula
if the tax is implemented as it is currently written because the
incentive to drive to Anchorage would be great.
MR. SEMMONS recalled his 15 years with the collection side of
the enforcement actions and related his view that the state is
wildly optimistic in its administrative costs, as reflected in
the fiscal notes. Mr. Semmons remarked that he is convinced
there is a lack of understanding of what it will actually take
to do a good job administering the sales tax. Mr. Semmons
concluded by thanking the House for doing all the hard work.
Number 3908
JON BOLLING, Administrator, City of Craig, announced his
opposition to HB 293. Like many communities, the City of Craig
has tailored specific exemptions that he didn't believe could be
accounted for in state legislation. Mr. Bolling pointed out
that the state has revenue-generating options not available to
municipalities and the state should place its primary focus on
those powers. He noted that the City of Craig supports the
comments of other communities, especially those of Ms. Freed.
He highlighted that other alternatives for the legislature can
be found in HB 11 as well as the possibility of amending HB 293
such that it would exempt communities that already have a sales
tax of at least 3 percent.
Number 3801
DR. BOB JOHNSON testified in opposition to HB 293 because he
believes that a sales tax is a punitive tax, particularly when
it's superimposed on taxes that already exist in a community for
the reasons that many of the administrators have stated. He
said that what bothers him the most is those in borderline
income status who have trouble purchasing enough food at the
present [tax levels]. Dr. Johnson opined that HB 293 should be
put aside and a graduated income instituted because it is
straightforward and fair.
Number 3617
ROGER JENKINS related his belief that a wholesale tax would be
easier to collect. He recalled that when he was in Whittier
there was a sales tax and about half of those in business
automatically paid their sales tax while the other half [did
not]. This proposal would increase the costs in a city like
Nikolai. He noted his preference for a lottery.
Number 3401
JACK SHAY, Member, Borough Assembly, Ketchikan Gateway Borough,
reiterated earlier opposition to a sales tax. Mr. Shay stated
that Ketchikan is in fiscal difficulty and this proposal would
create an additional burden. At a recent meeting of the board
of directors and the Alaska Conference of Mayors, there was
discussion of the sales tax and a revenue tax similar to the
former employment tax. During that discussion, there was a
suggestion to exempt the person who pays the use tax from the
statewide sales tax. Therefore, it would stand the
constitutional test of equal protection under the privileges and
immunities clause of the constitution. Furthermore, there would
be the opportunity to exempt almost all Alaskan citizens who pay
the employment tax. The employment tax seems to be a source of
revenue that would impact everyone equally and would eliminate
the need to review a seasonal sales tax.
Number 3059
JED WHITTAKER pointed out that the War on Iraq is costing the
U.S. $70 billion, which is approximately the total budget
shortfall of all 50 states. He said, "It's a question of
prioritizing our resources and using them appropriately."
Having said that, Mr. Whittaker noted his opposition to a
[state] sales tax, which he characterized as regressive. He
said it is inappropriate for the legislature to meet behind
closed doors and bring this up at the last minute with little
time for public comment. Mr. Whittaker urged the committee not
to support [HB 293] because there are other alternatives, such
as the economic limit factor on the oil companies and adjusting
the oil pipeline tariff rates. Mr. Whittaker reminded the
committee that the legislators are present to represent the
people of the state not the oil companies.
Number 2845
MIKE MILLIGAN, former assemblyman, Kodiak Island Borough,
remarked that [HB 293] is the worst idea that has come out of
Juneau in the last decade. Mr. Milligan commented that this
proposal, the permanent dividend, the Patriot Act, and the No
Child Left Behind Act all tend to be questions of power and who
is best at administering that power. A sales tax is best
administrated by local government. Mr. Milligan said, "What
this issue for me is really about isn't so much that the state
needs revenues as much as Fairbanks and Anchorage don't have the
guts to institute a sales tax." He highlighted that there are
90 communities in Alaska that have chosen a sales tax as a
method of generating revenue and those revenues are tailored
under Title 29 in order to meet the local needs. For example,
in Kodiak there is a $500 cap which allows car dealers in Kodiak
to remain viable.
MR. MILLIGAN recalled 1974 when he worked on the pipeline and
lived in Fairbanks. He recalled that people from all over the
world came to Alaska because of the recession in the Lower 48.
If the Arctic National Wildlife Refuge (ANWR) is developed, he
predicted that the checks would be sent to Juneau - the money
isn't going to be collected locally. He recalled his time on
the borough assembly when a former city manager of Fairbanks in
the 1970s was working as a lobbyist for the assembly. This
lobbyist claimed that in 1974, when Fairbanks was at its height,
the city had $25 million in extra revenue. Fairbanks chose to
get rid of its sales tax and Anchorage has chosen not to have a
sales tax. Again, if ANWR is developed and there is a boom
economy in Alaska while there is a recession in the Lower 48, a
statewide sales tax will mean that the money is sent to Juneau.
Mr. Milligan emphasized his belief that the best idea is a flat
income tax.
Number 2412
DOUG WARD, President, Ketchikan Chamber of Commerce, said he
would like to highlight some of the regional complications that
the committee might not be fully aware. For Ketchikan, the next
closest shopping area is Puget Sound. With the additional 3
percent proposed under HB 293, the 8.5 percent total tax begins
to approach the cost of shipping goods from Puget Sound to
Ketchikan, particularly with large ticket items. In 1996 a
Puget Sound Chamber of Commerce study found that Alaska
represented a $7 billion export value to Puget Sound.
Therefore, he said he believes an additional 3 percent would
contribute to that shopping outside.
CO-CHAIR WHITAKER announced that testimony on HB 293 would
continue tomorrow. Therefore, HB 293 was held over.
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Ways and Means meeting was adjourned at
8:23 a.m.
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