Legislature(1995 - 1996)

04/27/1996 05:10 PM Senate FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
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                             MINUTES                                           
                    SENATE FINANCE COMMITTEE                                   
                         April 27, 1996                                        
                            5:10 p.m.                                          
                                                                               
  TAPES                                                                        
                                                                               
  SFC-96, #97, Side 1 (000-575)                                                
  SFC-96, #97, Side 2 (575-330)                                                
                                                                               
  CALL TO ORDER                                                                
                                                                               
  Senator Rick Halford, Co-chairman, reconvened the meeting at                 
  approximately 5:10 p.m.                                                      
                                                                               
  PRESENT                                                                      
                                                                               
  In  addition  to  Co-chairmen  Halford  and  Frank, Senators                 
  Rieger, Sharp, and  Zharoff were  present.  Senators  Donley                 
  and Phillips arrived soon after the meeting began.                           
                                                                               
  ALSO  ATTENDING:   Representative Joe  Green;  Deborah Vogt,                 
  Deputy  Commissioner, Dept. of  Revenue; Bob McManus, Alaska                 
  Oil and  Gas Association;  Jetta Whittaker,  fiscal analyst,                 
  Legislative Finance Division; and aides to committee members                 
  and other members of the legislature.                                        
                                                                               
  SUMMARY INFORMATION                                                          
                                                                               
  HB 104 -  DISCLOSURE OF JUVENILE RECORDS                                     
                                                                               
            Amendment No. 1  by Senator Donley was  adopted in                 
            his  absence.    SCS  CSSSHB  104 (Fin)  was  then                 
            REPORTED OUT of  committee with zero  fiscal notes                 
            from the Alaska Court System, DOA(PDA),  DOA(OPA),                 
            DH&SS(DFYS), DPS, and DOE.                                         
                                                                               
  HB 341 -  TAX APPEALS/ASSESSMENT/LEVY/COLLECTION                             
                                                                               
            Discussion  was  had  with  Representative  Green,                 
            Deborah  Vogt, and Bob McManus.  Co-chairman Frank                 
            noted need for  a new fiscal note  showing reduced                 
            general  funds.   Amendments  A, B,  C, D,  and an                 
            effective  date change were  moved.  Amendments A,                 
            C,  and  D were  adopted.   The  bill was  held in                 
            committee with  the motion for  an effective  date                 
            change to January 1, 1997, pending.                                
                                                                               
                                                                               
  CS FOR SPONSOR SUBSTITUTE FOR HOUSE BILL NO. 104(JUD) am                     
                                                                               
       An  Act relating  to  disclosures of  information about                 
       certain minors.                                                         
                                                                               
                                                                               
  Co-chairman  Halford  directed  that  CSSSHB  104(Jud)am  be                 
  brought  on   for  discussion  and  referenced   a  proposed                 
  Amendment by Senator Donley which was held pending when  the                 
  morning meeting was recessed.  He then called for objections                 
  to  the  amendment.    No   objection  having  been  raised,                 
  Amendment  No.  1  was ADOPTED.    Senator  Sharp MOVED  for                 
  passage of SCS CSSSHB  104 (Fin).  No objection  having been                 
  raised, SCS CSSSHB  104 (Fin) was REPORTED OUT  of committee                 
  with  zero  fiscal notes  from  Dept. of  Health  and Social                 
  Services,  Dept.   of   Administration   (PDA),   Dept.   of                 
  Administration (OPA),  Dept. of  Education, Dept.  of Public                 
  Safety, and the Court System.  Co-chairmen Halford and Frank                 
  and  Senators  Donley,   Phillips,  and  Sharp  signed   the                 
  committee report with a "do  pass" recommendation.  Senators                 
  Rieger and Zharoff signed "no recommendation."                               
                                                                               
                                                                               
  CS FOR HOUSE BILL NO. 341(FIN)                                               
                                                                               
       An  Act  relating  to  administrative adjudication  and                 
       judicial appeals  and  to the  informal  resolution  of                 
       certain  factual  disputes  between taxpayers  and  the                 
       Department of  Revenue; establishing the  office of tax                 
       appeals as a quasi-judicial agency in the Department of                 
       Administration;  revising  the  procedures for  hearing                 
       certain  tax  appeals,   including  appeals   regarding                 
       seafood    marketing    assessments;     relating    to                 
       consideration and  determination by the  superior court                 
       of disputes involving certain  taxes and penalties due,                 
       and  amending provisions  relating  to the  assessment,                 
       levy,  and  collection of  taxes  and penalties  by the                 
       state and to the tax  liability of taxpayers; providing                 
       for the release  of agency  records relating to  formal                 
       administrative  tax  appeals;  relating  to  litigation                 
       disclosure of public records; clarifying administrative                 
       subpoena power  in certain  tax matters;  and providing                 
       for an effective date.                                                  
                                                                               
  Co-chairman Halford directed  that CSHB 341(Fin)  be brought                 
  on  for  discussion. REPRESENTATIVE  JOE  GREEN  came before                 
  committee in  support of  the bill.   He  explained that  it                 
  represents  the  end  product  of  many  hours  of work  and                 
  compromise  between  members of  the  oil industry,  a staff                 
  member from the Dept. of Revenue,  and the legislature.  The                 
  legislation changes  the tax  appeal process  within Alaska.                 
  Under present  proceedings,  the  department  issues  a  tax                 
  statement.  If  appealed, it  goes to informal  review.   If                 
  resolution is not effected in that review, the applicant can                 
  proceed to formal review.   If resolution is not forthcoming                 
  at that point, appeal may be made to the commissioner.   The                 
  commissioner decides whether or not he or she wishes to hear                 
  the appeal.  Thereafter, relief  may be  sought through  the                 
                                                                               
                                                                               
  superior court.  However, there is no  de novo review at the                 
  superior court level.   There is thus a perceived  bias that                 
  remains with the state in attempting to resolve differences.                 
  That is one of the reasons tax cases have taken so long.                     
                                                                               
  The bill  would, in  effect, establish  a tax  appeal court.                 
  During the interim  it was made  clear that while tax  court                 
  may be effective in some states, it is not the best approach                 
  for Alaska since the state has  large, complex tax cases but                 
  not a great  many of them.   Changes were  thus made in  the                 
  bill to acknowledge that fact.                                               
                                                                               
  At the beginning  of this  session, the administration  also                 
  introduced  a  tax  bill,   and  there  appeared  to  be   a                 
  possibility that the two could be  combined.  While that has                 
  occurred,     several     issues     required    resolution.                 
  Representative Green attested to  lengthy hearings and great                 
  effort which produced the proposed bill which, he explained,                 
  streamlines the tax appeal process.  It institutes change in                 
  that after  informal review within  the Dept. of  Revenue, a                 
  formal   review   would   occur   within    the   Dept.   of                 
  Administration.     Removal  to  a  separate  department  is                 
  intended to  remove the perceived bias in prior tax appeals.                 
  An additional provision  allows the taxpayer to  go straight                 
  to  superior   court,  following  informal   review,  if   a                 
  constitutional question is  involved.  On all  other issues,                 
  the  matter  must  be pursued  through  informal  and formal                 
  reviews.  The  de novo hearing  would take place within  the                 
  Dept. of Administration.                                                     
                                                                               
  Representative  Green  voiced  his  understanding that  four                 
  amendments would  be offered.  He explained that most relate                 
  to "the procedure  to work the  process."  Others are  house                 
  cleaning measures to ensure there is no complication between                 
  this bill and other legislation.                                             
                                                                               
  DEBORAH  VOGT,  Deputy   Commissioner,  Dept.  of   Revenue,                 
  acknowledged  that  discussion  of  moving  the  tax  appeal                 
  function  out  of  the Dept.  of  Revenue  had  been had  on                 
  numerous occasions over  the years.   All past efforts  were                 
  resisted  by  the  department.   A  survey  of  other states                 
  indicates that Alaska is in a  distinct minority in terms of                 
  in-house review with  no possible  trial de  novo after  in-                 
  house review.   While approximately half the  states conduct                 
  initial in-house tax department review, "a fair number . . .                 
  permit the taxpayer to have a trial  de novo when they go to                 
  superior court."  The department, in consultation with a tax                 
  advocate, began working  on changes  per the proposed  bill.                 
  Ms. Vogt  characterized the  legislation as  good and  fair.                 
  She said it would  remove the perception of bias  and should                 
  protect both the state and the taxpayer.                                     
                                                                               
  Ms. Vogt next directed attention to  amendments A, B, C, and                 
  D.  She  explained that the first two relate to the Judicial                 
                                                                               
                                                                               
  Council.  It was agreed that the  council would serve as the                 
  mechanism   for  nominating  the   individual  to  hold  the                 
  administrative law judge position.  Legislative confirmation                 
  would have involved creating an entire board and would  have                 
  more than doubled the fiscal note.   From nominations by the                 
  counsel, the Governor  would appoint the  administrative law                 
  judge for a term certain.  The judge can be removed only for                 
  cause.    Protections  are  thus  in  place  to  ensure  the                 
  independence all parties seek.                                               
                                                                               
  Following review of proposed language, the Judicial  Council                 
  made suggestions.  Amendment A contains technical amendments                 
  relating  to  procedure.    Part  of  the  amendment  merely                 
  lengthens the  time within  which the  council  must do  its                 
  work.   The amendment has been agreed to by the sponsor, oil                 
  industry representatives, and the administration.                            
                                                                               
  Ms. Vogt said that Amendment B is the  most important of the                 
  four.  It  would allow  the Judicial Council  to begin  work                 
  immediately after the  bill becomes law rather  than waiting                 
  for the July 1 effective date.  That would allow for earlier                 
  appointment of the administrative law judge                                  
                                                                               
  Amendment  C  provides a  technical  fix to  the agreed-upon                 
  provision for a  modified, limited,  direct appeal to  court                 
  for constitutional questions raised by taxpayers.  These are                 
  challenges to the  facial validity; no factual  issues would                 
  be involved.  Controversy has arisen over language presently                 
  in the bill,  and parties cannot agree  upon interpretation.                 
  Amendment C is intended to clarify  that a taxpayer may take                 
  an individual issue or claim, if it is a pure constitutional                 
  challenge,  to the  superior  court at  the  same time  that                 
  factual audit issues are pursued with the administrative law                 
  judge.                                                                       
                                                                               
  Amendment  D  changes the  time  period  for  appeal to  the                 
  superior court from  60 to  30 days.   Establishment of  the                 
  time line at 60  days stemmed from comments by  a consultant                 
  saying  that review of  state tax law  indicates that things                 
  would be happening too  fast.  Concern at this  time relates                 
  to the fact  that the change  to 60 days  would, in  effect,                 
  change a court rule.  The agreement is to return to  the 30-                 
  day period set forth in court rules.                                         
                                                                               
  Senator Rieger directed  attention to SCS CSHB  341(Jud) and                 
  referenced language at Page 18, lines 9 and 10, and inquired                 
  concerning the meaning of the following language: "An appeal                 
  of the informal  conference decisions under this  section is                 
  exclusive."  Ms. Vogt explained that a direct facial  attack                 
  on  a  regulation or  statute cannot  be  taken both  to the                 
  superior  court  and  the  administrative  law judge.    The                 
  taxpayer must choose between  the two.  However,  a taxpayer                 
  may spilt his or her case into two segments and place issues                 
  of  law  before the  court  and  factual  issues before  the                 
                                                                               
                                                                               
  administrative law judge as long as the portion that goes to                 
  court is "a pure facial challenge to a statute  or reg. that                 
  needs no factual determination."                                             
                                                                               
  Ms. Vogt next  spoke to several possible  interpretations of                 
  language to be amended  by Amendment C.  She  also presented                 
  an example of operation under the proposed amendment.                        
                                                                               
  Co-chairman  Halford raised  questions regarding  ability to                 
  accomplish what is necessary by the July 1 effective date.                   
                                                                               
  Senator  Zharoff referenced  the following  statement within                 
  file materials and questioned its veracity:                                  
                                                                               
       The  present  tax  appeals  process  is  seriously                      
       flawed  in  practice  and   denies  taxpayers  the                      
       opportunity  to have  their tax  appeal heard  and                      
       decided  by  a  truly  independent  and  impartial                      
       tribunal.                                                               
                                                                               
  Ms. Vogt responded that the  foregoing represents an opinion                 
  by the Alaska  Oil and Gas Association.  It  is a perception                 
  that taxpayers  have always held that the in-house nature of                 
  Alaska's tax appeal system is biased against them.  She said                 
  she  did  not agree  with  that statement  in  that Alaska's                 
  system is "very similar  to systems all over the  world that                 
  have been upheld,  over and  over, by the  courts" and  have                 
  been  tested  for constitutional  fairness.   The department                 
  recognizes that the perception of bias exists, and it is not                 
  going  to  change  until tax  appeal  is  moved  out of  the                 
  department.                                                                  
                                                                               
  Further comments followed by  Ms. Vogt regarding awkwardness                 
  associated  with  the current  role  of the  commissioner of                 
  revenue in  tax cases.    She stressed  that benefits  to be                 
  derived from the proposed bill include:                                      
                                                                               
       1.      Increased  faith  in  the  system  through  the                 
  perception that          the system will be fair.                            
                                                                               
       2.   Opportunity for  the commissioner to  become fully                 
  involved       from commencement to conclusion.                              
                                                                               
  Mr. Vogt voiced her  hope that the department would  be back                 
  before committee,  next year,  asking for  a second  hearing                 
  officer,  due  to  active  use  of  the  new  system.    The                 
  department has settled many cases over the past years rather                 
  than proceeding  to hearing.    Additional cases  proceeding                 
  through  the  hearing  process  will   result  in  published                 
  decisions  that  can  be relied  on  by  both  taxpayers and                 
  auditors.   The integrity  of the tax system  will grow if a                 
  body of reliable decisions is in place.                                      
                                                                               
  In  response to a further question from Senator Zharoff, Ms.                 
                                                                               
                                                                               
  Vogt said that  the decision of the administrative law judge                 
  could be appealed to both the superior and supreme courts.                   
                                                                               
  Co-chairman  Frank  referenced  accompanying  fiscal  notes,                 
  noted intent  to retain  present hearing  process staff  for                 
  other duties relating to CSED  and permanent fund dividends,                 
  and pointed to subsequent need to  change the funding source                 
  from  general  funds  to  interagency  receipts.   Ms.  Vogt                 
  directed attention  to tabulations  (copies on  file in  the                 
  original  Senate   Finance  Committee   file  for   HB  341)                 
  evidencing  funding  sources.    Three  specialized  hearing                 
  officers now cover child  support, permanent fund dividends,                 
  and  tax  work.   Since  reorganization, the  senior hearing                 
  officer has done no  tax work because the department  is "so                 
  swamped with CSED  cases and PFD  cases that we haven't  put                 
  out  a tax decision in over a  year."  The department cannot                 
  reduce staffing  as a result  of removing  the tax  function                 
  from revenue.   Funding  for CSED  and PFD  work comes  from                 
  those  sources.   At the  present time,  the  senior hearing                 
  officer is 50 percent general fund,  25 percent CSED, and 25                 
  percent  PFD.    Funding  for  the paralegal  assistant  and                 
  administrative  clerk  is  divided  into  thirds.    Current                 
  general  funds total  $76.0.    That  could  be  reduced  to                 
  approximately  10  percent,  $18,184.30, for  a  savings  of                 
  $58,003.70.   Co-chairman  Frank  asked that  the department                 
  prepare a  new fiscal note  based on  the foregoing  general                 
  fund reduction.  Ms. Vogt agreed to do so.                                   
                                                                               
  BOB McMANUS, Vice-president  of Tax, ARCO Alaska,  next came                 
  before  committee  on  behalf  of  the  Alaska Oil  and  Gas                 
  Association.  He explained  that he had been working  on the                 
  proposed  bill for  sixteen years.   He spoke  from prepared                 
  text (copy on file) and stressed that:                                       
                                                                               
       The majority  of the  provisions in  SCS CSHB  341                      
       (Judiciary) reflect consensus  not only within the                      
       industry  but  also   between  industry  and   the                      
       administration.   However,  there  were also  many                      
       compromises   between   the   industry   and   the                      
       administration, which  are in  the bill.   Indeed,                      
       the last remaining issues of disagreement  between                      
       ourselves and the  administration were resolved in                      
       compromise  amendments  presented  to  the  Senate                      
       Judiciary Committee April 19, which that committee                      
       adopted.                                                                
                                                                               
       AOGA supports the four technical changes  proposed                      
       by  the  department  and  endorses  the  bill  and                      
       requests approval without substantive changes.                          
                                                                               
  In  response  to a  question  from Co-chairman  Halford, Mr.                 
  McManus  explained  that  companies   pay  production  taxes                 
  monthly.   Income tax is paid on a calendar-year basis.  Co-                 
  chairman  Halford  expressed a  preference  for a  January 1                 
                                                                               
                                                                               
  effective date for the bill in lieu of adoption of Amendment                 
  B.    That would  provide  adequate  time within  which  the                 
  Judicial Council  could make  nominations.   He remarked  on                 
  ongoing tax hearings  and suggested that taxpayers  would be                 
  anxious to "get their hearings into the new process."                        
                                                                               
  Senator Zharoff asked if ongoing  hearing would be concluded                 
  within the Dept. of  Revenue or transferred to the  Dept. of                 
  Administration  upon  passage  of the  proposed  bill.   Mr.                 
  McManus explained  that the bill contains  transition rules.                 
  Most of the  cases would move into the new  procedures.  Ms.                 
  Vogt referenced language  saying that if a  taxpayer appeals                 
  after the effective date of the act, the appeal  is heard by                 
  the  new administrative  law judge.   If appeal  has already                 
  been made,  the case  remains within  the Dept.  of Revenue,                 
  unless  the  taxpayer  and  state   agree  otherwise.    The                 
  department has already  entered such  an agreement with  one                 
  taxpayer.  Ms. Vogt suggested that particular taxpayer would                 
  probably not be  happy with the  January date.  There  is no                 
  problem  with  effecting  the  bill  in  July.    Transition                 
  provisions allow the  administrative law judge to  "do other                 
  work" until the case load builds up.                                         
                                                                               
  Co-chairman  Halford voiced  support for  changing tax  case                 
  procedures but expressed reluctance for  change to occur too                 
  quickly.                                                                     
                                                                               
  Senator  Sharp  MOVED for  adoption  of  Amendment  A.    No                 
  objection having been raised, Amendment A was ADOPTED.                       
                                                                               
  Senator Rieger noted  testimony from the department  that it                 
  could make Amendment  B work  and MOVED for  adoption.   Co-                 
  chairman Halford OBJECTED.  He  reiterated that if Amendment                 
  B is not adopted, the effective date  would be July 1, 1996.                 
  Operation of the bill would thereafter be delayed by the 150                 
  days during  which the  Judicial Council  would compile  and                 
  make nominations.  The Co-chairman then called for a show of                 
  hands on the motion.  Amendment B was ADOPTED on a vote of 4                 
  to 3 (Co-chairmen Halford and  Frank and Senator Sharp  were                 
  opposed.).                                                                   
                                                                               
  Senator Zharoff  referenced Section  16 (Page  20, lines  17                 
  through 31) and asked if language  would be in conflict with                 
  legislation  restricting  state  access  to  certain   audit                 
  information.  Co-chairman Halford  advised that the previous                 
  legislation dealt with environmental audits rather than  tax                 
  audits.                                                                      
                                                                               
  Senator  Sharp  MOVED to  rescind committee  action adopting                 
  Amendment B.  Senator Zharoff OBJECTED.  Co-chairman Halford                 
  called for a show of hands.  The motion carried on a vote of                 
  4 to 3 (Senators Donley, Rieger,  and Zharoff were opposed.)                 
  and  committee action  WAS  RESCINDED.   Co-chairman Halford                 
  then called for  a show of hands on adoption of Amendment B.                 
                                                                               
                                                                               
  Adoption  failed  on a  vote  of  3 to  4  (Senators Donley,                 
  Rieger, and Zharoff were supportive.).                                       
                                                                               
  Senator Sharp MOVED for adoption of Amendment C.                             
                                                                               
  END:      SFC-96, #97, Side 1                                                
  BEGIN:    SFC-96, #97, Side 2                                                
                                                                               
  No objection having been raised, Amendment C was ADOPTED.                    
                                                                               
  Co-chairman  Frank  MOVED  for  adoption  of  Amendment   D.                 
  Senator Rieger noted that the legislation would apply to all                 
  taxpayers, and  he questioned  whether  the proposed  30-day                 
  window would be  sufficient for  taxpayers other than  large                 
  companies.   Deborah Vogt  reiterated earlier comments  that                 
  current bill  provisions  for 60  days  would  inadvertently                 
  change court rules.  Appellate Rule 602 presently provides a                 
  30-day time period for taking  appeal from an administrative                 
  decision.  Co-chairman Halford voiced his understanding that                 
  if 60 days remains, and the  required two-thirds vote is not                 
  forthcoming, the 30-day  rules would remain unchanged.   Ms.                 
  Vogt concurred in that understanding, but also noted need to                 
  change the bill title to reflect incorporation of the change                 
  to  60 days.   It was never  the intent to  change the court                 
  rule, and the  court rule change has never  been part of the                 
  title.   Amendment  D  merely returns  the bill  to existing                 
  requirements.                                                                
                                                                               
  Discussion followed regarding the 60-day  time period in the                 
  administrative process.                                                      
                                                                               
  Co-chairman  Frank  renewed  his  MOTION  for  adoption   of                 
  Amendment D.                                                                 
  No objection having been raised, Amendment D was ADOPTED.                    
                                                                               
  Co-chairman Frank then MOVED to change the effective date to                 
  January 1, 1997,  and requested unanimous consent.   Senator                 
  Zharoff OBJECTED and asked for  an explanation.  Co-chairman                 
  Frank said  the  delay would  provide time  within which  to                 
  prepare to implement  the bill.  Senator  Zharoff referenced                 
  earlier comments  that ongoing cases were posed to move into                 
  the  new  process.    Senator  Sharp  acknowledged  comments                 
  regarding  an agreement  to proceed  under  proposed changes                 
  when they become effective.  He suggested that the agreement                 
  could accommodate the  six-month delay and attested  to need                 
  for  150   days  (Amendment   A)  for   proper  review   and                 
  consideration of applicants.                                                 
                                                                               
  Co-chairman Halford directed that SCS CSHB 341 (Jud) be held                 
  in committee  with the motion  for change of  effective date                 
  pending and that it be brought  back before committee at the                 
  next meeting.                                                                
                                                                               
  ADJOURNMENT                                                                  
                                                                               
                                                                               
  The meeting was adjourned at approximately 6:05 a.m.                         
                                                                               

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