Legislature(1995 - 1996)
04/27/1996 05:10 PM Senate FIN
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* first hearing in first committee of referral
+ teleconferenced
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+ teleconferenced
= bill was previously heard/scheduled
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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