Legislature(2003 - 2004)
05/14/2003 04:52 PM Senate FIN
| Audio | Topic |
|---|
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
MINUTES
SENATE FINANCE COMMITTEE
May 14, 2003
4:52 PM
TAPES
SFC-03 # 97, Side A
SFC 03 # 97, Side B
SFC 03 # 98, Side A
CALL TO ORDER
Co-Chair Gary Wilken convened the meeting at approximately 4:52 PM.
PRESENT
Senator Gary Wilken, Co-Chair
Senator Lyda Green, Co-Chair
Senator Con Bunde, Vice-Chair
Senator Ben Stevens
Senator Robin Taylor
Senator Lyman Hoffman
Senator Donny Olson
Also Attending: JOE SONNEMAN; JOHN BITNEY, Representative, Alaska
State Homebuilders Association, RON PECK, President, Alaska Travel
Industry Association; JUDY BRADY, Executive Director, Alaska Oil &
Gas Association; KEVIN RITCHIE, Executive Director, Alaska
Municipal League; JIM CROWE, Member, Mat-Su Assembly
Attending via Teleconference: From Anchorage: MARY HUGUES,
Representative, The Alaska Club; BRAD PHILLIPS, Owner, Phillips
Cruises & Tours; RICHARD BLOCK, Representative, Christian Science
Committee on Publications for Alaska; BROOKS CHANDLER, City
Attorney for Nome, Dillingham, Unalaska, Soldotna and Sand Point;
CHRIS HLADICK, City Manager, City of Unalaska; From Cordova: DENNY
KAY WEATHERS; KENNY SIMPSON; TIM JOYCE, Mayor, City of Cordova;
NANCY BIRD, Member, Cordova City Council; GARY GRAHAM, Member,
Cordova City Council; From Fairbanks: MERRICK PEIRCE; CLIFF
BERGLIN; From Ketchikan: JACK SHAY, Member, Ketchikan Gateway
Borough Assembly and Immediate Past President, Alaska Municipal
League; MICHAEL SALAZAR, Mayor, Ketchikan Gateway Borough; ROY
ECKERT, City Manager, Ketchikan Gateway Borough; LEN LAURANCE,
Tourism Business Owner; DOUG WARD, President, Ketchikan Chamber of
Commerce; From Kodiak: LINDA FREED, City Manager, City of Kodiak;
JAKE JACOBSON; From Mat-Su: MARCI SCHMIDT, Small Business Owner;
MARY KVALHEIM, Member, Mat-Su Borough Assembly; From Petersburg:
JULIE HURSEY; MICHAEL LOPEZ, President, Petersburg Indian
Association; TOM LAURENT; NANCY BERG, Vice President, Petersburg
Chamber of Commerce and Tourism Business Owner; From Seward: STEVE
CONN, Representative, Alaska Public Interest Research Group,; From
Sitka: ROB ALLEN, President, Allen Marine Tours and Vice President,
Allen Marine; From Valdez: STAN STEPHENS, Owner, Stan Stephens
Tours; From Wrangell: ROBERT PRUNELLA, Mayor, City of Wrangell;
From Unalaska: DEBORAH MACK, City Clerk, City of Unalaska; AIMEE
KNIAZIOWSKI, Assistant City Manager, City of Unalaska; GREGG
HANSON, Small Business Owner; From an Offnet Site: RICH SEWELL,
Representative, Iceberg Seafoods
SUMMARY INFORMATION
SB 220-STATE SALES AND USE TAX
The Committee took public testimony and held the bill in Committee.
SENATE BILL NO. 220
"An Act relating to a state sales and use tax; relating to
taxes levied by cities and boroughs; providing authority to
the Department of Revenue to enter into the Streamlined Sales
and Use Tax Agreement; increasing the motor fuel tax and
repealing the special tax rates on blended fuels; and
providing for an effective date."
This was the second hearing for this bill in the Senate Finance
Committee.
Co-chair Wilken announced that the purpose of the meeting is to
take public testimony on SB 220, which he specified, is a sales and
use bill. He declared that testimony would be limited to two
minutes and would be conducted on a five-person per community
rotation basis. Additionally, Co-chair Wilken informed the public
that testimony could be faxed to the Committee to become part of
the public record.
MARY HUGHES, Representative, The Alaska Club, testified via
teleconference from Anchorage to request that health club
membership dues be excluded from the proposed State sales tax as,
she asserted Alaskans, like residents of other states, are
increasingly becoming unhealthier. She declared that four of every
ten Alaskans are overweight. She stated that it would be good
public policy to exclude health facility dues from taxation.
BRAD PHILLIPS, Owner, Phillips Cruises & Tours, testified via
teleconference from Anchorage to state that during his 57-years in
the tourism business, Alaska has fallen from third place to thirty-
eighth place in tourism marketing efforts. He noted that a proposed
amendment to the bill [copy not provided] would track the level of
revenue the State receives from the tourism industry that employs
approximately 30,000 people in the State. He stated that while he
is aware that the State is prohibited from dedicating funds; he
urged the Committee to support language that would assist in
determining the revenue generated from tourism activities with the
goal of acquiring additional State tourism marketing funds.
RICHARD BLOCK, Representative, Christian Science Committee on
Publications for Alaska, testified via teleconference from
Anchorage to state that while the Christian Science Committee does
not have a position on the sales tax issue; he requested that the
Christian Science practitioners be included in an amendment that
would exempt health care services from State taxation, as he
declared, Christian Science practitioners provide a healing
service. He requested that these practitioners be included in this
exemption even though they are not licensed like other medical
services. He mentioned that exemptions are provided in the bill for
501-C3 entities such as religious organizations; however, he noted
that Christian Science Practitioners do not qualify under that
exemption even though they provide healing and religious activity.
BROOKS CHANDLER, City Attorney for Nome, Dillingham, Unalaska,
Soldotna and Sand Point, testified via teleconference from
Anchorage to state that the cities he represents have local sales
taxes and would be affected by this legislation. He specified that
consideration of a State sales tax should be discussed at length
rather than being addressed quickly as, he asserted, this piece of
legislation has been. He suggested that a special session be
conducted in order to carefully consider the impact of the bill. He
voiced that in his experience the fewer sales tax exemptions and
special situations "the better" as each exemption raises
administrative expenses. He stated that the preference would be to
have a lower tax rate with few exemptions. He shared that current
language in the bill that could be problematic would include: the
resale exemption, as it would be difficult to enforce; the blanket
motor fuel tax exemption as it would affect municipalities that
currently impose motor fuel taxes; and the mining and manufacturing
exemption as it would raise "complicated legal issues in its
enforcement."
CHRIS HLADICK, City Manager, City of Unalaska, testified via
teleconference from Anchorage that the City would be negatively
affected by the proposed motor tax exemption in the bill. He stated
that the City could lose approximately three million dollars in
local marine fuel revenues were this exemption imposed. He stated
that while other provisions in the bill are cause for concern, the
motor fuel tax exemption would do the most damage to City revenues.
Co-Chair Green asked that communities that impose local motor fuel
taxes review language in Version "D" on page 13, line 23 in the
committee substitute to determine whether it addresses concern.
This language reads as follows:
Sec.27. AS 43.40.010 is amended by adding a new subsection to
read:
(m) An amount equal to the revenue obtained from six
cents of the tax collected under (a) and (b) of this section,
excluding the amounts collected under (a)(1) - (4) and (b)(1)
- (4) of this section, shall be separately accounted for in
the special highway fuel tax account under AS 43.40.010(g).
The annual estimated balance of the amount separately
accounted for may be appropriated by the legislature to the
Department of Community and Economic Development for
distribution to municipalities according to AS 29.60.110.
Co-Chair Wilken clarified that, for purposes of discussion, SB220,
Version 23-LS1128\D is being considered as the working document.
DENNY KAY WEATHERS testified via teleconference from Cordova in
opposition to the tax. She stated that a State sales tax issue
should be determined by a vote of the people rather than the
Legislature "shoving it through."
KENNY SIMPSON testified via teleconference from Cordova in
opposition to the proposed tax. He echoed Ms. Weathers' comments
that the issue should be decided by a vote of the people rather
than the issue being "railroaded" through. He declared that the tax
would not solve the State's fiscal problems, and he voiced
opposition to exemptions for special interest groups.
Senator Taylor asked whether the City of Cordova has a sales tax.
Ms. Weathers responded that it does.
TIM JOYCE, Mayor, City of Cordova, testified via teleconference
from Cordova to announce that the City is on record in opposition
to a State sales tax. He explained that due to its isolation, the
cost of living in Cordova is high and a State sales tax, in
addition to the local six-percent sales tax, would drive the cost
of living higher. He noted that a total sales tax cap of eight-
percent would curtail the city's revenue and be harmful to the
operation of city services. He shared that in order to compensate
for lost sales tax revenue, the City would be required to increase
the property tax of 13.5 mils, thereby placing a burden on property
owners. He summarized that the eight-percent tax cap would stifle
economic activity and would limit the City's ability to expand
services. He noted that the City's additional six-percent tax on
rental vehicles and temporary lodging would also be affected.
Senator Bunde asked Mr. Joyce for suggestions as to how to address
the State's fiscal gap were a State sales tax not an option.
Mr. Joyce suggested that a tourism head tax or an income tax might
be "more palatable."
Senator Taylor asked for verification that a one-percent City sales
tax loss would require a 4.5 mils property tax increase to
compensate for estimated lost revenue of $400,000.
Mr. Joyce affirmed. He stated that the City's one mil property tax
equates to approximately $100,000. He noted that the City has a
relatively small property tax base because numerous properties in
Cordova are tax-exempt because they are owned by the forest
service, the State, or by other tax-exempt organizations.
NANCY BIRD, Member, Cordova City Council, testified via
teleconference from Cordova to assert that the City has worked hard
to diversify its tax base in light of such things as declining
revenue from the raw-fish tax. She stated that a State sales tax
would "dramatically affect" the community. She commented that an
income tax might be a revenue generating option.
GARY GRAHAM, Member, Cordova City Council, testified via
teleconference from Cordova to remind State citizens that money is
available in "the Rainy Day" account. He urged the Committee to not
impose a State sales tax, as it would negatively affect people in
rural areas of the State.
MERRICK PEIRCE testified via teleconference from Fairbanks in
opposition to a State sales tax. He quoted from a recent Wall
Street Journal study that concluded that the economies of states
that raise income by increasing taxes fare worse than states that
lower taxes. He voiced that the consequences of this tax on the
Fairbanks North Star Borough, which has "a stagnant population" and
the highest property mils tax in the State, has him "very, very
worried."
CLIFF BERGLIN testified via teleconference from Fairbanks and
stated that this bill is "one of the cruelest and most brutal
bills" that he has ever read. He stated that the estimated $300
million that would be generated by this tax and proposed user fees
would not adequately impact the State's fiscal dilemma. He
continued that implementation of the State tax would require an
unknown quantity of individuals to be hired to administer the
program. He voiced discontentment "that retired bureaucrats and
politicians who do not live in" the State are being supported by
State funds. Additionally, he opined that the State subsidizes the
operations of three oil companies, and he declared that those three
companies are reported in the Wall Street Journal to have some of
the highest profits in the industry.
Senator Bunde clarified that the State's retired employees and
elected officials are funded by retirement programs rather than by
general funds. Additionally, he commented that 70-percent of
current State expenses are paid by revenues generated from the oil
industry.
JACK SHAY, Member, Ketchikan Gateway Borough Assembly and Immediate
Past President, Alaska Municipal League, testified via
teleconference from Ketchikan to announce that the Alaska Municipal
League opposes this legislation. He stated that were the
legislation to be adopted, the organization would request that the
eight-percent sales tax cap, as well as the phase-in provision, be
maintained. He further requested that provisions be included to
exempt municipalities that currently have a sales tax from the
State tax for a two-year transition period. Furthermore, he urged
that the bill be expanded to include provisions allowing
municipalities to levy excise taxes. He voiced support for
municipalities to be granted the authority to collect the tax and
remit to the State its portion of the tax.
Mr. Shay opined that the State could generate additional revenues
by incorporating a visitor head tax, approving such things as
electronic gaming, selling State land, and reinstating the
education and employment taxes.
MCHAEL SALAZAR, Mayor, Ketchikan Gateway Borough, testified via
teleconference from Ketchikan to voice opposition to a State sales
tax. He stated that other revenue sources such as legalized
gambling, State land sales, and a State lottery should first be
explored.
Senator Taylor asked the current property tax mil rate and sales
tax levied in Ketchikan. Additionally he asked how one percent of
sales tax would equate to the mil rate.
Mr. Salazar responded that Ketchikan has a property tax of 6.4 mils
and a 5.5 percent sales tax. He stated that the sales tax verses
mil rate information would be forthcoming.
ROY ECKERT, City Manager, Ketchikan Gateway Borough, testified via
teleconference from Ketchikan to state that this is one of the
"worst bills" he has encountered in his professional experience and
that other states that have considered similar legislation "have
opted to back out." He stated that the "bill is being introduced
too fast and if implemented would be an economic nightmare." He
informed that language in the bill indicates that the tax would be
collected through "a joint procurement process" with a privately
owned company; however, he informed that other states using this
method have experienced difficulties in collection and auditing
measures. As an alternative to the State hiring personnel and
implementing software programs to collect and audit the tax, he
urged the Committee to develop a cooperative agreement between the
State and local communities where staff is already in place, as he
informed that studies conducted in other states have determined
that local cities and counties that collect sales and use taxes are
more efficient and have a high collection rate.
Co-chair Wilken noted, for clarification, that SB 220 and HB 293
are identical bills.
LEN LAURANCE, Tourism Business Owner, testified via teleconference
from Ketchikan and stated that bookings in the tourism industry are
continuing to decline. He stated that in order to grow this
industry and create more jobs in the State, the State must increase
marketing funds; therefore, he urged the Committee to amend this
bill to dedicate those taxes garnered from tourism industries to
fund a long-term marketing program. He stated that this revenue,
collected via "the broad-based tax" on the industry, "would be the
ultimate public-private partnership."
DOUG WARD, President, Ketchikan Chamber of Commerce, testified via
teleconference from Ketchikan to suggest that the bill should be
modified to prevent negative impacts on regions, particularly those
in Southeast Alaska and those communities that currently have local
sales taxes. He avowed that communities facing an eight-percent tax
comprised of a local five-percent tax and a three-percent State tax
would experience an increase in "retail leakage," and out-of-state
purchases.
SFC 03 # 97, Side B 05:40 PM
Mr. Ward continued that modifications to Sec. 43.44.155 on page 18,
line 25 could assist in mitigating retail leakage. This section
currently reads as follows.
Sec. 43.44.155. Exemption for motor vehicles, watercraft,
aircraft, and mobile homes. The sales price or purchase price
of a motor vehicle, watercraft, aircraft, or mobile home in
excess of $5,000 is exempt from the sales tax and use tax. For
purpose of this section, "motor vehicle" has the meaning given
in AS 28.40.100.
Mr. Ward suggested that this section be modified to provide a
general exemption for services and equipment sales, service, and
rentals in excess of $5,000. He stated that this exemption would
allow Alaskan businesses to remain competitive. He stated that the
Ketchikan and Wrangell shipyards are examples of businesses that
would benefit from this modification.
JOE SONNEMAN testified in Juneau and informed the Committee of his
professional background including a Public Finance PhD as well as
budget and management experience. He opined that the sales taxes,
the $100 Employment tax, and the elimination of the Permanent Fund
Dividend check "are a really excellent way to soak the poor." He
continued that were a sales tax imposed, "the fair thing" to do
would be to provide exemptions for such things as medical expenses,
food, and home heating oil. In contrast, he stressed that an income
tax is a much better way to tax people because those who earn more,
pay more.
Mr. Sonneman reminded that, during the Longevity Bonus Program
elimination bill hearings, approximately 90-percent of the
respondents who suggested an alternative solution recommended that
an income tax be considered.
Senator Taylor asked the testifier how he would "characterize the
system that taxed based upon the ability to pay and rewarded based
upon the need."
Mr. Sonneman stated that while he has not addressed the reward
system, he voiced support for a progressive income tax as its rate
structure is based on earnings. However, he stressed that care must
be given to not provide "a disincentive to work affect."
JOHN BITNEY, Representative, Alaska State Homebuilders Association,
informed the Committee that the organization represents 900 small
businesses. He stated that the organization commends the Committee
for providing a "sale of real property" exemption in the bill,
however, he voiced that the organization urges the Committee to
additionally consider an exemption for building materials similar
to the aforementioned exemption for motor vehicles, watercraft,
aircraft, and mobile homes. He communicated the concern that
acquisition limits for the tax-exempt first-time homebuyer program
are being approached across the State, and he attested that the
imposition of a State sales tax would cause the purchase of
building materials to increase home purchase prices, and thereby
exceed the program's limits in certain areas of the State, and
therefore, he stated that the effect of the tax on building
materials would be "to disqualify that program from being
available." He noted that this loan program generates significant
loan volume for the Alaska Housing Finance Corporation (AHFC);
however, he stressed that current market conditions already have a
negative affect on the availability of the program.
RON PECK, President, Alaska Travel Industry Association (ATIA),
testified in Juneau and spoke in support of the bill as, he
attested, the 1,123 businesses represented by ATIA understand and
recognize the need for a sales tax. He stated that while the
majority of ATIA businesses are small entities with 15 or less
employees, the industry directly and indirectly contributes 30,000
employment opportunities in the State and approximately $1.8
billion to the State's economy. He stated that ATIA is instrumental
in marketing the State as a tourism destination, and that while
ATIA recognizes the fiscal gap challenges the State faces and the
need for a state sales tax; he stated that the tourism industry
additionally faces challenges and booking declines as the result of
the economy and other factors. He urged the Committee to amend this
legislation to designate sales tax revenues resulting from tourism
related industries to bolster the State's marketing efforts to
ensure that the industry remains viable. He provided the Committee
with a copy of the proposed amendment [copy on file].
JUDY BRADY, Executive Director, Alaska Oil & Gas Association,
testified in Juneau and informed the Committee that the Association
is not taking a position regarding the sales and use tax issue,
however, she informed that, were the legislation adopted, the
Association has transitional concerns including current language
drafting flaws pertaining to the sale for resale exemption as well
as a concern that the oil and gas industry is "not being double and
triple taxed" in ways that would result is "a disincentive for
future investment." She mentioned that the Association has
submitted written testimony regarding their concerns [copy on
file].
Co-chair Wilken reiterated, for clarification, that SB 220 and HB
293 are similar bills.
KEVIN RITCHIE, Executive Director, Alaska Municipal League (AML),
testified in Juneau and voiced support for earlier testimony
presented by Jack Shay on behalf of AML. Additionally, he noted
that the proposed tax exemption for motor and marine fuel would
result in a substantial loss of revenue for numerous communities
that currently levy taxes on these products. He stressed that this
is a concern as the proposed revenue sharing plan does not include
marine fuel tax revenues and is based on miles of road rather than
the actual tax loss to municipalities. He stated that this
significant issue must be further addressed.
Co-Chair Wilken commented that Mr. Ritchie and AML have supplied
"considerable" insight on this legislation. He asked Mr. Ritchie to
highlight major areas of concern.
Mr. Ritchie responded that in addition to the fuel tax exemption,
another concern is that "the only cap" specified in this bill is
one that exempts any amount in excess of $5,000 on the sales or
purchase price of a motor vehicle, watercraft, or aircraft as he
shared that municipalities place broad caps on other services as
well. Furthermore, he pointed out that language exempting sales by
local governments and the State is vague and should be further
defined to clarify whether such things as bus and pool passes would
be exempt.
Senator Taylor stated that he "was shocked" and didn't realize that
the State/municipal revenue sharing plan that would be funded by
the gas tax would be allocated based on the amount of road miles.
Mr. Ritchie confirmed that the language reads that the revenue
sharing program would provide "so much per mile."
Co-Chair Wilken asked for confirmation that this is the proposed
formula.
Mr. Ritchie confirmed.
Senator Taylor surmised therefore that communities in the Railbelt
areas of the State with "lots of miles" would benefit more than
those in Southeast Alaska served by the Alaska Marine Ferry System.
Mr. Ritchie responded yes, it is based on road miles.
Senator Bunde asked whether the Alaska Municipal League, with its
long-term involvement with municipal revenue sharing programs, has
discussed the possibility that the State's involvement in those
programs might be negatively affected were the State's fiscal gap
not addressed.
Mr. Ritchie stated that AML is aware of the very serious
ramifications of the State's budgetary issues and its subsequent
affect "on everybody in the State, not just the State or
municipalities."
Senator Bunde asserted therefore, that "a little loss here" would
be preferred to "a much larger loss later."
Senator Taylor reminded "colleagues, that municipal assistance and
revenue sharing was a vehicle designed by the legislature of the
State of Alaska so that there would be some sharing of the Railbelt
wealth that was going to occur to that geographic area which was
going to get all the jobs, all the new homes, all the
infrastructure, and all the population to tax and to have that
benefit for them," as the result of the construction of the Trans
Alaska Pipeline and North Slope oil developments.
Senator Taylor declared that now that "the wealth" from the North
Slope is in decline and the State is experiencing fiscal problems,
the municipal assistance and revenue sharing programs are in
jeopardy. He asserted that, "it is ironic" that those communities
that benefited from the North Slope development are the ones
without self-taxing systems. He declared that their support for the
elimination of the revenue sharing program indicates that they
"have very little sympathies" for those communities that have had
to impose taxes.
LINDA FREED, City Manager, City of Kodiak, testified via
teleconference from Kodiak in opposition to a State sales tax. She
asserted that numerous municipalities around the State have
fashioned city operations around local sale and property tax
revenues. She recounted that Kodiak's six-percent sales tax
accounts for 70-percent of the City's revenue, and that a State
imposed tax would be contrary to the "home-ruled chartered
municipality" status whereby the citizens of the community vote on
the level of local taxes. She stated that eliminating the local
control of taxation "is inappropriate." She informed that, were a
State tax imposed, the City could lose 40-percent of its sales tax
income because "sales will go elsewhere." She attested that this
loss would negatively affect the City's ability to construct and
maintain such things as harbors and roads, libraries, museums, law
enforcement and other municipally supported operations. Were the
tax imposed, she urged the Committee to contract with those local
government entities that have a sales tax collection structure in
place to administer the program, as it would be more efficient and
profitable.
JAKE JACOBSON testified via teleconference from Kodiak to voice
that "the arguments against the sales tax seem hollow." He stated
that the proposed three-percent tax "is insignificant" and "is an
equitable and fair tax." He voiced that the argument that an eight-
percent tax would increase out-of-town purchases is groundless as
it could be argued that the existing six-percent local sales tax
already attributes to that affect. He suggested that the Committee
impose an eight-percent State sales tax with five percent being
designated for communities and three percent being designated for
the State.
Senator Taylor asked the testifier the level of the property mil
rate in Kodiak.
Ms. Freed responded that Kodiak has a six-percent local sales tax
with an 11.25 mil property tax.
Senator Taylor asked how one-percent of sales tax equates to the
mil rate.
Ms. Freed responded that one percent of the local sales tax equates
to approximately four mils.
Senator Taylor calculated therefore that the mil rate must be
increased to four mils to compensate for each one-percent reduction
in the local sales tax.
Mr. Jacobson interjected that were the City's local tax lowered
from the current six-percent to five-percent, as he suggested in
his testimony, that the City could absorb the reduction by
downsizing local government, as he opined there is "some
questionable City spending" occurring. He attested that "the
general theme in Alaska is to cut back," and that City operations
could be funded by its significant savings account and could
function adequately with a five-percent sales tax levy.
Co-Chair Wilken asked for confirmation that a four mils property
tax would equate to the revenue generated from a one percent sales
tax.
Ms. Freer concurred that this is correct for the property tax
levied inside City limits.
Co-chair Wilken concluded therefore, that the community would be
required to increase the local mil rate by 24-mils were the current
local sales tax eliminated.
Ms. Freed concurred, citing the two-mil City rate and a 9.25 mils
Borough rate. She shared that the City sales tax revenues are
dedicated for City service operations and that the Borough uses its
property tax revenues to fund schools.
Mr. Jacobson informed the Committee that he is a member of a group
that is promoting an initiative that would place a limit on the mil
rate Statewide. However, he noted that the initiative would grant
local governments the authority to levy higher mil rates, if
desired.
MARCI SCHMIDT, Small Business Owner, testified via teleconference
from Mat-Su to voice that a State sales tax "would devastate" small
business in the State. Instead, she urged the Committee to support
HB 321 that proposes to implement a State income tax.
MARY KVALHEIM, Member, Mat-Su Borough Assembly, testified via
teleconference from Mat-Su to voice that she personally prefers a
State income tax as opposed to a State sales tax as it would be
paid by all residents, including non-residents who "contribute
nothing to the State," but who benefit from State services.
Ms. Kvalheim further noted that the committee substitute specifies
that boroughs would be responsible for collecting the State tax on
city services such as bus and pool passes, and then remit that tax
to the State. She voiced concern regarding the costs and staffing
impacts that a tax on City services would incur. She urged the
Committee to fully evaluate this legislation during the interim
break between legislative sessions or via a special session rather
than addressing it in a short timeline.
Senator Bunde voiced that an income tax would impact small business
operators because the language currently being considered would
have approximately "20-percent of Alaskans paying approximately 80-
percent of the tax."
JIM CROWE, Member, Mat-Su Assembly, testified in Juneau and shared
the Alaska Municipal League position that local governments are
"the domain of sales taxes." He stated that a State sales tax would
have "severe impacts" on communities that currently impose local
sales taxes and might result in an increase in property taxes. He
continued that the legislature has failed to address the issue of
school funding shortfalls, which is "the most pressing concern" of
local governments. He stated that were a State tax imposed, a
vehicle to funnel adequate funding to schools should be
implemented. In addition, he echoed Ms. Kvalheim's concern that
this bill should provide a clear definition of what would qualify
for municipal service exemptions.
Mr. Crowe furthered, that as a small business owner, he is "under
assault" with this Legislature as separate proposed legislation
would increase business license fees and gas taxes and impose a
studded tire tax in addition to the current level of corporate
taxes. He stated that in addition to the aforementioned limit on
the $5,000 purchase price of motor vehicles, watercraft, aircraft,
and motor homes, he stated that "a cap" should be instilled on
professional services.
Senator Bunde asked the testifier to suggest alternatives to this
legislation.
Mr. Crowe suggested that such things as a school tax on
individuals' first paycheck and avenues to generate revenue from
non-residents be considered. He urged that this bill not be rushed
through the legislative process.
Senator Bunde communicated that 90-percent of the wages in the
State are earned by Alaskans. He continued that the average salary
earned by the ten percent who are non-residents is $13,000 a year,
which he declared means that for every non-resident North Slope oil
worker there is another non-resident employed at a minimum wage
job. He pointed out that the State would not garner much revenue
from that average wage.
Mr. Crow challenged the average salary earned by non-residents by
stating that non-residents would not consider it worthwhile to
travel to and from the State on a regular basis were this the
amount of money being earned. He shared that while working on the
North Slope, he did not encounter many Alaskan resident workers
although employers "claim they do local hire."
Senator Bunde commented that the ten-percent non-resident
calculation is a Department of Labor and Workforce Development
statistic.
JULIE HURSEY testified via teleconference from Petersburg to voice
that she is "very opposed" to this legislation. She explained that
the legislation is unfair in that it specifically exempts the
cruise ship business from the tax while requiring her small charter
boat business to pay the State tax in addition to the local tax.
She stated that the level of taxes that her charter boat business
would be required to collect for a weeklong charter equates to the
discounted price that a large capacity cruise ship could charge for
a weeklong trip. She suggested that a five-dollar head tax would be
a preferred alternative to raise funds, as it is unfair that local
businesses would be required to carry this burden that would
contribute to making them less competitive with outside entities.
She stated that travelers are price shopping and that this tax, in
addition to the downturn in travelers resulting from the September
2001 terrorist attack on the nation, the economy, and the Sudden
Acute Respiratory Syndrome (SARS) would aggravate the situation.
She stated that it will take time for Alaska's tourism industry to
rebound, and she voiced concern regarding the "burden this sales
tax would place…on her small Alaskan business." She voiced that an
income tax would be a preferred alternative, as she stated this
alternative "would cost her money but not close her business." She
stated that the State should recognize the importance of local
tourism businesses and support the industry just as, she attested,
the State does for the oil industry. Furthermore, she avowed that a
State sales tax would be harmful to small communities that levy a
sales tax. She urged the Committee to hold this bill to better
gauge its effect on small businesses and local communities.
MICHAEL LOPEZ, President, Petersburg Indian Association, testified
via teleconference from Petersburg in opposition to the sales tax
legislation.
TOM LAURENT testified via teleconference from Petersburg to voice
strong opposition to the proposed sales tax because of the negative
impact on the City of Petersburg. He stated that were the current
six-percent City sales tax lowered one percent, the amount of
revenue lost would equate to the salaries of approximately 25, or
half of the total, City employees. He stated that this loss would
severely impact city services and local schools, residents' quality
of life, and would result in an increase in out-of-town purchases.
He stated that the tax is regressive, and he voiced support for an
income tax, as it would garner revenue from residents and non-
residents who use State resources but do not contribute to the
State.
NANCY BERG, Vice President, Petersburg Chamber of Commerce and
Tourism Business Owner, testified via teleconference from
Petersburg in opposition to the tax. She opined that the State tax
would affect small communities more than larger ones, as it would
result in a significant loss of jobs and services. Furthermore, she
asserted that a loss of jobs would negatively affect communities
because it would result in a loss of volunteer resources for such
things as the fire department. She stressed that small businesses
struggle to compete with large companies and businesses providing
Internet sales that might not be required to pay a State tax. She
voiced support "for a fair and graduated income tax."
Senator Taylor understood that a four or five property tax mil
increase would be required for each sales tax percentage loss that
Petersburg would incur.
Mr. Laurent stated that each one-percent local sales tax loss would
require a four to five mil property tax increase. In addition, he
expressed that a State income tax would qualify as a federal income
tax deduction whereas as a State sales tax would not.
STEVE CONN, Representative, Alaska Public Interest Research Group,
testified via teleconference from Seward and stated that this
"large consumer group vigorously opposes" this legislation as it
represents an attack on Alaska's working people and pits "big
cities against the small cities that have actually been in the
forefront for fiscal planning and local control, the rich against
the poor." He noted that this legislation "is pocked with special
interest exemptions." He urged the Committee "to do the right thing
and hold this bill."
SFC 03 # 98, Side A 06:28 PM
ROB ALLEN, President, Allen Marine Tours and Vice-President of
Allen Marine, testified via teleconference from Sitka and voiced an
understanding of the State's need to collect new revenues to
address the State's fiscal gap. He asserted that a healthy visitor
industry, particularly independent travelers who spend more money
per capita than other type of travelers, would substantially
contribute tax revenue were the State sales tax adopted. Therefore,
he urged the Legislature "to make a public commitment to increase
the amount of money the State spends on marketing," as he expressed
that "the visitor industry is not healthy."
Mr. Allen specified that the downturn in the nation's economy,
combined with international terrorism activities, have resulted in
unforeseen negative impacts on tourism. This downturn, he attested,
has forced the State's visitor industry to renege on previous
years' commitments that the industry could support its own
marketing expenses, as he avowed that the industry could only
rebound were an aggressive and expensive marketing campaign
undertaken.
Mr. Allen urged the Committee to "be strong" to the numerous groups
seeking tax exemptions and resist the urge to provide those
exemptions. Furthermore, he urged the Committee to change the
Alaska Permanent Dividend Fund into an endowment fund, and consider
instituting a progressive income tax as opposed to a State sales
tax.
STAN STEPHENS, Owner, Stan Stephens Tours, testified via
teleconference from Valdez in support of a State sales tax to
assist in the effort to diversify the state's economy. He stated
that a tax of this nature is not uncommon as he pays user taxes
wherever he travels. Additionally, he voiced support for amending
the bill to specify that the revenue generated from tourism
activities be designated to support "a viable tourism marketing
program." He reminded the Committee that previously the State
supported a strong marketing program with tremendous success;
however, he attested that as the State's marketing efforts have
dwindled, visitors have been successfully wooed to other
destinations that have aggressive marketing programs. He stated
that the downturn in tourism has resulted in many business
failures; however, he avowed that the State's support of a
marketing program would increase visitor traffic and would have a
positive impact on the State's economy.
ROBERT PRUNELLA, Mayor, City of Wrangell, testified via
teleconference from Wrangell in opposition to a State sales tax. He
observed that the opponents of the tax reside in communities
without local taxes, and he remarked therefore, that the
implications of a tax do not affect them. He continued that
Wrangell, with a seven percent local tax, has the highest tax in
the State and that the local property tax must be raised 2.5 mils
for each percent of sales tax lost.
DEBORAH MACK, City Clerk, City of Unalaska, testified from an
offnet site in Unalaska to voice concern of the difficulty she
foresees for the State in its efforts to collect and administer a
sales tax program in the State's huge geographic area. She noted
that the State would be forced to ask local governments to assist
in this endeavor. She urged the Committee to: 1) classify motor
fuel tax as a specific tax and allow local communities to continue
to levy a local tax on motor fuel; 2) add a section to the bill
specifying that the State could contract with local governments to
collect, enforce, and administer the tax on behalf of the State; 3)
remove the user tax portion of the bill as it would be difficult to
enforce; and 4) appoint a task force, comprised of experienced
members to work with the Department of Revenue to develop policies
and procedures.
AIMEE KNIAZIOWSKI, Assistant City Manager, City of Unalaska,
testified from an offnet site in Unalaska on behalf of the City.
She reiterated that the exemption on marine fuel would have a
serious negative effect on the City's revenue. She shared that the
City collected three million dollars from the sale of 71 million
gallons of marine fuel in the year 2002. She urged that the bill be
amended to allow municipalities to levy a tax on marine fuel.
Furthermore, she voiced the City's concern that were the State to
administer and collect sales taxes, a delay might result in the
State remitting the City's share of sales taxes back to the City.
She stated that this would severely impact the City's cash flow.
She noted that while this issue is not directly addressed in the
bill, she stated that this issue could be negated were the local
government allowed to collect the tax. She voiced support of
language in Section 35 of the bill that specifies that a
"Streamlined Sales and Use Tax Agreement" be authorized that would
allow the State to coordinate tax collection with other states for
national and international businesses.
RICH SEWELL, Representative, Iceberg Seafood, testified from an
offnet site to ask that the Committee consider "how and if" the
wholesale and/or export business industry would be addressed in
this bill, particularly "given the critical state of the seafood
industry."
GREGG HANSON, Small Business Owner, testified from an offnet site
in Unalaska, to voice that, in a similar fashion to the Ketchikan
Gateway Borough, numerous businesses in Unalaska provide service to
the commercial fishing industry and that this legislation would
incur an uneven playing field in that it would allow the state of
Washington, which is Alaskan businesses' biggest competitor, an
advantage because Washington exempts sales of watercraft and their
components from the Washington state tax. He avowed that this
legislation would provide sufficient incentive "to drive business
out of the State," and that an income tax would be the preferred
alternative to solving the State's fiscal gap.
There being no further testifiers, Co-Chair Wilken announced that
public testimony on SB 220 is closed.
The bill was HELD in Committee.
ADJOURNMENT
Co-Chair Gary Wilken adjourned the meeting at 06:48 PM.
| Document Name | Date/Time | Subjects |
|---|