Legislature(1993 - 1994)
03/24/1994 01:40 PM Senate L&C
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SENATE LABOR AND COMMERCE COMMITTEE
March 24, 1994
1:40 p.m.
MEMBERS PRESENT
Senator Tim Kelly, Chairman
Senator Steve Rieger, Vice-Chairman
Senator Bert Sharp
Senator Judy Salo
MEMBERS ABSENT
Senator Georgianna Lincoln
COMMITTEE CALENDAR
SENATE BILL NO. 344
"An Act relating to the establishment, collection, and enforcement
of an employment tax; and providing for an effective date."
SENATE BILL NO. 348
"An Act relating to partnerships; amending Alaska Rules of Civil
Procedure 20 and 24; and providing for an effective date."
SENATE BILL NO. 347
"An Act relating to limited liability companies; amending Alaska
Rules of Civil Procedure 20 and 24; and providing for an effective
date."
SB 193 (DISCRIMINATION UNDER HEALTH INSURANCE) was scheduled but
not taken up this date.
HB 394 (UNIFORM LIMITED PARTNERSHIP ACT UPDATE) was scheduled but
not taken up this date.
PREVIOUS SENATE COMMITTEE ACTION
SB 344 - No previous action to record.
SB 348 - No previous action to record.
SB 347 - No previous action to record.
SB 193 - No previous action to record.
HB 394 - No previous action to record.
WITNESS REGISTER
Jack Kreinheder
Office of Management & Budget
Office of the Governor
P.O. Box 110020
Juneau, AK 99811-0020
POSITION STATEMENT: Offered information in support
of SB 344
Resa Jerrel, State Director
National Federation of Independent Businesses
9159 Skywood Lane
Juneau, AK 99801
POSITION STATEMENT: Opposes SB 344
Rod Lind
Alaska Society of Certified Public
Accountants
7080 Crooked Creek Drive
Anchorage, AK 995126
POSITION STATEMENT: Testified in support of SB 348
Craig Ingham
Alaska Bankers Association
548 Ravenview Court
Fairbanks, AK 99701
POSITION STATEMENT: Testified in opposition to SB 348
and SB 347
ACTION NARRATIVE
TAPE 94-20, SIDE A
Number 001
CHAIRMAN TIM KELLY called the Labor and Commerce Committee meeting g
to order at 1:40 p.m. He introduced SB 344 (ESTABLISH EMPLOYMENT
TAX) as the first order of business.
JACK KREINHEDER, Office of Management & Budget, explained SB 344 is
intended to be a modest step towards helping to solve the state's
budget shortfalls both this year and in the years to come. He
expressed the Governor's openness to looking at spending
reductions, use of reserves and other measures to help balance the
budget. But given the size of the shortfalls being faced this year
and in the coming years, the Governor feels that it would be
fiscally irresponsible to not look at some at least modest measures
to raise revenues. SB 344 is one of four pieces of legislation
that have been introduced to do that.
The employment tax would raise about $31 million. It is less in
the initial year because it would be in effect only part of the
year. This tax would be levied only on persons age 19 and older.
The bill contains a provision that would reduce the burden on
people making less than $1,000 a year.
Mr. Kreinheder, addressing a state income tax, said it was felt
that the climate was not right for an income tax and that an
employment tax was a more modest first step towards helping fill
the fiscal gap and to collect something from out-of-state workers
who now pay very little towards the services that they get from the
state while they are working here.
Mr. Kreinheder said the collection of the tax would be as
streamlined as possible, and while there would be some cost for
administration, the burden for employers would not be very sizable.
The Department of Revenue would be the lead agency in the
collection of the tax, and they would work with the Department of
Labor in piggybacking the taxes on the other payroll taxes. The
Department of Commerce and Department of Fish and Game would also
be involved for self-employed individuals under business license
provisions, as well as for fishermen who gets permits, to make sure
that the tax is collected.
Number 107
SENATOR KELLY asked if this tax was modeled on the old school tax
that Alaska used to have. JACK KREINHEDER answered that it is
similar to the school tax, but the school tax had some other
exemptions not contained in SB 344.
Number 132
SENATOR RIEGER asked if the bill provides a power for the
Department of Revenue to refund overpayments. JACK KREINHEDER
responded that the provision was not in the bill, but he thought it
was intended that such a provision would be provided through
regulations.
SENATOR RIEGER inquired what the criminal penalty would be for
failure to pay the employment tax. JACK KREINHEDER answered that
he thought it was misdemeanor with a $1,000 fine and up to six
months in jail.
Number 163
SENATOR SALO asked what the cost of administering this tax would
be. JACK KREINHEDER answered that the total cost of administration
to the Department of Revenue and the Department of Labor would be
approximately $900,000 per year.
Number 202
RESA JERREL, State Director, National Federation of Independent
Businesses, stated their strong opposition to SB 344. They believe
that there are ways for the state to save money without disrupting
services. Ms. Jerrel provided a list to the committee of services
that the government does that the private sector can very easily
do.
Number 230
SENATOR KELLY voiced his concern with the name of the bill and
suggested it should be changed to a school employment tax instead
of just an employment tax.
Number 250
SENATOR SALO stated she has a problem with regressive taxes like
this one, and is concerned that teenagers and others who are
getting very small checks will have to pay that $100 tax.
Number 276
SENATOR RIEGER commented that the state should be trying to get
some tax out of the itinerant work force that comes to the state
every year to work for a short time.
Number 282
SENATOR SHARP spoke to the high cost of the education budget, and
he thinks it is obvious that it is necessary to create more funds
for education.
Number 300
SENATOR RIEGER moved that the title and references in the bill that
refer to "employment tax" be changed to "school employment tax."
SENATOR SALO objected. The roll was taken with the following
result: Senators Rieger, Sharp and Kelly voted "Yea" and Senator
Salo voted "Nay." The Chairman stated the motion carried and the
amendment would be incorporated into a Labor & Commerce committee
substitute.
Number 315
SENATOR RIEGER moved that CSSB 344(L&C) be passed out of committee
with individual recommendations. Hearing no objection, it was so
ordered.
Number 320
SENATOR KELLY introduced SB 348 (LIMITED LIABILITY PARTNERSHIPS) as as
the next order of business.
ROD LIND, an Alaskan CPA representing the Alaska Society of
Certified Public Accountants, stated their support for SB 348. He
said selecting the form in which to operate is one of the most
significant decisions a client starting a business or continuing an
existing one can make. The choice of this entity will have broad
implications and will affect how the businesses conduct the
personal affairs of its owners and even the employee.
Mr. Lind pointed out that six states have enacted a limited
liability partnership law (LLP), six states have it on their
governor's desk and 15 are considering it in their legislative
bodies.
He said the limited liability partnership law has many positive
attributes: it is simple to form; it is simple to operate; and it
taxed like a general partnership, meaning that the tax liability
flows directly through to the LLP partners.
Mr. Lind said the adoption of a LLP law will provide a favorable
business climate and it will enable Alaska to keep pace with the
rest of the businesses that are resident here to better compete
with out-of-state firms.
Number 366
SENATOR RIEGER asked if LLP was just like a limited partnership
except that the other partners are insulated from acts of
negligence of one partner. ROD LIND answered that it is a general
partnership and it only provides limited liability for the partners
who did not commit the negligent act. All the partners will be
able to act fully as general partners and it is only their personal
assets that will be protected. Their investment in the
partnership, all of the partnership assets and all of the
partnership insurance are available for all of these judgements.
Number 380
SENATOR SHARP commented that he thought by establishing this it is
going to really cause confusion, especially when an individual goes
to get financing. He asked who is going to be liable for the
debts. ROD LIND answered that the limitation on liability only is
with respect to the negligence of a partner. All bank debt,
leases, wages, etc., are the responsibility of all of the partners.
This limited partnership is only with respect to the negligent or
the wrongful acts of an individual. He reiterated that this
provision is only changing the liability of personal assets with
respect to negligence on the part of a partner or an employee of
the firm that a partner is directing.
Number 413
CRAIG INGHAM, testifying from Fairbanks on behalf of the Alaska
Bankers Association, stated their opposition of SB 348, because
they feel it does open the door for any and all partnerships to
limit their liability for their acts. State legislation and state
law has always held that one partner's act creates the liability
for all of the partners in a partnership. He said that is a very
fundamental point that is there because partners and owners are
direct managers of the business organization.
Speaking to SB 347 (LIMITED LIABILITY COMPANIES), Mr. Ingham said
it has the potential to profoundly change the way business is done
in the State of Alaska. There are three basic structures as far as
businesses are concerned: sole proprietorship, partnership and
corporation. Limited liability is only allowed for corporations
because the owner of a corporation and its shareholders are not to
allowed to manage the affairs of the corporation. They have to
elect a board of directors to manage the affairs of a corporation.
Mr. Ingham then addressed several sections in SB 347 and said there
are many areas of the bill that are highly technical in nature and
are extremely confusing to the reader. He said the bill in its
present form is dangerous piece of legislation, and the banking
community feels very strongly that it needs to be examined very
closely.
SENATOR KELLY closed the public testimony on SB 347 and SB 348 and
stated they would be back before the committee at a later date.
There being no further business to come before the committee, the
meeting was adjourned at 2:20 p.m.
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