Legislature(1993 - 1994)
03/24/1994 01:40 PM L&C
* first hearing in first committee of referral
= bill was previously heard/scheduled
= 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.